History's Largest Financial Crime that the WSJ and NYT Would Like You to Forget

Second, we know that senior managers at UBS knew of the LIBOR fraud schemes -- and advised their traders to hide their rigging of LIBOR more carefully. We also know that the SFO has conclusive evidence of that fact. Bloomberg reports these two key points of documentation.

Lawyers for Hayes on Wednesday also read transcripts from other UBS employees about Libor rates. In one exchange from 2008, senior manager Panagiotis Koutsogiannis told a trader to "JUST BE CAREFUL DUDE."

The trader responded "I agree we shouldn't ve been talking about putting fixings for our positions on public chat."

Koutsogiannis hasn't been accused of wrongdoing by prosecutors.

With these facts in mind, we can return to the fake meme pushed by the prosecutors and accepted so naively by Reuters. The claim is that UBS' senior managers were innocent babes deceived by the cunning and bullying Hayes. As soon as UBS' senior managers learned of Hayes' actions in creating and leading the largest financial conspiracy in the history of the world they were shocked and immediately acted to stop his crimes. The same senior managers were then distressed to learn years later that Hayes "ignored a 2009 warning to stop trying to influence rates" and continued to run that same conspiracy.

I promised to explain why that claim is nonsensical. One, it confirms rather than refutes that UBS's senior officers knew of Hayes' (and many others') criminal actions. Two, the phrase "trying to influence" is crafted to deceive. Hayes wasn't part of a process that was "trying to influence" LIBOR -- he was part of a real life conspiracy by the largest banks of the world to actually, effectively, and routinely rig the LIBOR rate to create large profits for the banks and the traders (and avoid large losses) through cheating.

Third, Hayes and his counterparts at the other firms that were part of the immensely successful conspiracy to rig LIBOR left (as the prosecutor's own case shows, and the defense has supplemented) one of the most obvious "paper" trails in history of how and why the bankers engaged in this scheme and documents that the scheme was routinely successful in rigging LIBOR. Internal audit should have documented these crimes easily by simply reviewing the "IM" messages.

Fourth, that arrogance and sense of assurance that no one at the firm or the City of London's anti-regulators would look, so there was no need for the traders to even attempt to hide what they were doing from their bosses, from internal audit, and from regulators and prosecutors tells us how corrupt the largest City of London banks became. Banks, of course, can only be corrupted by their senior bankers, who have to create the corrupt "tone at the top" and must suborn normal internal and external controls.

Fifth, we know from the contemporaneous record that senior managers at UBS did know that their bank and bankers were part of a vast conspiracy to rig LIBOR. We also know their response -- to offer advice on how to continue to commit the crimes without leaving such an obvious "paper" trail.

Sixth, the purported warning in 2009 to Hayes to comply with the law makes no sense under its own supposed terms. Instead, it makes sense only if it is interpreted (as Hayes testified he in fact interpreted it) as another warning to stop creating such an obvious "paper" trail. Here is Reuter's account of "the warning."

On his second day in the witness box at Southwark Crown Court, Hayes said his UBS boss, Mike Pieri, telephoned him in August 2009 to warn him against sending emails to try to influence UBS's own Libor rate submission.

Hayes, 35, said he was surprised by the request, but interpreted it as meaning: "carry on doing it but don't send any emails"

Assume for purposes of analysis that you are an honest senior officer of UBS back in 2009. Under the fable crafted by the prosecutors, you learn (and how you learn would be a vital point) for the first time in 2009 that your "star trader" has made UBS a key participant in the largest criminal conspiracy in world history for at least three years. As an honest senior officer you have several choices on how to proceed. In the U.S., you would have a regulatory obligation to promptly make a criminal referral to the FBI and DOJ. In the UK, you could make a criminal referral to the SFO. You would definitely pick up the phone and call the bank's General Counsel and the CEO. You would fire Hayes and begin an investigation that would look immediately at the "IM" "paper" trail. That would quickly lead you to fire Koutsogiannis. You would realize that Hayes could only act through changing the LIBOR submissions of UBS and many of the other largest banks in the world, so you would start an investigation that would promptly lead you to fire the UBS LIBOR submitter.

Or, you could do what Pieri actually did -- none of the above. No honest manager would proceed to give a "warning" that could only logically be interpreted by Hayes as a warning to stop leaving such an obvious "paper" trail.

The BBC article also failed to note an instructive part of Hayes' defense. He claimed that he confessed in the UK because he was desperate to be prosecuted in the UK rather than face extradition and U.S. prosecutors. (Hayes is a Brit who was primarily based in Tokyo.) From the U.S. perspective, we are justly enraged at the failure of DOJ to prosecute any of the elite bankers who led the three fraud epidemics that drove our financial crisis. The sad truth is that as pathetic as the DOJ has been in this sphere, UK bankers know that the SFO is even more farcical. Hayes' "revealed preference" in desperately seeking to avoid prosecution in the U.S. is a powerful demonstration of one of the reasons that the City of London "won" the regulatory and prosecutorial "race to the bottom" in finance and made the City the financial cesspool of the world. The SFO's refusal to prosecute any of the City's elite bankers and its creation of the fable of the innocent senior UBS managers deceived by the wily "Rain Man" are further proofs of why an external review of the SFO concluded that it had, de facto, largely decriminalized elite financial crimes. As weak as it already was, one of the Tories early acts was to slash the SFO's funding to ensure that it would not prosecute the party's corrupt banking patrons who are the party's leading contributors.