Libor trial hears of lead-up to Hayes's dismissal from Citi

Court hears how Tom Hayes’s attempts as a new trader at Citi to fix Libor in his favour resulted in his dismissal from the bank in 2010

Citi: internal investigation exposed Hayes's rigging attempts

In the weeks after he joined Citigroup's Tokyo swaps desk, Tom Hayes enlisted Hayato Hoshino, a yen swaps trader based in London, to "become friendly" with the bank's treasury desk and "casually" request London interbank offered rate (Libor) fixes, London's Southwark Crown Court heard today (June 29).

In interviews with the Serious Fraud Office in 2013, the transcripts of which were read out in court, Hayes said one of his aims when he joined Citi "was to speak to Hoshino" and get him to a point where he could "just wander over to the desk and say 'look, you know, any chance we can move it [Libor] up or down or whatever?'"

Hayes, who is on trial on eight charges of conspiracy to defraud between 2006 and 2010, attempted to strengthen the relationship between the two desks by arranging conference calls and setting up lunches for introductory purposes, the jury heard today.

But the plan was more difficult to execute than he had envisaged. Hayes told the SFO that when he met the team in London in January 2010 and "said to a submitter 'it would be good if you could help us out on Libor sometimes'" the submitter "just smiled and didn't say very much ... And I thought, oh, that wasn't very receptive."

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Hayes joined Citi from UBS – where he had worked since 2006 – on December 3, 2009, but did not start trading until February 2010.

"I sensed the atmosphere was a little bit different about it," he told the SFO, referring to the culture of Citi compared with his time at UBS. "But in terms of controls and rules [about traders talking to submitters], again, they were completely absent."

In an email to Hoshino on December 14, 2009, shown in court today, Hayes asked Hoshino if he regularly talked to the cash desk and if he knew about Libor moves in advance. "If we know ahead of time we can take a position and scalp the market," he said, according to the records.

In another exchange dated March 3, 2010, Hayes explained to Hoshino that he needed lower yen Libor. In convincing Hoshino to approach Citi's yen Libor submitter with the request, he said: "Make sure not to put [it] in writing. Just have a quiet word with him." 

In the days that followed that particular conversation, Citi's yen Libor submission did move lower, the defence showed today.

Hayes's senior manager, Christopher Cecere, also pushed for a stronger relationship between Hoshino and the submitters who sat on the treasury desk in London, the court heard today. In an email exchange dated April 27, 2010, Cecere asked Hayes: "Is the tonar [Tokyo overnight average rate]/Libor trade you have widening at all?" Hayes responded: "I doubt it will. Citi moved us higher. I wish those guys would tell us what they plan to do," in reference to the day's Libor fix. To this, Cecere said: "Hoshino needs better dialogue with them."

The efforts to make Hoshino more assertive ended up backfiring on Hayes, however. When Hoshino relayed an explicit request from Hayes to London-based Burak Celtik, the yen Libor submitter, to move Libor up on June 25, 2010, it triggered an internal investigation culminating in Hayes's dismissal.

Following a series of internal interviews during July and August, Hayes emailed his boss on August 20, 2010: "As you are aware, until this week there has been no internal rule or policy surrounding this practice [contact between traders and submitters] and therefore I'm not really sure why I am repeatedly being dragged off the desk to discuss this."

The termination notice, shown to the court today, stated that Hayes's attempts to manipulate the yen Libor and Tibor (Tokyo interbank offered rate) rates to suit his trading position were in "clear violation" of Citi's code of conduct, which Hayes signed upon his arrival at the bank in December 2009, and "may violate the Financial Instruments and Exchange Act of Japan, the Antitrust Act of Japan and other applicable rules and regulations".

The jury was today also shown Hayes's written response to the notice, drafted on September 9, 2010, in which he stated that his actions were "entirely consistent" with those of others. "Senior management at CGMJ [Citigroup Global Markets Japan] were aware of my actions and at no point was I told that my actions could or would constitute any wrongdoing."

The trial continues.