Judicial ruling reverses criminal penalty imposed on former Citi trader Hayes for manipulating interbank lending rates
In a landmark decision, the UK Supreme Court has quashed the conviction of Tom Hayes, a former trader, for his role in manipulating the Libor benchmark interest rate. The court's ruling, unanimous and based on procedural errors during the trials, comes a decade after Hayes was first imprisoned.
Hayes, who was convicted in 2015 of eight counts of conspiracy to defraud, was sentenced to 11 years in prison after an appeal. His conviction pertains to manipulating Libor, a now-defunct benchmark interest rate that was used as a benchmark for trillions of dollars of financial products worldwide.
The court found that the trial judges had not properly directed the juries on critical legal points, leading to a miscarriage of justice. The same grounds were used to quash Carlo Palombo's conviction for rigging Euribor rates, the euro equivalent of Libor. Palombo, a former trader from Barclays, had received a four-year sentence in 2019.
The Serious Fraud Office (SFO) has decided not to seek a retrial for either case.
Both Hayes and Palombo argued that their convictions depended on a definition of Libor and Euribor that assumes there is an absolute legal bar on a bank's commercial interests being taken into account when setting rates. The court agreed, finding that Hayes was deprived of a fair opportunity to have his claims considered by the jury due to legally inaccurate and unfair directions.
The overturned convictions of Hayes and Palombo are significant as they question the integrity of the global financial system during the financial crisis of 2008. The Libor rate, designed to reflect banks' short-term funding costs and based on daily estimates from a group of banks as to how much they would expect to pay to borrow funds from each other for a range of currencies and periods, was phased out in 2023.
This ruling follows a landmark US court decision in 2022 that overturned the Libor rigging convictions of two former Deutsche Bank traders. The Supreme Court judge, George Leggatt, determined that Hayes was entitled to present his defense against allegations that he conspired to submit false information. However, the court did not quash the convictions of other defendants involved in the Libor scandal.
Tom Hayes served five and a half years before being released on license in 2021. The court concluded that Hayes' convictions were unsafe and cannot stand. The ruling emphasises the importance of legal procedural fairness in jury directions rather than re-litigating the facts of the interest rate rigging allegations themselves.
In light of the overturned convictions, there are questions about the integrity of Tom Hayes' and Carlo Palombo's business practices within the global financial system, particularly during the financial crisis of 2008. Both men, former traders, argued that their finance-related business dealings were influenced by legally inaccurate and unfair directions, leading to a miscarriage of justice.
