Traders who manipulated the London interbank offered rate (LIBOR) may find the hot water they’re in rising to a boil. U.S. and European authorities are said to be close to making arrests and bringing criminal charges in the scandal that has further blackened the eye of the financial industry.
Reuters reported Monday that sources close to the investigation have said that federal prosecutors in Washington have notified defense lawyers for some of the suspects involved that arrests and charges are on the way. Defense lawyers have said that this is common and provides suspects an opportunity to plead or to cooperate.
According to an unnamed European source, regulators are tracing e-mails sent among a group of traders in an effort to see just how the rate rigging operation worked. The person said in the report, "More than a handful of traders at different banks are involved."
EURIBOR, the Euro interbank offered rate, is also under the microscope as European authorities hunt for rigging operations for it and also for other benchmark interbank rates.
While there is no word on which traders or, for that matter, which banks are of most interest to regulators, it is not only individuals who are the focus of the investigations. The banks themselves will come in for fines, and regulatory action is expected as well—although there is the possibility that authorities will find that the actions were not pervasive at the banks.
The source was quoted saying, “The individual criminal charges have no impact on the regulatory moves against the banks. But banks are hoping that at least regulators will see that the scandal was mainly due to individual misbehavior of a gang of traders."
According to the source, in Europe an investigation includes two traders who were suspended from Deutsche Bank. An earlier report in the Financial Times said that regulators were looking at a suspicious communications trail among four traders at Barclays, Credit Agricole, HSBC and Deutsche Bank.
While Credit Agricole said it had not been accused of any wrongdoing, it added that it had provided information to several authorities concerning the Barclays-related LIBOR rigging.
Also looming is the potential for lawsuits. Other financial institutions, as well as cities and companies, are expected to seek redress for harm inflicted by rate rigging. Morgan Stanley estimated that the toll could be as high as $14 billion in regulatory and legal settlement costs through 2014 for the 11 global banks involved in the LIBOR scandal.