Prosecuting Bankers Proves Exercise In Frustration (#GotBitcoin?)
Federal prosecutors have run into trouble trying to get convictions of individual traders and bankers charged with rate-rigging and other practices. Prosecuting Bankers Proves Exercise In Frustration (#GotBitcoin?)
The Justice Department is having more success at prosecuting banks than going after the bankers who work for them.
A judge’s expected ruling Monday on a request to throw out a case against a senior Barclays PLC trader will turn on an issue that has prompted previous cases to run into trouble: whether individuals can be held to account for activity consistent with the bank’s practices.
It is a “massive due-process problem,” U.S. District Judge Charles Breyer, who is presiding over the case of Barclays trader Robert Bogucki, said in court last week. When prosecutors charge an individual with a crime, “it has to be fairly obvious it’s a crime.”
Big global institutions including JPMorgan Chase & Co., Citigroup Inc., and UBS Group AG pleaded guilty in related 2015 cases to crimes including foreign-currency manipulation and rigging benchmark interest rates. Multiple probes resulted in nine banks paying penalties in the U.S. totaling more than $6 billion, based on chat-room records and other evidence in which traders colluded to move rates and even referred to themselves as the “mafia” or a “cartel.”
DOJ Losing Streak
Out of 27 traders prosecuted for allegedly manipulating benchmark interest or foreign exchange rates, nine have successfully challenged charges. Eight pleaded guilty.
Yet, prosecutors have been far less successful at convicting the people who engaged in this behavior. The three traders who made up the alleged currency-manipulating cartel were acquitted. In a separate case, two others convicted of manipulating benchmark interest rates had their convictions overturned on appeal. A federal judge has postponed sentencing two more traders convicted of manipulating benchmark lending rates pending a review of the prosecution’s tactics.
The cases have stumbled for multiple reasons. Some defendants have successfully argued their actions were encouraged by their employers, leading juries to decide their conduct was unseemly rather than illegal and vote for acquittal. Appeals courts have also overturned cases after finding problems with the evidence used at trial.
“There is a Greek chorus telling prosecutors to put people in jail,” said Aitan Goelman, a former federal prosecutor who ran the enforcement division of the Commodity Futures Trading Commission and is now in private practice as a defense lawyer. “But cases are harder to make against individuals.”
A Justice Department spokeswoman said the agency is “firmly committed to holding individuals and companies accountable for the roles they play in complex financial crimes,” adding that criminal penalties are subject to review by courts.
The 2008 crisis prompted reflection in public, Congress and the government over banks and how prosecutors could hold them accountable for misdeeds. By 2009, when the Justice Department began finding evidence that many top global banks had manipulated interest-rate benchmarks, prosecutors launched criminal investigations into traders’ role in setting those rates. By 2013, probes were also looking into allegations of traders manipulating currencies.
After banks conceded wrongdoing and shelled out huge penalties, roughly two dozen of their senior traders were charged in U.S. federal courts with trying to manipulate currency prices and interest-rate benchmarks. Prosecutors signaled a new, tougher approach that aimed to subject traders at big banks to justice. The campaign culminated in a series of indictments, including a high-profile 2017 case alleging three traders manipulated the exchange rates for U.S. dollars and euros.
“Whether a crime is committed on the street corner or in the corner office, no one gets a free pass simply because they were working for a corporation when they broke the law,” then-Deputy Attorney General Sally Yates said.
Two years later, prosecutors are still struggling to make charges stick. The cases tend to follow a pattern: First comes an indictment that says a banker or trader has been caught in damning and often profane dialogue with colleagues; then come either acquittals or convictions that are overturned on appeal.
The case of Mr. Bogucki, the Barclays trader, has so far appeared to be following that script. He was charged last year with illegally trading in anticipation of an HP Inc. deal that involved selling £6 billion ($8 billion) worth of U.S. dollar and British pound exchange-rate options. The indictment, filed in January 2018, quotes Mr. Bogucki telling a colleague he would “bash the shit out of” selling those options before executing the HP transaction to push down the price, and warned another to stay quiet about what they were doing or “your ass will be in a f— frying pan.”
Sean Hecker, a defense attorney for Mr. Bogucki, has argued prosecutors are improperly using an insider-trading theory to go after lawful transactions. Some of Judge Breyer’s courtroom comments suggest he is skeptical that individuals can be held accountable for activity that is at least implicitly condoned by the bank and doesn’t involve a conspiracy with others.
The Justice Department has been dogged for years by the challenge of proving allegations that individuals instigated corporate misconduct. Responsibility is often difficult to pin on individual employees, who often blame a corporate culture that enabled and encouraged their actions. Cases against multiple BP PLC employees over the 2010 Gulf oil spill, for example, led to multiple acquittals and were largely unsuccessful. Before that, multiple New York Stock Exchange floor traders beat charges related to alleged trading abuses.
Such ambiguity haunted the government’s headline-grabbing 2017 case alleging price manipulation in the $500 billion-a-day market for U.S. dollars and euros. The prosecution relied on Matthew Gardiner, a UBS trader who had agreed to testify in exchange for immunity. The prosecution centered around Mr. Gardiner admitting wrongdoing to the jury, and thus implicating his three alleged co-conspirators, traders at the Royal Bank of Scotland , Citigroup, and Barclays.
Many in the Justice Department knew the case would be difficult because Mr. Gardiner, the government’s star witness, didn’t believe, at the time of the alleged conspiracy, that he had done anything wrong. Those fears were realized at trial, when Mr. Gardiner said the traders believed they were executing widely accepted practices in the industry.
“You didn’t think you were cheating any customers?” an attorney for one of the traders asked Mr. Gardiner. “I didn’t think I was cheating anyone,” he responded.
After four hours of deliberation, the jury acquitted all three traders.
The case marked the failure of a multiyear effort to crack down on alleged wrongdoing by individuals in finance. The Obama Justice Department announced several policy changes to encourage more charges against individuals, including instructing prosecutors to focus on individuals from the start of any white-collar investigation.
In a September 2015 memo outlining the new approach, Ms. Yates told prosecutors that companies needed to provide the Justice Department with “all relevant facts” about their employees involved in misconduct to get credit for cooperating.
The Trump administration has pursued the same policy, describing companies as their partners in fighting corporate wrongdoing. Critics say the policy effectively turns banks into an arm of the prosecution and incentivizes them to seek leniency by throwing their own employees under the bus.
Bank executives have said that trading and interest-rate misdeeds reflected the actions of only a handful of employees. Matthew Axelrod, a former deputy of Ms. Yates who is now a lawyer with the law firm Linklaters, said the policy was “never intended to deputize [bank] defense attorneys as government investigators.”
That is what some defense attorneys are arguing is happening, and some judges have been sympathetic. In a prosecution in Manhattan federal court related to alleged manipulation of the London interbank offered rate, or Libor, two former Deutsche Bank employees, Matthew Connolly and Gavin Campbell Black, were convicted in October of participating in a scheme to manipulate the benchmark rate. The bank in 2015 paid $2.5 billion to resolve related civil and criminal charges, and several of its employees pleaded guilty.
But Chief Judge Colleen McMahon has yet to sentence the traders, pending a review of allegations prosecutors relied too heavily on the bank’s law firm to make their case. The judge has signaled she may hold a hearing on the issue in the coming months.
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