British Supreme Court Overturns Convictions in Libor Manipulation Scandal
In a landmark ruling, the Supreme Court of the United Kingdom has overturned the convictions of two traders originally found guilty of manipulating key financial benchmark rates during the 2008 financial crisis. This decision marks a significant development in one of the largest financial scandals of the era.
The traders, Tom Hayes and Carlo Palombo, were accused of attempting to influence the London Inter-Bank Offered Rate (Libor) and its euro equivalent, Euribor. These benchmarks were integral to setting the interest rates on a wide array of financial products globally, impacting trillions of dollars in loans.
The court found that the convictions were unjust due to erroneous guidance given to jurors, which hindered their ability to assess whether the traders acted with dishonest intent. Judge George Leggatt stated in an 82-page decision that this “misdirection undermined the fairness of the trial,” a conclusion unanimously reached by the five-judge panel.
Hayes faced a 14-year prison sentence, later reduced to 11 years, following his 2015 conviction. Palombo, convicted in 2019, was sentenced to four years. Both individuals were released in 2021.
Reflecting on the ruling, Hayes commented to the BBC, “It destroyed my family, I missed most of my son’s childhood,” and expressed relief at being able to “move on with my life, or try to.”
This decision follows a 2022 ruling by the U.S. Second Circuit Court of Appeal, which similarly overturned the convictions of two traders in the U.S. charged with comparable offenses. The U.K. Supreme Court’s decision allowed Hayes and Palombo to appeal after previous attempts had been denied by British courts.
The Serious Fraud Office (SFO) of the U.K. initiated an investigation into Libor manipulation in 2012, which resulted in the convictions of nine bankers. Following the recent judgment, the SFO stated, “We have considered this judgment and the full circumstances carefully and determined it would not be in the public interest for us to seek a retrial.”
Libor and Euribor, once pivotal in determining interest rates for business loans, mortgages, and credit cards, were susceptible to manipulation by banks aiming to profit from rate fluctuations. Banks submitted daily interest rates at which they could borrow from others, with these submissions averaged to set the daily Libor and Euribor rates.
During the financial crisis, banks were suspected of submitting artificially low rates to appear more creditworthy, while traders attempted to sway their banks’ submissions. Such manipulation became more evident as market conditions worsened, leading to subjective rate assessments instead of relying on actual loans.
Due to these vulnerabilities, Libor and Euribor were phased out in recent years, contributing to the crisis’s severity.
