Trader jailed over rate rigging had ‘extraordinarily unfair’ trial, court told

An ex-City trader jailed over interest rate benchmark manipulation received an “extraordinarily unfair” trial and should have his convictions overturned, the Court of Appeal has been told.

In 2015, former Citigroup and UBS trader Tom Hayes, 44, was convicted of multiple counts of conspiracy to defraud over manipulating the London Inter-Bank Offered Rate (Libor).

His case, alongside that of another similarly imprisoned trader Carlo Palombo, 45, were referred to the court by the Criminal Cases Review Commission (CCRC), which investigates potential miscarriages of justice.

At a hearing on Thursday, lawyers for the two former bankers argued that their convictions were “unsafe” and should be quashed.

The Serious Fraud Office (SFO) is opposing the appeals, saying that the former traders’ arguments were not new or “irrelevant”.

Adrian Darbishire KC, representing Hayes, told the court in London that the approach to Hayes’ trial “bears no relation whatsoever to a fair English jury trial” and that there had been a “fundamental failure” to observe legal principles.

The barrister said the judge overseeing Hayes’ trial was “wrong in law” to tell jurors that there was a ban on commercial considerations during the Libor setting process.

He said this had “disastrous consequences” for Hayes, who denied agreeing to break Libor rules, with his “actual case… never entertained” by jurors.

“The legal directions given by (the judge) concerning the ‘definition and proper operation of Libor’ were not only wrong in law, they were extraordinarily unfair,” Mr Darbishire said in written arguments.

“The lengthy, complex and erroneous directions concerning the Libor question did not help the jury at all with the issues of fact which they ought to have determined.”

The Libor rate was previously used as a reference point around the world for the setting of millions of pounds of financial deals, including car loans and mortgages.

It was an interest rate average calculated from figures submitted by a panel of leading banks in London, with each one reporting what it would be charged were it to borrow from other institutions.

In his trial, Hayes was described by prosecutors as the “ringmaster” at the centre of an enormous fraud to boost his own six-figure earnings.

It was argued Hayes had agreed with others to influence the submission of Libor rates which were “false or misleading” in order to benefit his financial market trading.

Mr Darbishire said in written arguments that judges should “prefer” the approach taken by a US appeals court in January 2022 which overturned the convictions of two other traders and found there was no ban on taking into account commercial interests when making rate submissions.

After the ruling, all charges against Hayes in the US were dropped.

Mr Darbishire said the “legal obligation” on a rate submitter “was simply to give ‘an honest and genuine assessment’” of the Libor rate.

The lawyer said whether this obligation was breached was a “question of fact” for jurors to consider, and depended on the “state of mind” of the person involved.

He added that there was “no basis” for a judge telling a jury that as a “matter of law” a rate submission could not be genuine or honest due to the consideration of commercial interests.

Hayes, who has maintained his innocence, spent five and a half years in prison and was released in January 2021.

His previous Court of Appeal challenge was rejected in December 2015, though he succeeded in securing a three-year cut to his 14-year sentence.

Palombo, an ex-vice president of euro rates at Barclays bank, was found guilty of conspiring with others to submit false or misleading Euro Interbank Offered Rate (Euribor) submissions between 2005 and 2009.

He was jailed for four years in April 2019 after a retrial.

Palombo, who had denied acting dishonestly, lost a bid to overturn his conviction at the Court of Appeal in December 2020.

Tim Owen KC, representing Palombo, said in written arguments that “the presence of ‘trader-influence’ should never have been taken – necessarily – to exclude the possibility that a submission was genuine or honest”.

He said directions to jurors over this point “improperly distorted” issues they had to consider and this “error” had underpinned all Interbank Offered Rates (Ibor) prosecutions.

Mr Owen said there was “discretion” over a range of possible Euribor submissions which could be “both genuine and honest and trader influenced”.

James Waddington KC, for the SFO, said in written submissions that appeal arguments “reveal no new reason for questioning the approach and findings of this court on several prior occasions” and that they should be dismissed.

He said the Libor definition and Euribor code “prohibit a panel bank from considering its own financial interests when deciding on the rates to be submitted”.

The lawyer added: “Libor and Euribor would not achieve their central purpose as reliable benchmarks if the submitters at the panel banks were allowed to factor in their banks’ profitability.

“Commercial interests are irrelevant to and had no part to play in the submission process.”

Mr Waddington said that the US ruling dealt with different facts and arguments and “reveals no line of reasoning which is capable of undermining” the previous stance of the Court of Appeal.

James Hines KC, also representing the SFO, said in written submissions that the judge in Hayes’ trial had correctly directed jurors and “did not withhold or withdraw a factual issue” from them, adding that the US ruling was “irrelevant” to the fairness of his trial.

He added: “In his evidence Mr Hayes frankly admitted that in order to increase the bank’s profit on derivative trades, he had agreed with others to enter or procure Libor submissions which took into consideration commercial advantage; as a matter of law, they should not have done so.”

The appeal hearing before Lord Justice Bean, Lord Justice Popplewell and Mr Justice Bryan continues and could last three days.