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Five big banks to pay $5.4 billion in fines for market manipulation

Five global banks have agreed to plead guilty to felony charges and pay $5.4 billion in fines.   

Citicorp, JPMorgan Chase, Barclays, and the Royal Bank of Scotland have agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange, or FX, spot market, and the banks have agreed to pay fines of $2.5 billion, the Justice Department said Wednesday. 

A fifth bank, UBS, has agreed to plead guilty to manipulating the London Interbank Offered Rate, or LIBOR, and other benchmark interest rates and pay a $203 million criminal penalty, after breaching its December 2012 agreement resolving a LIBOR investigation.

“The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct,” said U.S. Attorney General Loretta Lynch. “It is commensurate with the pervasive harm done. And, it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare.”

Sen. Elizabeth Warren, D-Mass., is critical of the agreements. “This isn't accountability for Wall Street,” Warren said in a Tweet. “It's business as usual, and it stinks.”

Better Markets, a Wall Street watchdog group, called the agreements a "slap on the wrist."

Euro-dollar traders at Citicorp, JPMorgan, Barclays, and RBS – who called themselves members of “The Cartel” – used an electronic chat room and coded language to manipulate benchmark exchange rates between December 2007 and January 2013, according to plea agreements to be filed.

Those rates are set mainly through two major daily “fixes,” the 1:15 p.m. European Central Bank fix and the 4 p.m. World Markets/Reuters fix. Third parties collect trading data at these times to calculate and publish a daily “fix rate,” which in turn is used to price orders for many large customers. 

“The Cartel” traders coordinated their trading of U.S. dollars and euros to manipulate the benchmark rates set at the 1:15 p.m. and 4 p.m. fixes in an effort to increase their profits. 

At other times of the day, they held off on trades to keep prices stable for others in the group to be able to close out of positions profitably, the plea agreements said.

The criminal fines are as follows:

  • Citicorp, involved from about December 2007 to January 2013, $925 million.
  • Barclays, involved from about December 2007 until July 2011, and then from December 2011 until August 2012, $650 million.
  • JPMorgan, involved from about July 2010 until January 2013, $550 million.
  • RBS, involved from about December 2007 until April 2010, $395 million.

In addition, according to court documents to be filed, Barclays agreed that its FX trading and FX collusion violated its June 2012 non-prosecution agreements resolving the department’s investigation of the manipulation of LIBOR and other benchmark interest rates. It agreed to plead guilty to a felony charge and pay an additional $60 million penalty.

UBS also agreed to plead guilty to a felony and pay a $203 million fine because it violated a December 2012 non-prosecution agreement resolving a department’s LIBOR and other interest rates investigation.

The five banks have agreed to a three-year period of corporate probation, which, if approved by the court, will be overseen by the court and require regular reporting to authorities as well as ending all criminal activity. 

Citicorp, Barclays, JPMorgan, and RBS have agreed to send disclosure notices to their customers and other companies that may have been affected by the trading practices described in the plea agreements.

The Federal Reserve also announced Wednesday that it was imposing fines of more than $1.6 billion on the five banks as the result of its FX investigation.

In addition, Barclays settled related claims with the New York State Department of Financial Services, Commodity Futures Trading Commission, and United Kingdom’s Financial Conduct Authority for an additional penalty of about $1.3 billion. 

Previously announced settlements with regulatory agencies in the United States and abroad and Wednesday’s agreements brings the total fines and penalties paid by the five banks for their conduct in the FX spot market to nearly $9 billion.

Copyright 2015, Rita R. Robison, Consumer Specialist


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