Libor trial: It was the prosecution that couldn’t go wrong... until it did

The first signs of trouble for prosecutors came three weeks into the trial. Their witness was a government investigator called to lay out details of an inquiry into the alleged rigging of a key interest rate by a group of brokers, who faced up to 20 years in prison.

But as the investigator went through a calendar that his agency had compiled, listing days on which the rates had allegedly been manipulated, his team admitted some of the dates were wrong. Philip Hackett, QC, one of the defence lawyers, asked if the prosecution was “making this up as they go along”.

Sitting near the front of the courtroom, Mukul Chawla, the chief prosecutor for the Serious Fraud Office (SFO), shook his head. The case was supposed to have been another triumph for authorities seeking to punish those held responsible for abuses uncovered in the years since the 2008 global financial crisis. Instead, the jury acquitted the defendants after less than a day of deliberations.

In the same courtroom at London’s Southwark Crown Court five months before, Mr Chawla had won a landmark conviction in the case of Tom Hayes, the alleged mastermind in the rigging of the yen version of Libor, who was sentenced to 14 years in prison. Reduced on appeal to 11 years, it was still one of the harshest penalties for a white-collar defendant in the UK.

The case against the brokers looked like a slam-dunk. To begin with, Hayes had admitted conspiring with the six men to rig the rate to boost his trading profits. Reams of email and instant-message evidence showed the defendants discussing the alleged crimes with Hayes. Two of the firms they worked for – Icap and RP Martin – had already been fined $90m (£62m) by British and American regulators for failing to curb the brokers’ behaviour.

Mr Chawla appeared relaxed as he took his position on a bench near the front of Courtroom Two on 6 October last year, the opening day of the trial. Forget the jargon and esoteric nature of rigging, he urged the jurors in his opening statement; think of it as a simple case of cheating, like fixing a horse race and betting on the outcome. But before the first day was out, Mr Chawla had used terms like “derivatives,” “interest-rate swaps” and “ISDA definitions”. By day four, one of the jurors had fallen asleep. The testimony only got more complex.

In financial markets, brokers are like real estate agents, lining up buyers and sellers and pocketing a small commission on every trade. Lower-paid and often less well-educated than bankers, brokers inhabit a position in the finance hierarchy several steps below their clients. But while they don’t set Libor, they can play a significant role in determining where it ends up through what they tell the rate-setters.

Hayes had been convicted of paying his brokers to skew the guidance on market interest rates that they gave to the bankers who set Libor each day. When that benchmark moved his way, he made millions on the bets he’d taken out.

Mr Chawla took the jurors through dozens of messages in which Hayes discussed with the defendants how he planned to move that day’s rates. The brokers in the dock told the court they had received more than £450,000 from Hayes for promising to assist in the alleged rigging.

But as Mr Chawla laid out his case, even some of his own witnesses seemed to undermine it. In the second week, the prosecutor called John Ewan, a former director of the British Bankers’ Association, which oversaw Libor until 2013, in an effort to explain how the system worked.

By his second day on the stand, Mr Ewan was taking long pauses and looking into space before answering questions. A defence barrister provoked laughter when he later described cross-examining Mr Ewan as “like interviewing a clairvoyant”. Even the judge stifled a giggle.

The following week, Mr Chawla called an SFO investigator. The testimony descended into argument when it emerged that the SFO had changed the dates it claimed rigging took place. The initial version had some defendants accused of manipulation on days when they had been on vacation.

Even when the prosecutors had what they thought was compelling evidence, the defence was sometimes able to undermine it. Former Tullett Prebon broker Noel Cryan, for example, had exchanged dozens of instant messages with Hayes in 2009 in which he pledged to help manipulate the rate.

But Mr Cryan testified that it had all been a ruse. He’d never actually followed through on Hayes’s requests, he said, but only deceived him to allow his firm to pocket more than £200,000 in commissions.

When Mr Chawla asked Mr Cryan how he justified lying to one of his best customers, Cryan cracked a wide smile. “It’s called broking, Mr Chawla,” he said. Members of the jury rolled their eyes when defence counsel revealed that the SFO didn’t have any proof that Mr Cryan had actually passed on Hayes’s requests.

Defence counsel portrayed the brokers as simple family men at the lowest rungs of the financial-industry ladder who were being made scapegoats. They gave each other nicknames like “Big Nose” and “Lord Libor”. Several of them had left school at 16, making their way in unskilled jobs such as construction before stumbling into the City.

In their telling, life as a broker was well paid but highly stressful and demoralising.

The tension burst into the open one afternoon, when jurors returned from lunch to find an empty chair in the dock. Defendant Danny Wilkinson had been taken to hospital and would be unable to attend the remainder of the trial, the judge said. Just a few days before, he had appeared red-faced and sweating on the stand.

The defendants had all paid a heavy price, their barristers pointed out to the jurors, several of whom had by now taken to smiling sympathetically at the men in the dock as they left the courtroom each day.

After rendering their verdict, some jurors didn’t hide their emotions. On the steps outside the courthouse, one, wiping a tear from her eye, embraced the wife of one of the defendants, who leaned in and mouthed “thank you”.

Back in the courtroom, alone, Mr Chawla slowly gathered his belongings from the desk where months previously he’d had his greatest victory. “I’m just very tired,” he said and turned away.

© Bloomberg