Citigroup on Wednesday became the latest big bank accused of trying to manipulate global interest rates, a reminder of Wall Street's wide-ranging abuse of power in these markets.
The Commodity Futures Trading Commission, a federal regulator that oversees Wall Street, announced $425 million in penalties against Citigroup, covering two overlapping cases.
And yet Citigroup faces no criminal charges. In an unexpected move, the Justice Department confirmed on Wednesday that it had closed its investigation into Citigroup and some of the other banks suspected of manipulating an interest rate benchmark commonly known as the Isdafix.
Still, the trading commission's civil cases against Citigroup join a long list of actions against banks suspected of manipulating benchmark interest rates and currencies. Last year, the trading commission and the Justice Department announced civil and criminal charges against four of the world's biggest banks, Citigroup included, for a scheme to manipulate the value of the world's currencies.
"We will vigorously continue to investigate any efforts to manipulate financial benchmarks, and we will take action where possible to protect the integrity of these benchmarks," Aitan Goelman, the trading commission's enforcement director, said in a statement on Wednesday. All told, banks have paid more than $15 billion in penalties for the cases. Including those announced on Wednesday, Citibank alone has agreed to pay $735 million.
"These settlements represent a significant step for Citi in resolving its legacy benchmark rate investigations," the bank said in a statement. "In addition to adopting industrywide reforms related to participation in benchmark rates, Citi has made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behaviour. Our greatest priority is to ensure that we conduct business in keeping with the highest ethical standards." The action against Citigroup centres on its attempts to manipulate a global benchmark rate that is a crucial tool for valuing a wide range of products across financial markets.
The benchmark is known as the International Swaps and Derivatives Association Fix, or, in Wall Street parlance, the Isdafix. Its rates are published daily for various interest rate derivatives contracts, which banks trade with other financial institutions and sell to clients looking to either hedge against a swing in interest rates or to speculate on the markets.
At the time of the misconduct, which ran from 2007 to 2012, Citigroup sat on a panel of banks that each submitted what was supposed to be a reasonable bid for interest rate derivatives. An average of those submissions formed the Isdafix benchmark rate for that day.
But rather than submit an honest bid, Citigroup "made false reports" that skewed its submissions, the trading commission said. The bank's motive, the agency said, was to benefit its own trading positions at the expense of its trading partners' and clients'.
As with earlier manipulation cases, regulators ploughed through emails and instant messages between traders at Citigroup in which they discussed trying to "push" the prices on interest rate swaps to get better deals on derivative transactions the banks were handling.
In one March 2008 instant message, a Citigroup trader boasted, "I am very proud of myself," after telling colleagues he had pushed the prices of a "swap on the screen."
An indication that traders within Citigroup were working to manipulate the Isdafix is revealed in emails sent in 2010 after the publication of a newspaper article on the C.F.T.C.'s preliminary investigation. Upon reading the article, some Citigroup derivatives traders responded with comments such as "Game over" or "Ouch."
And yet, Citigroup was not fully forthcoming with the government. Initially, the bank slowly produced emails and made some dubious comments about its misconduct, according to the trading commission. Eventually, the bank "discovered and produced evidence showing that its initial statements about certain misconduct were incorrect," the commission said.
In a separate benchmark fixing case, Citigroup agreed to resolve claims that it had tried to manipulate the Yen London Interbank Offered Rate, also known as the Yen Libor, and the Euroyen Tokyo Interbank Offered Rate, or the Euroyen Tibor.
Citigroup's role in trying to manipulate overseas benchmark rates tied to the pricing of interest rates and the use of derivatives products tied to those benchmarks has been no secret. In 2011, the Tokyo Financial Services Agency sanctioned Citigroup for its actions and temporarily suspended a derivatives product. In February, Citigroup agreed to pay $23 million to settle a lawsuit brought by several hedge funds and a public pension plan over claims that the bank had conspired to manipulate the yen Libor rate.
The investigation of Citigroup's manipulation of interest rates in Japan stems from the broader inquiry by the trading commission, the Justice Department and British regulators into various schemes by bankers across the globe to manipulate Libor, a benchmark used to determine the rates set on a wide array of consumer and business loans. The Justice Department and British authorities also filed criminal charges against some of the traders implicated in the schemes.
When Barclays became the first bank to settle Libor manipulation charges four years ago, it set off a global scandal that led the bank to oust some of its top executives. Last year, Barclays became the first bank to settle with the trading commission over Isdafix violations.
The Justice Department has concluded there was insufficient evidence of criminal wrongdoing at Barclays and Citigroup. The Justice Department added that it has not officially closed the overall Isdafix investigation.
But the trading commission, which has a lower burden of proof, is expected to announce additional cases in the coming months.
"The C.F.T.C. remains steadfast in its commitment to ensure the integrity of global benchmarks that are critical to the US and international financial markets," Goelman said.
The Commodity Futures Trading Commission, a federal regulator that oversees Wall Street, announced $425 million in penalties against Citigroup, covering two overlapping cases.
And yet Citigroup faces no criminal charges. In an unexpected move, the Justice Department confirmed on Wednesday that it had closed its investigation into Citigroup and some of the other banks suspected of manipulating an interest rate benchmark commonly known as the Isdafix.
Still, the trading commission's civil cases against Citigroup join a long list of actions against banks suspected of manipulating benchmark interest rates and currencies. Last year, the trading commission and the Justice Department announced civil and criminal charges against four of the world's biggest banks, Citigroup included, for a scheme to manipulate the value of the world's currencies.
"We will vigorously continue to investigate any efforts to manipulate financial benchmarks, and we will take action where possible to protect the integrity of these benchmarks," Aitan Goelman, the trading commission's enforcement director, said in a statement on Wednesday. All told, banks have paid more than $15 billion in penalties for the cases. Including those announced on Wednesday, Citibank alone has agreed to pay $735 million.
"These settlements represent a significant step for Citi in resolving its legacy benchmark rate investigations," the bank said in a statement. "In addition to adopting industrywide reforms related to participation in benchmark rates, Citi has made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behaviour. Our greatest priority is to ensure that we conduct business in keeping with the highest ethical standards." The action against Citigroup centres on its attempts to manipulate a global benchmark rate that is a crucial tool for valuing a wide range of products across financial markets.
The benchmark is known as the International Swaps and Derivatives Association Fix, or, in Wall Street parlance, the Isdafix. Its rates are published daily for various interest rate derivatives contracts, which banks trade with other financial institutions and sell to clients looking to either hedge against a swing in interest rates or to speculate on the markets.
At the time of the misconduct, which ran from 2007 to 2012, Citigroup sat on a panel of banks that each submitted what was supposed to be a reasonable bid for interest rate derivatives. An average of those submissions formed the Isdafix benchmark rate for that day.
But rather than submit an honest bid, Citigroup "made false reports" that skewed its submissions, the trading commission said. The bank's motive, the agency said, was to benefit its own trading positions at the expense of its trading partners' and clients'.
As with earlier manipulation cases, regulators ploughed through emails and instant messages between traders at Citigroup in which they discussed trying to "push" the prices on interest rate swaps to get better deals on derivative transactions the banks were handling.
In one March 2008 instant message, a Citigroup trader boasted, "I am very proud of myself," after telling colleagues he had pushed the prices of a "swap on the screen."
An indication that traders within Citigroup were working to manipulate the Isdafix is revealed in emails sent in 2010 after the publication of a newspaper article on the C.F.T.C.'s preliminary investigation. Upon reading the article, some Citigroup derivatives traders responded with comments such as "Game over" or "Ouch."
And yet, Citigroup was not fully forthcoming with the government. Initially, the bank slowly produced emails and made some dubious comments about its misconduct, according to the trading commission. Eventually, the bank "discovered and produced evidence showing that its initial statements about certain misconduct were incorrect," the commission said.
In a separate benchmark fixing case, Citigroup agreed to resolve claims that it had tried to manipulate the Yen London Interbank Offered Rate, also known as the Yen Libor, and the Euroyen Tokyo Interbank Offered Rate, or the Euroyen Tibor.
Citigroup's role in trying to manipulate overseas benchmark rates tied to the pricing of interest rates and the use of derivatives products tied to those benchmarks has been no secret. In 2011, the Tokyo Financial Services Agency sanctioned Citigroup for its actions and temporarily suspended a derivatives product. In February, Citigroup agreed to pay $23 million to settle a lawsuit brought by several hedge funds and a public pension plan over claims that the bank had conspired to manipulate the yen Libor rate.
The investigation of Citigroup's manipulation of interest rates in Japan stems from the broader inquiry by the trading commission, the Justice Department and British regulators into various schemes by bankers across the globe to manipulate Libor, a benchmark used to determine the rates set on a wide array of consumer and business loans. The Justice Department and British authorities also filed criminal charges against some of the traders implicated in the schemes.
When Barclays became the first bank to settle Libor manipulation charges four years ago, it set off a global scandal that led the bank to oust some of its top executives. Last year, Barclays became the first bank to settle with the trading commission over Isdafix violations.
The Justice Department has concluded there was insufficient evidence of criminal wrongdoing at Barclays and Citigroup. The Justice Department added that it has not officially closed the overall Isdafix investigation.
But the trading commission, which has a lower burden of proof, is expected to announce additional cases in the coming months.
"The C.F.T.C. remains steadfast in its commitment to ensure the integrity of global benchmarks that are critical to the US and international financial markets," Goelman said.
©2016 The New York Times News Service