By Nate Raymond
NEW YORK (Reuters) - A U.S. appeals court on Thursday questioned whether two former Rabobank [RABO.UL] traders' rights were violated in what became the first case by U.S. Justice Department to go to trial spilling out of global probes into the manipulation of Libor.
Over 1-1/2 hours, the 2nd U.S. Circuit Court of Appeals in New York weighed whether to overturn the 2015 convictions of Anthony Allen and Anthony Conti, two former British traders at the Dutch bank.
The traders argued their case became tainted after Paul Robson, an ex-Rabobank trader turned cooperating witness, reviewed testimony that a UK regulator compelled Allen and Conti to give in a related probe.
Michael Schachter, Allen's lawyer, said that may have influenced any information Robson provided U.S. authorities or at trial, causing their statements to be used against them in violation of the U.S. Constitution.
U.S. Circuit Judge Gerard Lynch asked how the court could be sure that did not happen, since no record existed of what Robson would have said about any wrongdoing.
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"He may have actually seen it, but we have a record where he did not actually testify to it until after he had been exposed to the immunized testimony," Lynch said.
John Pellettieri, a Justice Department lawyer, said prosecutors took steps to ensure the case did not become tainted. But he said such caution was unnecessary since a foreign government obtained the testimony.
Circuit Judge Jose Cabranes said under that theory, "if a foreign sovereign beats the hell out of somebody and compels the testimony, since it's a different sovereign, you're able to use that compelled testimony in a federal court."
Libor, or the London interbank offered rate, underpins trillions of dollars of financial products and is based on what banks say they believe they would pay if they borrowed from other banks.
Probes into whether banks manipulated Libor have led to roughly $9 billion in global settlements with financial institutions and U.S. and UK cases against several people.
Allen, Rabobank's former global head of liquidity and finance, and Conti, a former senior trader, were indicted a year after Rabobank in 2013 reached a $1 billion deal to resolve U.S. and European probes.
A jury convicted them on conspiracy and wire fraud charges in 2015 for participating in a scheme to rig the U.S. dollar and yen Libor rates. Allen, 45, and Conti, 47, were sentenced to two years and one year in prison, respectively.
The case is U.S. v. Allen et al, 2nd U.S. Circuit Court of Appeals, No. 16-898.
(Reporting by Nate Raymond in New York; Editing by Lisa Shumaker)