Second Circuit Rebukes LIBOR Prosecution Theory

Since the 2008 financial crisis, there has been public outcry for the prosecution of individuals perceived to have manipulated the financial markets for their benefit and to the detriment of the public. Several years later, when news outlets began reporting on the LIBOR submission scandal, the outcry for individual prosecutions escalated, and the government launched global investigations resulting in settled cases involving large banks and multiple prosecutions of individuals who allegedly manipulated LIBOR submissions to benefit their institutions. Ultimately, the government’s LIBOR prosecutions resulted in a mixed bag, with notable convictions but also acquittals in cases in the United States and the United Kingdom. The latest court battle involving an individual, United States v. Connolly, ended in a noteworthy rebuke of the government’s fraud theory and serves as a reminder that conduct a prosecutor might think is “wrong” does not necessarily violate a federal fraud statute.

The Investigations and Prosecutions

The LIBOR investigations resulted in what were then some of the largest financial settlements of the time. In 2012, Barclays settled LIBOR charges for $453 million and UBS settled for $1.5 billion. In 2013, Société Générale paid €228 million (and $860 million again in 2018 alongside bribery charges), ICAP paid $87 million, Rabobank over $1 billion, RBS $615 million, JP Morgan €80 million, and Citigroup €70 million. In 2014, Lloyd’s paid $370 million, and in 2015 Deutsche Bank paid $2.5 billion. In addition to these examples, other settlements were reached with institutions for different aspects of the LIBOR scandal. Because none of the banks went to trial, the government was able to tout the large settlements as a fulfilment of promises to get tough on corporate crime. Barclays paying $453 million to settle Libor probe, Reuters (June 27, 2012); UBS traders charged, bank fined $1.5 billion in Libor scandal, Reuters (Dec. 18, 2012); RBS slapped with second largest penalty in Libor rate-rigging scandal, Bloomberg News (Feb. 6, 2013); ICAP fined $87 million over Libor, three former staff charged, Reuters (Sept. 25, 2013); Rabobank Admits Wrongdoing in Libor Investigation, Agrees To Pay $325 Million Criminal Penalty, DOJ Press Release (Oct. 29, 2013); Antitrust: Commission fines banks € 1.49 billion for participating in cartels in the interest rate derivatives industry, European Commission Press Release (Dec. 4, 2013); Lloyds Banking Group Admits Wrongdoing in LIBOR Investigation, Agrees to Pay $86 Million Criminal Penalty, DOJ Press Release (July 28, 2014); Deutsche Bank’s London Subsidiary Agrees to Plead Guilty in Connection With Long-Running Manipulation of LIBOR, DOJ Press Release (April 23, 2015).