What’s the difference between a Wall Street bank and a whistleblower? Nothing! While Wall Street railed against whistleblower protections for employees in Dodd-Frank, turns out they are falling all over themselves to blow the whistle on each other. Why? Because the first to tattle gets protections that are not offered to the second to tattle. (“UBS Turning Whistleblower in Libor Probe,” Bloomberg). But wouldn’t it be better to encourage more employee whistleblowers so as not to have to dispense protections to corporate wrongdoers that make getting caught just a cost of doing business?
UBS was first in the door making deals with the U.S. Department of Justice and foreign regulators in connection with the manipulation of LIBOR interest rates that affect a number of derivatives-based securities, such as interest rate swaps. UBS provided evidence that a number of banks, besides itself, colluded to manipulate the Yen LIBOR rate. Those banks include Citigroup, JP Morgan Chase, HSBC Holdings PLC, Royal Bank of Scotland Group PLC, and Deutsche Bank AG.
The U.S. Department of Justice’s first-in-the-door policy provides a leniency deal that limits monetary penalties and limits private lawsuits to actual damages rather than triple damages for which the bank may otherwise be liable. The DOJ’s deal does not prevent proceedings by regulators like the Securities and Exchange Commission and the Commodities Futures Trading Commission, but many consider these to be captive agencies that can be managed by the banks.
The disclosures are said to be likely to lead to demands to overhaul the system by which LIBOR rates are set. “This is a quaint, insider club which is clearly not fit for the 21st century,” Richard Werner, a finance professor at the University of Southhampton, England, was quoted a s saying, adding: “There is no independent verification of the interest rates reported by the banks, which is a big problem. This affects the whole economy: mortgages, derivatives contracts across the world.”
“Libor has always been a lie, because it represents what banks would pay for funds rather than what they are actually paying,” Peter Hahn, a finance professor at London’s Cass Business School and a former managing director at Citigroup, was quoted as saying, adding: “People who have an incentive to make money from mispriced markets are able to misprice those markets, and that is a serious control problem.”
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.