New York: The US Justice Department’s investigation into individuals who allegedly manipulated benchmark interest rates has risen to a former senior trading manager at Deutsche Bank AG, according to two people familiar with the investigation.
Prosecutors are collecting evidence on David Nicholls, who oversaw the bank’s global finance and FX forward trading desks from London until he left in early 2013, said the people, who asked not to be identified because the probe is confidential. Nicholls, who the people said is among several under investigation by the Justice Department, is the most senior bank executive to come under scrutiny as prosecutors have sought to hold individuals to account for manipulating financial benchmarks.
US prosecutors have charged 13 bankers for rigging the London interbank offered rate, or Libor, and are building cases against several more, people familiar with the probe told Bloomberg News in July. Nicholls, who is a native of Canada, hasn’t been charged, and investigators haven’t decided if they have enough evidence to prosecute, the people said.
Nicholls’s lawyer in London declined to comment.
Prosecutors appear to have had Nicholls in their sights since at least April, when the US reached a settlement with Deutsche Bank. Documents filed by the Justice Department in that case referred to “Senior Manager-1,” who was present when Deutsche Bank submitters received requests to manipulate Libor. That manager is Nicholls, the two people said.
A development came last week, when one of Nicholls’s former colleagues pleaded guilty in New York to conspiring to commit wire and bank fraud. Michael Curtler, a former senior trader on Deutsche Bank’s US dollar cash desk, is expected to cooperate in the Justice Department investigation, one of the people said.
Curtler’s lawyer didn’t immediately respond to an email seeking comment.
“Make sure our libors are on the low side for all ccys,” Nicholls instructed Curtler by email in 2007, referring to Libor currency benchmarks, according to a report by German bank regulator Bafin that was made public in July. Both New York and German regulators cited the email as an example of how senior bank managers may have encouraged manipulation by their underlings. Curtler is scheduled to be sentenced Jan. 19.
Nicholls is also being investigated by the UK Serious Fraud Office and was interviewed by the agency in recent months, according to two other people with knowledge of the situation. The UK and the US have split their Deutsche Bank probes, with the SFO focusing on Euribor and the Justice Department centring on US dollar Libor manipulation, the first two people said. Nicholls allegedly was involved in discussions about benchmark-setting for both rates, the US filings, which refer to him as “Senior Manager-1,” show.
Spokesmen from Deutsche Bank, the Justice Department and the SFO declined to comment.
When questions about Libor’s reliability were first raised in 2008, Nicholls dismissed them as baseless, according to evidence cited in the UK prosecution of Tom Hayes, the former trader at UBS Group AG and Citigroup Inc. who in August was sentenced to 14 years in jail for manipulating Libor. In a call with the British Bankers’ Association in April 2008, Nicholls said rumours that traders were pushing the Libor rate around to boost their profits were “an interesting conspiracy theory, but that doesn’t happen,” according to extracts from the call read out in a London court during Hayes’ trial.
Deutsche Bank, which is based in Frankfurt, entered into a record $2.5 billion global settlement in April with authorities in the UK and the US for manipulating Libor and similar benchmarks. A UK unit agreed to plead guilty to a wire-fraud charge and the bank said it would fire seven employees. The bank said at the time it found no current or former members of the management board were involved in or aware of the misconduct.
Nicholls was part of a unit where prosecutors identified more than 30 people, including managers, who were involved in the misconduct, according to the Justice Department settlement, which only referred to him as the “Senior Manager-1.”
From 2005 through at least 2011, “Senior Manager-1” led weekly conference calls with traders from around the world where trading positions were discussed, according to the filing. Senior Manager-1 also received email messages referencing manipulation or seeking his approval to take certain trading positions, prosecutors said in the bank resolution.
The Libor rate is set daily using an estimate of borrowing costs submitted by the world’s biggest banks. The benchmark is used to determine interest rates on mortgages, commercial loans and derivatives.
“HAVE U SEEN THE 3MK FIXING TODAY?,” a Deutsche Bank rate submitter wrote in an email to “Senior Manager-1” in 2007, according to the Justice Department’s settlement. “THAT WAS AN EXCELLENT CONCERTED ACTION FFT/LDN. CHEERS.” Prosecutors said the email showed that “Senior Manager-1” was aware of attempts to rig interest rates by his colleagues.
New York’s Department of Financial Services cites this e- mail as evidence that Deutsche Bank’s misconduct was systemic, reaching into senior executive ranks. DFS noted in its April consent order with the bank that the message sent from a global finance head to a London desk head asked to keep “libors on the low side” but said that it hadn’t developed evidence that the instruction was followed.
The Bafin report said management not only failed to prevent the manipulation of benchmark interest rates, but that some may have been aware of it and encouraged it.