by John F. Savarese, David B. Anders, Sarah K. Eddy, and Remy Grosbard
In a careful but blunt opinion (PDF: 3.3 MB) yesterday, the Second Circuit reversed the convictions of two Deutsche Bank derivatives traders charged with wire fraud for manipulating LIBOR. The decision underscores that not all conduct deemed unfair is criminal, and represents the latest blow to a theory of criminal liability that DOJ has invoked to extract billions of dollars in penalties from financial institutions—all before the theory’s viability could be tested in the courts.
DOJ’s Antitrust Division prosecuted Matthew Connolly and Gavin Black for manipulating LIBOR by causing Deutsche Bank to submit to the British Bankers’ Association—the body then responsible for setting LIBOR—information about its daily borrowing rates that was skewed to benefit the defendants’ trading positions. Cooperating witnesses testified this was “wrong” because it gave the traders and the bank an “unfair advantage” over counterparties. The government, relying on one of the theories it had used earlier to extract from Deutsche Bank $775 million in criminal penalties, a DPA, and a subsidiary’s guilty plea, persuaded a jury this was wire fraud. The district court denied the defendants’ motions for acquittal.
But the Second Circuit found no false statement and thus no crime, and directed acquittals for both defendants. Because the BBA’s instructions for rate submissions called only for hypothetical information, not some readily identifiable single, “true” rate, the defendants’ submissions, while skewed to favor themselves, could not be deemed “false” as a matter of law.
As the Biden Administration ramps up its white-collar enforcement rhetoric, we hope that thoughtful, careful prosecutors take a moment, in the midst of those rhetorical blasts, to consider what lessons about the fair and just exercise of prosecutorial discretion can be drawn from the long line of government losses in the LIBOR-rigging cases—of which the Second Circuit’s reversal is only the latest example.
John F. Savarese, David B. Anders, and Sarah K. Eddy are partners, and Remy Grosbard is an associate, at Wachtell, Lipton, Rosen and Katz.
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