The Supreme Court has quashed the convictions of two former City traders, Tom Hayes and Carlo Palombo, for manipulating the London inter-bank offered rate (Libor). Sir David Davis, the former Brexit secretary, described the pair as “scapegoats for the sins that led to the financial crisis”, a view that has gained traction following the ruling.
Hayes, a former UBS and Citigroup trader, was originally sentenced to 14 years in prison – a sentence comparable to that for armed robbery – for encouraging his employer to make a dishonest submission to the Libor benchmark. The conviction was overturned after the Supreme Court found that the trial judge had misdirected the jury on what constituted a genuine or honest answer under the Libor definitions.
Libor was a benchmark used to reflect the rates at which banks could borrow from each other, calculated from submissions by a panel of 16 banks. It became a focal point of public anger during the financial crisis, leading to political pressure for individual prosecutions. However, the Supreme Court noted that the benchmark had little to do with the origins of the crisis, and that traders’ behaviour was often known to their bosses.
The Supreme Court acknowledged there was “ample evidence” that could have led to a guilty verdict for Hayes, but ruled that the judge’s errors in direction were “sufficiently material to make the conviction unsafe”. The case had twice been dismissed by the Court of Appeal, and only reached the Supreme Court after US courts in 2022 ruled differently on similar Libor cases.
Seven other Libor convictions in the UK are now likely to be challenged. Sir David Davis called the affair a “scapegoating exercise” resulting from alleged collusion between banks and government agencies including the Serious Fraud Office (SFO) and the Financial Conduct Authority. Hayes’s legal team has called for a public inquiry and the abolition of the SFO, which acts as both investigator and prosecutor.
