[NEW YORK] Two former Rabobank traders from Britain are set to become the first defendants to face trial in the United States on charges stemming from a global investigation into whether various banks sought to manipulate the interest rate known as Libor.
Jury selection is scheduled for Tuesday in Manhattan federal court in the case of Anthony Allen, 44, and Anthony Conti, 46, who are accused of helping manipulate interest rates to benefit the Dutch lender's trading positions.
The case is the first by the US Justice Department to go to trial over allegations that financial institutions manipulated Libor, or the London interbank offered rate, a short-term rate banks charge each other for loans.
The rate, which was overseen by the British Bankers'Association (BBA), is calculated based on submissions by a panel of banks. It underpins US$450 trillion of financial products globally from mortgages to credit card loans.
US and European authorities have been investigating whether banks fraudulently submitted artificial rate estimates to the association to bolster their profits on trading derivatives linked to Libor.
Those investigations have resulted in charges against 22 people in the United States and United Kingdom and around US$9 billion in regulatory settlements with financial institutions.
Those banks include Netherlands-based Rabobank, which as part of a US$1 billion deal resolving US and European Libor-related probes agreed in 2013 to pay US$325 million as part of a deferred prosecution agreement with the Justice Department.
Allen, Rabobank's former global head of liquidity and finance, and Conti, a senior trader, were indicted in the United States in October 2014.
The indictment accuses Allen, who supervised Rabobank's Libor submission process, of directing the bank's traders to advise those who made its Libor submissions about any financial interest they had in the rate.
Prosecutors contend that rate submitters, who included Allen, were meanwhile told to make US dollar and yen Libor submissions that favored the traders' positions.
Prosecutors allege that Conti frequently accommodated the traders' requests, in communications captured in emails and chat logs.
On Aug 13, 2007, for example, a New York-based Rabobank trader asked Conti where he expected the six-month Libor rate to be set the next day. According to the indictment, Conti replied,"where do you like to see it, is more the question?"
Allen and Conti, both UK citizens, earlier this year pleaded not guilty after the two men became the first of 13 people charged by the Justice Department in the probe to waive their right to extradition to fight the charges in the United States.
Their trial follows an earlier one in London involving yen Libor manipulation that led to the conviction of Tom Hayes, a former UBS AG and Citigroup Inc trader who was sentenced in August to 14 years in prison.
Another trial in London kicked off this week for six former brokers accused of manipulating yen Libor rates. They have pleaded not guilty.
In the trial of the two ex-Rabobank traders, US prosecutors are expected to call as witnesses as many as three former Rabobank employees who pleaded guilty and agreed to cooperate in the investigation.
Lawyers for Allen and Conti have indicated in court that they plan to argue that the BBA was actually aware that Libor submissions sometimes reflected the banks' financial interests, a fact they say a range of market participants knew about.
They also have indicated they intend to argue that Rabobank's Libor submissions were within the range of those of other banks and hence were not objectively false.
They have also complained that the decision to charge the British citizens in the United States was unfair, given that their alleged conduct took place in the United Kingdom. "The great injustice, your honour, is that everything in this case has to do with the United Kingdom," Michael Schachter, Allen's lawyer, said in court in August.
"This case has nothing to do with the United States whatsoever."
Prosecutors have countered that the Libor scandal affected markets and Rabobank's counter-parties around the world, including in the United States.