Libor scandal revisited: UK appeals court to hear case of trader wrongfully jailed as Australian’s conviction reversed

A court will hear the case of two high-profile former traders found guilty of conspiring to rig key benchmark rates following a wrongful conviction referral.

An appeals court will this week hear the case of two convicted traders found guilty of conspiring to rig key interest rates benchmarks following a wrongful conviction referral, in a saga which put an Australian in jail only for his conviction to be overturned last year.

The UK Court of Appeal’s criminal division on Thursday (London time) will hear the case of Tom Hayes, a former UBS and Citigroup trader who in 2015 became the first individual to be convicted for manipulating the London interbank offered rate, or Libor.

The hearings come after the UK’s Criminal Cases Review Commission, which investigates potential miscarriages of justice, last year referred the case saying there was a “real possibility” the conviction could be overturned.

Mr Hayes was convicted in 2015 and sentenced to 11 years in prison, which was reduced from an original 14 year sentence. He eventually served five and a half years in primarily high-security prisons and was released in 2021.

A former derivatives trader diagnosed with Asperger’s syndrome’s, Mr Hayes had been portrayed by US and British authorities and prosecutors as the ringleader of an international scheme to skew the interbank benchmark rates on which trillions of contracts and financial products — from home loans to financial securities — are priced.

Paul Thompson leaves the Cottesloe Police Station in 2015.

The scandal shattered confidence in global markets more than a decade ago, exposing the collusion of major global banks to manipulate the key interest rate benchmarks, allowing them to profit from rigged rates.

Uncovered after the 2008 global financial crisis, it resulted in billions of dollars in fines to involved banks — including Barclays, Deutsche Bank, Citigroup, HSBC, JPMorgan Chasse, Bank of America, Rabobank, UBS, Goldman Sachs, and the Royal Bank of Scotland — and the convictions of traders.

But, according to Karen Todner, the human rights lawyer representing Mr. Hayes, her client and dozens other traders who were prosecuted and faced significant financial penalties — with confiscation orders to the traders ranging from £2300 to £2.5 million — were essentially used as scapegoats.

“Tom Hayes and the bankers who followed him to trial were used as scapegoats by the establishment, for the financial crisis that this country was in at the time, and it’s time to put this wrong, right,” she said at a briefing in London ahead of the hearings last week.

“Many lives have been ruined, not just Tom’s, by the series of cases against relatively junior traders and bankers, and the Court of Appeal now has the opportunity to put things right,” she said.

Thomas 'Tom' Hayes and then wife Sarah arriving for his trial at Southwark Crown Court in London in 2015. Photographer: Simon Dawson/Bloomberg

Among those is the life of Australian Paul Thompson, a former Singapore-based Rabobank trader who was the only person jailed in the United States for his role in the Libor scandal.

The Perth resident faced a maximum of 30 years in prison after he pleaded guilty to a charge of conspiracy to commit bank fraud in 2016, admitting to being involved in attempts to manipulate Libor.

Yet, he chose to plead guilty rather than agreeing to talk against his colleagues as others did, said Andy Verity, a BBC economics correspondent who chronicled the saga in a book called “Rigged: the incredible true story of the whistleblowers jailed after exposing the rotten heart of the financial system.”

The book, published last year, lays out previously unreported documents and recordings which suggest co-ordination between central banks and regulators to manipulate Libor during the financial crisis, which was then allegedly “covered up” during the traders’ trials.

Mr Thompson was extradited to the US and served three month’s jail in early 2017.

Last year, his conviction was overturned following the complete acquittals of two other Deutsche Bank traders in January 2022 by the US department of justice.

Mr Tompson’s conviction reversal, overturned by Judge Jed Rakoff of the Southern District of New York on July 25 last year, had not been previously reported.

“(Mr Thompson) has rebuilt his life and he says his family and him have been through some tough times in the past 10-12 years and they want to put it behind them,” Mr Verity, who had limited access to Mr Thompson, told The Australian.

Mr Thompson, who lives in Perth working as a real estate agent, declined to comment when contacted.

“He’s been treated like a criminal for a decade and had his career wrecked … and people think ‘there’s no smoke without fire’,” Mr Verity said. “(But) he went to jail because he refused to lie.”

On Friday, the appeals court will also hear the case of a second former trader, Carlo Palombo, who in 2019 was convicted for his role in the conspiracy to rig the Euribor rate — the Euro version of the now-retired Libor rate.

Mr Teubner, the human rights lawyer, said she hoped Mr Hayes and Mr Palombo’s convictions would be overturned, which could potentially lead to compensation for those wrongfully convicted.

“What we are looking for is to have their convictions overturned. If that’s successful, obviously there will be applications that anticipate compensation and the money that was taken from them,” Ms Teubner said.