UK Supreme Court quashes convictions of 2 bank traders after deciding their trials were unfair

Key Points

• The UK Supreme Court quashed the convictions of Tom Hayes and Carlo Palombo for alleged Libor and Euribor manipulation, ruling that judges’ inaccurate jury instructions prevented proper consideration of whether they acted dishonestly.
• Hayes was originally sentenced in 2015 to a maximum of 14 years (later reduced to 11) and Palombo to four years in 2019; both were released in 2021, with Hayes saying the ordeal “destroyed” his family life.
• After a similar decision by the US Second Circuit Court of Appeals in 2022 enabled their appeal, the UK’s Serious Fraud Office said it would not seek a retrial following the Supreme Court’s unanimous ruling.

LONDON (AP) — Britain’s Supreme Court on Wednesday quashed the convictions of two financial market traders accused of manipulating benchmark interest rates in one of the biggest scandals to come out of the global financial crisis in 2008.

The charges against Tom Hayes, a former Citigroup and UBS trader, and Carlo Palombo, who worked for Barclays, centered around alleged efforts to influence the London Inter-Bank Offered Rate, or Libor, and its euro currency equivalent Euribor, which were used to set the interest rates on trillions of dollars of loans and other financial products around the world.

The court ruled that the convictions of Hayes and Palombo were unfair because the judges in their separate cases gave inaccurate instructions to jurors. That effectively prevented jurors from considering the key question of whether the traders had acted dishonestly.

“That misdirection undermined the fairness of the trial,” Judge George Leggatt wrote in an 82-page decision backed by all five members of the panel that heard the case.

Hayes was convicted in August 2015 and sentenced to a maximum of 14 years in prison, which was later reduced to 11 years. Palombo, convicted in March 2019, was sentenced to four years in prison. Both men were released in 2021.

“It destroyed my family, I missed most of my son’s childhood,” Hayes told the BBC.

“For so long I’ve been an international fugitive … and now I can move on with my life, or try to,” he added.

The decision came after the U.S. Second Circuit Court of Appeal in 2022 overturned the convictions of two traders charged with similar crimes in the United States. Hayes and Palombo, whose appeals were repeatedly rejected by British judges, were allowed to take their case to the U.K. Supreme Court after that ruling.

The U.K.’s Serious Fraud Office began investigating alleged efforts to manipulate Libor in 2012. That ultimately led to the conviction of nine bankers.

“We have considered this judgment and the full circumstances carefully and determined it would not be in the public interest for us to seek a retrial,” the SFO said in response to the Supreme Court ruling.

Libor and Euribor were critical benchmarks that were once used to set the interest rates on everything from business loans to home mortgages and credit card debts. As a result, they also became central to more complex financial transactions such as those used by banks and businesses to bet on interest rate fluctuations.

The benchmarks were vulnerable to manipulation because they were set by banks that could profit from swings in interest rates.

Each day, major international banks were asked to submit the interest rate at which they could borrow money from other banks. An average of those submissions was then used to set the daily Libor and Euribor rates.

During the financial crisis, regulators became aware that some banks were making artificially low Libor submissions to make their institutions seem more creditworthy. Some traders also sought to influence the submissions made by their banks as even small moves in the benchmark rates could boost their profits.

Those risks became even more pronounced during the financial crisis, when lending dried up and bankers had to base their daily submissions on a subjective assessment of the market rather than actual loans.

Libor and Euribor were phased out in recent years, in part because they were seen as worsening the financial crisis.