Boss Wanted to Rig Libor as Others Do, Deutsche Bank Trader Says

(Bloomberg) -- A former Deutsche Bank AG employee said his boss was so frustrated that trading positions were undermined by competitors he believed were manipulating the benchmark Libor lending rate that he ordered subordinates to take steps to rig the measure in their favor.

Tim Parietti, who worked as a derivatives trader for Deutsche Bank from 2000 to 2012, testified in a New York court that his team was under a lot of pressure to make money and that traders didn’t trust the process for calculating Libor.

The benchmark is based on the average lending rate of the world’s biggest banks and used to value trillions of dollars in financial products. Most everyone on the team believed other banks were considering their own trading positions when they submitted lending data for the daily Libor calculation, he said.

According to Parietti, in early 2006, Matthew Connolly, who supervised the money-market derivatives desk in New York, said he was “tired of all this Libor bull****” and ordered the team to send emails disclosing trading positions to those responsible for the bank’s submissions. Parietti testified that he complied, but knew what he was doing was wrong.

"It was pretty obvious that Libor is a really important benchmark," said Parietti, 52, of St. Petersburg, Florida. "A lot of people everywhere had payments, you know, the cash value of what they had to pay on their obligations, determined by it. So it was clear that it needed to be fair and objective. And it was clear that it wasn’t fair and objective if, you know, the submitters were biasing it to make their own bank more money."

Alleged Co-Conspirators

Connolly is on trial along with Gavin Black, a former Deutsche Bank derivatives trader who worked in London, on charges they rigged the London interbank offered rate, known as Libor, to boost the bank’s trading profit and increase their own bonuses.

Parietti, who has pleaded guilty to conspiracy to commit wire fraud and bank fraud, is the second of three alleged co-conspirators expected to take the stand in the trial, which began Sept. 18 before U.S. District Judge Colleen McMahon.

James King testified for the government earlier as part of a deal in which he won’t be prosecuted. King said he altered the bank’s Libor submission at the request of traders. King’s boss, Michael Curtler, who has also pleaded guilty, is expected to take the stand later in the case.

Bank Submissions

Shortly after his conversation with Connolly, Parietti said he began sending his trading positions to the bank’s Libor-data submitters. The first instance was on March 20, 2006, when he asked King in an email to boost the three-month rate to benefit a $6.5 billion swap.

“My expectation was that he would consider my position when making his final submission,” Parietti said. “I knew it was wrong to base the submission on my position rather than the cash market.”

Parietti said he didn’t tell counterparties that he was trying to influence the bank’s submissions because he didn’t want them to know he had an “unfair advantage” and didn’t tell the British Banking Association “because I was cheating and I might get in trouble.”

Under questioning from Connolly’s attorney, Kenneth Breen, Parietti admitted that senior managers above Connolly encouraged traders to share information about their positions with Libor submitters. But he also denied that there was “nothing secret about” the practice.

“There was something secret about it,” Parietti said. “It was a secret that I didn’t discuss with anyone else outside our group.”

Second Trial

The trial of Connolly and Black is the second in the U.S. over allegations that traders manipulated Libor to benefit their positions and boost their bonuses. During the first trial in 2015, jurors in Manhattan found two former Rabobank Groep traders guilty, but their convictions were later thrown out when an appeals court found their case had been unfairly tainted by testimony to a U.K. regulator. Two Societe Generale SA traders have been charged in federal court in Brooklyn with similar conduct.

Dozens of traders have been charged by authorities in the U.S. and the U.K. since a global crackdown on the practice began more than seven years ago, although only a handful have been convicted at trial. Banks including Deutsche Bank and Barclays Bank Plc have agreed to pay more than $9 billion in fines related to the allegations.

Lawyers for Connolly and Black have argued that there were no clear rules on how Libor was calculated until at least 2008, that banks weren’t barred from taking trading positions into account until 2013, and that traders at Deutsche Bank openly communicated with each other and weren’t aware that they were breaking the law when discussing their trades.

The case is U.S. v Connolly, 16-cr-00370, U.S. District Court, Southern District of New York.

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at cdolmetsch@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Steve Stroth, Elizabeth Wollman

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