Barclays Libor Duo Cheated Way to Profits, Prosecutor Says

(Bloomberg) -- Two former Barclays Plc traders charged with rigging a key interest-rate benchmark readily abandoned honesty and integrity in the pursuit of illegal profits, prosecutors said on the first day of a London trial.

Stylianos Contogoulas, 45, and Ryan Reich, 35, who were based on the London and New York swaps trading desks at Barclays, are charged with conspiring to manipulate the U.S. dollar London interbank offered rate, or Libor, from 2005 to 2007. They "dishonestly agreed to procure or make submissions of rates by Barclays" to create an advantage to the trading positions of the bank’s employees, according to a copy of the indictment.

"Honesty and integrity were matters that were entirely expendable," Emma Deacon, a prosecutor for the Serious Fraud Office, said Tuesday. "Their singular goal was to make more profit on their trading."

The Libor dollar rate was determined by a panel of 16 banks asked in a daily poll to estimate how much it would cost them to borrow from each other for different periods. The rate is tied to a variety of financial products, including loans and mortgages. Deacon said this was a "simple case" and the jury don’t need to be financial experts to understand it.

"As a fraud, you may think in essence it’s actually quite simple. Essentially, it’s cheating," Deacon said. Traders and submitters would "nudge the rate this way and that to suit their trading positions on particular dates, to their financial gain and to the financial detriment of the counterparties to the deals."

Contogoulas and Reich, who are Greek and American respectively, have pleaded not guilty. Deacon said that two other former Barclays employees, Peter Johnson and Jonathan Mathew, who were responsible for submitting Libor rates, have been convicted of manipulating the rate.

Barclays traders in London and New York would ask the rate submitters for their preferred position each day in emails, online chats or phone calls -- the requests, many of which are in writing, are central to the conspiracy, prosecutors said.

‘Write a Book’

"When I quit this business and write a book about it all, I will write good things about you, he-he," Contogoulas said in a January 2006 message to Johnson after he agreed to set a high rate the following day.

"Bear in mind, quite frankly, if the traders did not believe Mr. Johnson’s or Mr. Mathew’s submissions could have any impact on the rate, they wouldn’t have continued to make the requests," Deacon said.

Contagoulas gained a computing degree from Imperial College, London and an MBA from Manchester Business School. He joined Barclays in October 2001 on the U.S. dollar fixed income swaps desk before moving to Merrill Lynch in July 2006.

After graduating from Princeton University in 2004, Reich joined Citigroup as an analyst in New York. He got a job at Barclays in August 2006.

Reich and Contagoulas’ time at the bank didn’t overlap "indeed it is not alleged that they conspired directly together," Deacon said.

To contact the reporters on this story: Jeremy Hodges in London at jhodges17@bloomberg.net, Suzi Ring in London at sring5@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser, Paul Armstrong