Ex-Deutsche Bank Trader Says He Set Libor Rate to Aid Positions

(Bloomberg) -- A former Deutsche Bank AG trader who was responsible for submitting the company’s daily borrowing rates -- combined with those of other banks to calculate the Libor benchmark -- said he would often alter the figure at the request of other traders to benefit their own positions.

James A. King took the stand Thursday in New York on the second day of a trial of Matthew Connolly and Gavin Black, former Deutsche Bank traders who are charged with conspiring to manipulate Libor from 2004 to 2011 to boost profits on particular trades and increase their own bonuses.

King, who testified for the government as part of a deal in which he won’t be prosecuted, explained how traders often asked him to raise or lower the submission to help their own positions -- including Black, who sat nearby in the bank’s London office and could simply turn around and ask him to change it.

“It was pretty straightforward on any given day,” said King, who left the bank at the end of 2012. “The desk was very close. We were there for a long time. It was very easy for someone like Gavin Black to turn around and talk about Libor during the day.”

King, 41, who lives in London, told the jury in federal court in New York how he would make the bank’s daily Libor submission, talking to brokers to see what was happening in the market and using a spreadsheet called “the pricer” that showed data related to Deutsche Bank’s daily cash transactions.

Altered Submissions

However, that procedure wasn’t always followed, King said. He sometimes altered the rate at the request of traders like Black, which King said abused the bank’s position as a Libor-rate submitter.

“We would take advantage of that position to benefit traders,” King said. “It’s intuitively wrong. We had an unfair advantage.”

King’s testimony will resume Monday. The government’s first witness, Dartmouth College economics professor Thomas Youle, explained to the jury earlier about the role of the London interbank offered rate -- a daily estimate of the borrowing costs of the world’s biggest banks that is used to value trillions of dollars of financial products.

During their cross-examination of Youle, defense lawyers quickly turned to questions about the British Banking Association’s rules for Libor submissions, hammering home their central theme -- that there were no hard and fast rules on submissions at the time Connolly and Black are accused of rigging the benchmark.

Clearer Rules

The defendants have maintained that it wasn’t until June 2008 that Libor rules made clear what factors banks could consider while making submissions. That’s three years after Connolly left Deutsche Bank. They also contend that banks weren’t prohibited from considering their own derivative trading positions while submitting rates until April 2013.

Youle testified that while there may not have been specific rules, such as requiring someone with “relevant experience in the market” to set the rate, banks were supposed to make the submissions “in the spirit” of the BBA’s definition of the benchmark.

“The purpose is to accurately measure the interbank rate,” Youle said.

The trial is the second in the U.S. involving allegations that traders rigged Two former Rabobank Groep NV traders were found guilty in 2015 in New York, but their convictions were thrown out last year when an appeals court ruled that their forced testimony to a U.K. regulator was used improperly.

Companies including Deutsche Bank and Barclays have agreed to pay more than $9 billion in fines related to rate-rigging allegations since a global probe into the practice began more than seven years ago. Dozens of traders have been charged with manipulating the rate in the U.S. and the U.K., although only a handful have been convicted at trial.

The case is U.S. v. Connolly, 16-cr-370, U.S. District Court, Southern District of New York.

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