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The LIBOR (the London Interbank Offered Rate) scandal has drawn worldwide attention to the illegal practice of financial market manipulation. In both the UK and US, allegations of rate-rigging and insider-trading has resulted in enforcement actions against, and criminal investigations into, individuals and firms, as well as reforms to the regulation and supervision of financial markets themselves.

Here we provide an overview of how LIBOR is regulated and LIBOR-rigging offences, including those introduced by the Financial Services Act 2012 as well as the common law offence of conspiracy to defraud. If you are involved in a current investigation, or looking for legal advice in relation to any market manipulation matter, please contact our team of expert lawyers. We have vast experience providing legal advice and assistance in this specialist area.

LIBOR Regulation

LIBOR is primarily regulated by the Financial Conduct Authority (FCA), an independent regulatory organisation. The powers of the FCA are quite comprehensive but specifically in reference to LIBOR, it has the authority to conduct an investigation into both organisations and individuals that it suspects of interfering with the LIBOR rate.

The Serious Fraud Office (SFO) also has a role in policing LIBOR. As the UK agency responsible for regulating fraudulent activity, it is empowered to investigate any instances of fraud including those related to LIBOR. Like the FCA it is also entitled to investigate the activities of both individuals and organisations in relation to LIBOR manipulation.

LIBOR-Rigging Offences

The most important piece of legislation in the area of financial market manipulation is the Financial Services Act (FSA) 2012, which sets out the details regarding the offences for the manipulation of financial markets.

False or Misleading Statements

Under section 89 of the FSA, it is a criminal offence to:

  • Make a statement that you know to be false or misleading in a material way; or
  • Make a statement that is false or misleading in a material way, or are reckless as to whether or not your statement is false or not; or
  • Dishonestly conceal material information that relates to your statement.

The important point to note is that you will only have made a false or misleading statement if:

  • You do so, or hide information in the hope of inducing someone else to enter into, or avoid entering into a commercial agreement e.g. lend money; or
  • You do so, or hide information in the hope that someone else does not exercise their rights in respect to an investment of theirs.

False or Misleading Impressions

Under section 90 of the FSA, it is a criminal offence to:

  • Create a false or misleading impression as to the price or value of, or the market in which an investment sits.

As above, the important point to note is that this offence will only have been committed if:

  • You make the impression with a view to causing someone to do something with their investment, or to prevent them from exercising their rights to that investment; and
  • In so doing you hope to benefit either yourself or someone else, or cause someone else to suffer loss or at least be exposed to the risk of loss.

Manipulation of Benchmark Rates

Under section 91 of the FSA, it is a criminal offence to make any misrepresentation in setting the benchmark rate (LIBOR), or to give false impressions on the value of an investment that may in time have an impact on the benchmark rate.

It is important to understand that sections 89 and 90 of the FSA are more concerned with regulating conduct in the financial markets more generally, while section 91 is specifically concerned with regulating benchmark regulation. However, taken together all three offences provide for a comprehensive framework to regulate the conduct of both individuals and organisations.

Conspiracy to Defraud

It is also an offence at common law (law that has been developed in the courts) to be involved, in any way, with conspiracy to conduct a fraudulent act. This will include conspiracy to manipulate LIBOR. The important point to keep in mind is that with this offence, if there is any evidence of an agreement between individuals to do something, e.g. manipulate LIBOR, which is never carried out, the offence of conspiracy will have been committed.  

Are there any Defences?

Defences for allegations of financial manipulation include:

False or Misleading Statements

It is a defence to an allegation for having made false or misleading statements if you can demonstrate that:

  • You made the statement while complying with Price Stabilising Rules; or
  • You made the statement in compliance with Control of Information Rules.

False or Misleading Impressions

You will be able to mount a defence against an allegation for giving a false or misleading impression if you can show:

  • That you did not think that your behaviour would create that impression; or
  • That you did something to give that impression, while either meeting Price Stabilising or the Control of Information Rules.

Manipulation of Benchmarks

The defences for allegations of manipulating LIBOR are the same as those for making false/ misleading impressions or statements.

Conspiracy to Defraud

The defences available for allegations of Conspiracy to Defraud are limited. Essentially, in any attempt to defend an allegation of conspiracy, you must be able to demonstrate a lack of any intention to engage in dishonest behaviour, i.e. LIBOR manipulation.

LIBOR Manipulation Criminal Defence

The law surrounding financial market manipulation requires not only an understanding of financial practices, but also a sound appreciation for how the law recognises different kinds of conduct. You must ensure that you work alongside legal advisors with experience in this area, who will be able to conduct a forensic analysis of the activities that may arise suspicion from the industry regulator.

At Lewis Nedas, we host an expert team of lawyers who have been involved in handling allegations of financial market manipulation for many years. If you have been approached by the FCA regarding any aspect of financial market manipulation, please contact use. We will work in partnership with you, and will represent you in any discussions that need to take place with the regulator. Contact us now.

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