DoJ Finds Major Banks Guilty of FX Manipulation, Hands Nearly $3B in Fines

Major banks were hit hard today as the US Department of Justice (DoJ) announced results in its investigation of FX price rigging in the foreign Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term market. In tandem with the DoJ’s enforcement, numerous regulators announced penalties against violators in addition to the multi-billion dollar fines that were announced in November 2014. Altogether, nearly $6 billion in fresh fines against banks were announced today for their participation in manipulating the FX markets.

In announcing the DoJ’s verdict, US Attorney General, Loretta Lynch, stated that the group of banks had created a fitting name for themselves when they called their “the Cartel” in 2007. Lynch explained:

"For more than five years, traders in “The Cartel” used a private electronic chatroom to manipulate the spot market’s exchange rate between euros and dollars using coded language to conceal their collusion. They acted as partners – rather than competitors – in an effort to push the exchange rate in directions favorable to their banks but detrimental to many others."

All in all, Lynch announced nearly $3 billion in fines and penalties that banks will be paying as part of the DoJ’s enforcement. With five banks pleading guilty, Lynch called their actions a “brazen display of collusion and foreign exchange rate market manipulation." Among the firms, five major banks, Citicorp, JPMorgan, Barclays, RBS and UBS pleaded guilty to felony charges. Four of them, Citicorp, JPMorgan, Barclays and RBS also agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros, receiving criminal fines totaling more than $2.5 billion.

Brazen display of collusion and foreign exchange rate market manipulation - AG Lorreta Lynch

While excluded from the FX manipulation plea, UBS agreed to pay a $203 million criminal penalty for its involvement in manipulating the LIBOR. In that investigation of the LIBOR, Barclays was found to have violated federal crimes and paying $60 million in fines.

Reacting to the penalties, Michael Hausfeld, Chairman of Hausfeld LLP, whose firm has advised clients in class action suits which have led to $800 million in settlements against major banks, stated, “The banks pleaded guilty to colluding with their competitors to fix the foreign exchange rates at the expense of their customers in the world’s largest financial market. The rights of customers cannot be subordinated to the self interest of trader profit." He added, “Where there is a failure of this responsibility, it must be clear that there will be accountability."

Among the five banks, Citicorp was the hardest hit, as they received a $925 million fine which is the largest single fine ever imposed for a violation of the Sherman Act. For its part, Barclays agreed to a fine of $650 million, while also having received a penalty from the CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term today. Also fined were JPMorgan and RBS, agreeing to pay $550 million and $395 million respectively.

According to the DoJ’s findings, the Cartel has been manipulating the FX market as early as December 2007 until at least January 2013. During that time, Citicorp was the most active, having been part of the Cartel throughout the duration of its five-year plus existence.

The Verdict:

• Citicorp, which was involved from as early as December 2007 until at least January 2013, has agreed to pay a fine of $925 million
• Barclays, which was involved from as early as December 2007 until July 2011, and then from December 2011 until August 2012, has agreed to pay a fine of $650 million. Also paying $60 million in LIBOR related penalties
• JPMorgan, which was involved from at least as early as July 2010 until January 2013, has agreed to pay a fine of $550 million
• RBS, which was involved from at least as early as December 2007 until at least April 2010, has agreed to pay a fine of $395 million
• UBS fined $203 million for a one-count felony charge of wire fraud in connection with a scheme to manipulate LIBOR and other benchmark interest rates