UBS AG Former Trader Tom Hayes. Prosecutors accused Roger Darin of conspiring with... Read More
Roger Darin, a former UBS AG (UBSN) trader in Zurich charged with conspiring to manipulate benchmark interest rates, is asking a judge to throw out the case, saying his alleged conduct had no connection to the U.S. The Justice Department’s response to the challenge is due today.
A win by the Swiss national could make it harder for the U.S. to ensnare foreign traders in its probe of currency manipulation, which has been under way for more than a year and may dwarf the long-running investigation into the rigging of benchmark interest rates set in London. While the currency probe has yet to result in any charges, prosecutors say they are coming soon.
“A government loss would
be huge,” said Trace Schmeltz, a defense lawyer at Barnes & Thornburg LLP, who represents a number of foreign exchange traders. “It would give traders ammunition to attack the reach of prosecutors overseas.”
Last month, Attorney General Eric Holder promised to bring criminal charges against bankers as the department closes in on allegations that dealers colluded to rig currency benchmarks and leaked confidential client orders to counterparts at other firms. The wide-ranging probe is being run by the same Justice Department divisions investigating manipulation of the London Interbank Offered Rate, or Libor.
Darin has an uphill climb to wrestle himself free from U.S. prosecutors in the Libor case. Federal judges in New York have set a favorable standard for prosecutors seeking to enforce U.S. laws barring collusion and cartel activity overseas and the government has a successful track record, said Spencer Weber Waller, a law professor at Loyola University in Chicago.
Jail Time
“There are just dozens of executives not from the United States who are serving time in our jails for price-fixing conduct that took place abroad,” Waller said in an interview. “That’s just a fact of the current enforcement environment.”
The Justice Department has examined traders around the globe in its hunt for fraud involving financial benchmarks that affect everything from mortgages to retirement investments. One focus of the currency investigation are the WM/Reuters rates for 160 currencies, which are benchmarks used by companies and investors around the world.
Last month, Attorney General Eric Holder promised to bring criminal charges against... Read More
‘The Cartel’
Investigators are looking into allegations that traders shared data about orders with people at other firms using instant-message groups with names such as “The Cartel” and “The Bandits’ Club.” Salespeople are also under scrutiny over how much they charged customers to exchange currency.“These are sophisticated financial traders,” said Robertson Park, a former federal prosecutor who worked on the Libor investigation. “They know that if they muck with a benchmark that it has an impact on U.S. traders, that it has an impact on U.S. markets and other U.S. financial products.”
Many of the more than two dozen currency traders who’ve been fired, suspended or put on leave by banks reside overseas.
Based on previous cases, the Justice Department will likely ask the judge to throw out Darin’s challenge, claiming the trader is a fugitive who under federal law can’t fight the allegations against him without appearing in court.
Rate-Rigging
Darin is among 11 traders outside the U.S. charged by the Justice Department with attempting to rig Libor. Prosecutors accused him of conspiring with fellow UBS trader Tom Hayes to commit wire fraud. The government alleged Hayes traded with an unnamed party in Purchase, New York, giving the U.S. jurisdiction. Darin was charged with two counts of fraud and one antitrust violation in Manhattan in 2012.Darin, who isn’t in custody, said in an Oct. 2 court filing he has no connections to the U.S. and no aspect of his conduct was directed toward the country, its currency or any citizen. Darin now works at FX Diversity AG in Zurich, which he founded.
“If the government’s sweeping theory is accepted, then federal law could be used to prosecute any foreign national, acting outside the United States, who has affected any piece of financial information that can be accessed through the Internet,” Bruce Baird, Darin’s lawyer at Covington & Burling LLP, said in the filing.
Due Process
Baird said the case violates the due process clause of the Constitution because Darin didn’t have “fair notice” that the alleged conduct violated the nation’s laws. He said the government hasn’t established that Darin aimed to harm the U.S., which he says they’re required to do.Citing a 2010 Supreme Court decision in a civil securities-fraud case, Baird also argued the wire fraud and conspiracy charges must be dismissed because those statutes don’t clearly indicate they were intended to apply outside the U.S.
Baird and Peter Carr, a Justice Department spokesman, declined to comment on the case.
There’s a lack of recent court decisions on jurisdiction over non-U.S. residents in fraud cases, partly because companies often plead guilty or settle, said Park, a lawyer at Murphy & McGonigle in Washington. Judges have split over whether non-U.S. defendants can even have their challenges considered without first appearing in court.
“The government staked out an aggressive posture on its authority and reach, and by and large, they’ve not been challenged,” Park said. “Individuals are much more likely to consider challenging it.”
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