In August 2015, former UBS banker Tom Hayes sat in a London courtroom after being discovered responsible of eight counts of conspiracy to defraud, for his involvement within the Libor interest-rate rigging scandal. That day, he can be sentenced to 14 years in jail, the longest white-collar sentence in British historical past. Packed within the jail bag he by no means thought he would wish was Amanda Knox’s e book Ready To Be Heard. He learn the memoir in segregation, but it surely wasn’t till his conviction was overturned in July of this yr, after he spent 5 and a half years in a few of Britain’s highest safety prisons, that the title really resonated with him. Now, Hayes is in search of justice for himself—in opposition to his former employer.
On October 23, Hayes filed a $400 million lawsuit in opposition to UBS in Connecticut state courtroom for allegedly wrongly casting him because the “evil mastermind” chargeable for Libor fee manipulation to guard senior executives and keep away from substantial regulatory sanctions and prosecution. The Swiss financial institution paid $1.5 billion to settle numerous U.S., U.Ok., and Swiss regulatory penalties in 2012 when Hayes was criminally charged. The previous banker additionally filed a replica case in opposition to UBS in a New York state courtroom.
Previous to Hayes’ incarceration, he was a extremely profitable dealer. In keeping with the civil grievance, he was positioned to earn no less than $5-10 million yearly for years to return. His funds now, nevertheless, have been decimated. Apart from spending greater than $1 million on his legal protection, Hayes’s property have been frozen by prosecutors and he was debanked. Blackballed from the monetary trade and fired from non-finance jobs because of destructive press reviews, Hayes alleges he has been unable to safe even fundamental employment because of his fame.
Past the financial losses, Hayes’ authorized battles and imprisonment additionally value him his marriage and harmed his well being. Whereas in jail, Hayes informed Fortune, one in every of his cellmates tried to kill him and he required safety from fellow inmates to stay secure. Throughout his trial and in jail, he additionally struggled with melancholy and intense emotional misery. And, 4 years in the past, Hayes was formally identified with a number of sclerosis, which the grievance alleges was triggered by the stress endured all through his prosecution and imprisonment.
“It’s important for people to recognize that this is not about me getting rich,” Hayes informed Fortune. “It’s about stopping corporations screwing over their employees, and the only language that they speak is money.”
UBS paid $1.5 billion in U.S., U.Ok., and Swiss regulatory penalties following the Libor scandal.
CHRIS RATCLIFFE—Bloomberg/Getty Photographs
Hayes isn’t alone in his authorized campaign. From London to Frankfurt, a wave of former bankers who declare they have been thrown underneath the bus for institutional misconduct at the moment are suing their ex-employers for a whole bunch of tens of millions in damages. Most not too long ago, six former Deutsche Financial institution bankers filed lawsuits in opposition to the German lender—after being acquitted of fees associated to a derivatives scandal involving Banca Monte dei Paschi di Siena—claiming the financial institution’s inner investigation wrongfully blamed them for institutional misconduct. And, final yr, two ex-Deutsche Financial institution merchants charged with Libor-rigging settled with the German financial institution in comparable lawsuits for an undisclosed quantity.
The circumstances characterize an rising pattern that consultants say may reshape how companies deal with inner investigations and cooperate with prosecutors—or pressure them to lastly maintain senior administration accountable in the event that they orchestrate the wrongful legal prosecutions of their very own workers.
UBS declined a Fortune request for remark.
The system constructed to be rigged
To grasp why Hayes and others are combating again, it’s important to know what Libor was, why its manipulation mattered, and why Hayes’s case was taken so significantly by the courts.
The London Interbank Supplied Fee, calculated by averaging submissions from main worldwide banks, served as the first benchmark for short-term rates of interest globally. These charges ultimately filtered by into the property mortgage market—the place the Nice Monetary Disaster of 2007 originated.
Each morning, a panel of main banks would submit an estimate of what rate of interest it must pay if it borrowed cash from different banks. Thomson Reuters would then discard the 4 highest and 4 lowest submissions and common the remaining eight to calculate Libor for that day.
The system was designed as an honor system the place banks would report their borrowing prices. However, as the previous Federal Reserve Chairman Ben Bernanke mentioned, the Libor system was “structurally flawed” as a result of banks uncovered to modifications in Libor by derivatives contracts had a major incentive to favorably skew survey responses, and there was little threat in doing so.
Libor-rigging was deeply embedded throughout all the banking trade as a normalized follow. Between 2005 and 2011, merchants at UBS, Deutsche Financial institution, Barclays, Royal Financial institution of Scotland, Rabobank, Citibank, and different main establishments routinely adjusted their Libor submissions to profit their buying and selling positions—typically on the behest of their supervisors, and typically to guard their banks’ reputations in the course of the 2008 monetary disaster.
When regulators lastly got here on the lookout for somebody in charge for the monetary disaster, they cracked down laborious on banks concerned in setting Libor. UBS was fined $1.5 billion in December 2012. Deutsche Financial institution paid $2.5 billion in 2015—the biggest penalty in CFTC historical past on the time. Barclays, RBS, Rabobank, Citibank, and others collectively introduced complete trade fines to over $9 billion.
Former Legal professional Basic Eric Holder ran the U.S. investigation into Hayes and his conduct.
DREW ANGERER—Getty Photographs
The establishments settled and moved on, however particular person merchants confronted legal prosecution. By 2020, 38 people had been charged within the U.S. and Europe, with 20 convicted. Hayes, arrested on December 11, 2012, within the U.Ok.—one week earlier than UBS settled with regulators—was the primary to face a jury trial.
Hayes’ arrest coincided with the U.S. Division of Justice unsealing federal legal fees in opposition to him and fellow UBS dealer Roger Darin. The indictment accused each males of conspiracy to commit wire fraud, wire fraud, and price-fixing violations.
The legal grievance laid out by then Legal professional Basic Eric Holder described Hayes, then 33 years previous, because the “kingpin” of a three-year marketing campaign to govern international rates of interest. Holder, nevertheless, additionally made the controversial determination to not criminally indict UBS itself, as a substitute coming into a non-prosecution settlement. This determination, then Felony Division chief Lanny Breuer mentioned, was primarily based on issues about “collateral consequences” to the monetary system—successfully prioritizing systemic monetary stability over holding a person establishment criminally accountable. The DOJ did criminally cost UBS’s Japanese subsidiary, UBS Securities Japan Co. Ltd., which agreed to plead responsible to felony wire fraud.
Holder didn’t reply to a Fortune request for remark.
The U.S. fees in opposition to Hayes have been finally dropped in January 2022 with out him ever being tried or convicted. Abandoning the indictment got here after the U.S. Court docket of Appeals for the Second Circuit overturned the convictions of two different merchants—Scott Connolly and Colin Whitaker—who had been prosecuted on comparable Libor manipulation fees in federal courtroom in New York in 2018. This appellate determination primarily dismantled the authorized concept that prosecutors had been utilizing to pursue Libor merchants.
The proper fall man
Hayes’ lawsuit paints a damning image of how UBS allegedly deliberate his downfall. In keeping with the grievance, the financial institution “gained control” over the DOJ and CFTC’s inquiries into its personal alleged misconduct by hiring the legislation agency Gibson Dunn to conduct an inner investigation, which might then be offered to authorities. That investigation, Hayes’ grievance claims, was “fundamentally flawed” and designed to determine him as the final word scapegoat.
Gibson Dunn didn’t reply to a Fortune request for remark.
“They call it a cleansing service,” Hayes informed Fortune. “Basically the third party counsel is paid tens, if not hundreds of millions of dollars by these banks who will go in, and identify who’s going to go to jail. They’ll work out with the prosecutors how high up the chain they’ll go. They’ll discuss how much fines they’ll pay.”
By way of this course of, the grievance alleges, UBS and Gibson Dunn recognized Hayes as collateral to be served as much as prosecutors.
A number of components made Hayes a super candidate for this function. He labored in Japan, permitting UBS’s Japanese subsidiary—not its US or Swiss entities—to plead responsible to wire fraud whereas the mum or dad firm secured a non-prosecution settlement. He was comparatively younger, autistic (identified with Asperger’s syndrome simply earlier than his U.Ok. trial, however referred to on the buying and selling flooring as “Rain Man” by his colleagues), and hadn’t attended elite colleges. Most significantly, he left an intensive paper path.
His autism could have additionally contributed to this lack of discretion. “Being on the spectrum gives me a curious sense of loyalty. I always sought approval from my managers,” Hayes mentioned. “There’s no way I would have done anything to let my bosses down. There’s no way I would have done anything that they didn’t want me to do.”
However Hayes insists senior administration not solely knew about his actions—they inspired them. His lawsuit claims UBS had “a company policy to set the rate in alignment with commercial interests.” At the very least 45 UBS workers have been concerned in Libor manipulation, with no less than 2,000 documented requests for inappropriate submissions—plus “an unquantifiable number of oral requests”—based on the U.Ok. Monetary Providers Authority. Between November 2006 and August 2009, Hayes or his colleagues tried to govern Yen Libor on 335 out of 738 buying and selling days. The financial institution had even given merchants formal duty for making Libor submissions, making a direct battle of curiosity.
“We operated in a system that was really grossly conflicted and really poorly set up and really open to conflicts of interest, and us traders, who were basically trained within an inch of our lives to find edge wherever we can, to operate in this system that basically wasn’t regulated, had no rules,” Hayes defined.
Tom Hayes’ former colleagues nicknamed him “Kid Aspergers” and “Rain Man” even earlier than his autism prognosis.
MATTHEW LLOYD—Bloomberg/Getty Photographs
In keeping with Brandon Garrett, a Duke Regulation professor and writer of Too Large to Jail, it’s as a result of these greater up at companies depart much less of a footprint or proof of intent, that they’re tougher to carry accountable. “It is typically lower or middle-level employees who get prosecuted and convicted,” he informed Fortune.
The federal government discount
The dynamic Garrett and Soltes describe creates the proper situations for potential scapegoating. When prosecutors examine company crime, they face a stark alternative: spend years and massive assets (which they usually don’t have) making an attempt to construct circumstances in opposition to senior executives with little direct proof, or settle for the company’s cooperation—together with huge fines—in trade for prosecuting lower-level staff whose fingerprints are everywhere in the misconduct.
Arthur Wilmarth, a legislation professor at George Washington College who has studied banking regulation for many years, defined that authorities need to gather fines from companies and administrations need to reveal they’re powerful on crime—and to perform these objectives they lean on corporations with prosecutorial threats. “There’s a ton of pressure on UBS, because even if UBS thinks internally they didn’t do anything wrong, if UBS gets indicted, they are effectively out of business, because they lose all their banking licenses upon being indicted,” he informed Fortune.
Rising pressures following the 2008 monetary disaster to see particular person accountability, Soltes mentioned, has additionally, by enlargement, pressured organizations to “identify culpable individuals when misconduct does occur.”
In keeping with Wilmarth, this implies figuring out who’s expendable. “Hayes was useful when they were doing all the Libor rigging, but those days are over,” He mentioned. (Libor was phased out in 2021.)
Miriam Baer, the dean and at California Western Faculty of Regulation who focuses on company legal legislation, acknowledges this creates a troubling dynamic, particularly given prosecutors have in mind whether or not or not companies concerned in crimes cooperated with authorities.
“Organizations are incentivized by the law to come forward with information of wrongdoing if they want to demonstrate that they’ve detected wrongdoing, that they’re attempting to change,” she informed Fortune.
The end result, Baer says, is that “the people who feel the greatest accountability legally aren’t always the people who we, the public, would invest with moral responsibility for the ultimate outcome.”
A path ahead
For Hayes, the lawsuit isn’t about cash—although $400 million would characterize one of many largest particular person claims in opposition to a financial institution by a former worker. “One thing I learned in prison is money is just stuff, and stuff doesn’t make you happy,” he mentioned.
As an alternative, Hayes insists the case is about deterrence and accountability. “What is a deterrent for a corporation? Does 10 million matter to UBS? No. Does 100 million matter to UBS? No. Does 400 million matter to shareholders? Maybe a little bit,” he mentioned.
Jonathan Harris, his lawyer, has comparable motivations. “My primary goal is to get some measure of satisfaction for Tom Hayes,” he informed Fortune. “But my secondary goal is … I hate it when companies do this. And I would like them, when they are sitting around the table and deciding to point the finger at some autistic guy in Japan, that they think twice.”
Hayes mentioned he’s desirous to take the stand. However UBS will seemingly file motions to dismiss the case or transfer it from Connecticut to a different venue.
However Hayes has already pressured a dialog about company accountability that prosecutors and regulators have tried to keep away from for greater than a decade. As Wilmarth put it: “Whatever you might think the culpability of the individuals was or might have been, exposing the fact that what they did was absolutely approved and blessed and encouraged by their superiors, that’s a public service.”
However ameliorating banking tradition and compliance, and larger institutional accountability, faces an upward battle, based on Soltes. “The challenge that we face right now when it comes to corporate and individual level accountability, is that there’s a lot of things that people can do that are sketchy and, frankly, undesirable from our economic and financial well being as a society, but because of how the system is set up, and our rules and our means of accountability are simply things that you’re not going to be held, either criminally or civilly accountable or sanctioned for,” he informed Fortune.
Till that occurs, the wave of lawsuits by disgraced bankers will be the solely mechanism forcing establishments to reckon with their function in creating the situations for widespread misconduct—after which sacrificing people to guard the chief suite.
Hayes, for his half, appears at peace with no matter comes subsequent. After discovering Christianity in jail and welcoming a daughter he named Themi (derived from Themis, the Greek goddess of justice), he’s realized to reside with uncertainty. “The one thing I have to believe in, whether it’s worked for me or not, is justice,” he mentioned.
In November 2025, Hayes will journey to Washington, D.C., the place his authorized case has been nominated for authorized case of the yr—an award ceremony mockingly sponsored by Gibson Dunn, the very legislation agency he alleges helped UBS scapegoat him. Regardless of fears he may nonetheless be arrested, Hayes is set to attend.
“I have to confront the thing I’m so scared of,” he defined. “If I can go to Washington and leave Washington, then I’m not going to be afraid of going anywhere. I’ll be fine for the rest of my life.”
