MANHATTAN (CN) — In the first Libor action regulators have taken against a U.S. bank, the Commodity Futures Trading Commission slapped Citigroup and two of its Japanese affiliates Wednesday with $425 million in penalties for manipulating Libor, Tibor and ISDAFix currency swap rates.
The commission's settlements break down into two separate schemes.
In the first, Citibank and its affiliates Citibank Japan and Citigroup Global Markets Japan owe $175 million, jointly and severally, for trying to manipulate the price of yen on LIBOR, short for the London interbank offered rate, and false reporting on the Euroyen Tokyo interbank offered rate, more commonly known TIBOR.
The scheme occurred for several months in 2010.
During the financial crisis two years earlier, Citigroup submitters adjusted their rates to avoid negative publicity, the CFTC says.
"I note that our 1-6mths LIBORs were the highest out of all contributors," one submitter said, as quoted in the commission's order. "Given the potential negative publicity that this could have I would go lower (and certainly try to avoid being the highest). [...] Not a big issue so I am trying to not blow it out of proportion. I know it's difficult but just try to avoid being highest, no need to be lowest, etc."
Citibank also has to pay $250 million for a five-year scheme — between January 2007 and January 2012 — wherein it attempted to manipulate and file false reports regarding ISDAFix, a global benchmark for interest rate products. The name is short for U.S. dollar international swaps and derivatives association fix.
Commission documents quote a Citibank exotics traders boasting about his ability to move the benchmark in instant messages.
"[I] push the 2s10s swap on the screen to 183.4, very proud of myself," one message read.
Another quoted a colleague as being "pretty good at it."
"[I] actually push the isdafixing on the days when it's close ... surprising[ly] easy to push! [I] think last week, [I] pushed it 3bps from 10:55 to 11:05 :)," another message said.
The trader is not named in the commission's order.
The Department of Justice did not respond to an email requesting comment on whether it has launched a criminal investigation into the conduct.
CFTC enforcement director Aitan Goelman said in a statement that the commission "remains steadfast in its commitment to ensure the integrity of global benchmarks that are critical to the U.S. and international financial markets."
"As evident by today's actions, the CFTC's vigilance includes holding a financial institution, like Citi, responsible each time it acts to undermine a benchmark for its personal profit or benefit," he said. "At the same time, the CFTC recognizes Citi for promptly self-reporting the Yen LIBOR misconduct to the Division of Enforcement."
Combined with a $310 million penalty for foreign exchange, Citigroup has been fined a total of $735 for benchmark manipulation.
In a statement, a Citibank spokeswoman called the settlements a "significant step" in resolving its legacy benchmark rate investigations.
"In addition to adopting industry-wide reforms related to participation in benchmark rates, Citi has made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behavior," managing director Danielle Romero-Apsilos said in an email. "Our greatest priority is to ensure that we conduct business in keeping with the highest ethical standards. We continue to fully cooperate with pending investigations conducted by other agencies related to benchmark rate submissions."
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