'Captain Caos' was so challenged he couldn't spell his own name.
In its $1.5 billion settlement with various countries’ authorities, UBS admitted to thousands of instances of interest- rate manipulation, involving more than 100 employees and managers, in currencies including the Japanese yen, the British pound, the Swiss franc, the U.S. dollar and the euro. The actions affected the London interbank offered rate, the global benchmark that influences the value of hundreds of trillions of dollars in mortgages, corporate loans and derivatives.
What sets UBS apart is not only the sheer extent of the behavior, but also the level of collusion with traders at other banks and the outright bribery of brokers who helped coordinate the manipulation.
One instance, which we call the “captain caos” scheme, deserves its place in the hall of fame of financial chicanery. According to the final notice from the U.K.’s Financial Services Authority, traders at UBS colluded with their peers at other banks “by entering into facilitation trades that aligned their respective commercial interests,” so they could all benefit from manipulating interest rates in Japanese yen.
A UBS trader, according to the FSA notice, promised this to a broker aiding in the rigging effort: “I’ll pay you, you know, 50,000 dollars, 100,000 dollars ... whatever you want ... I’m a man of my word.” The spelling-challenged traders and brokers who took part in the scheme came to address one another with monikers such as “the three muscateers” and “captain caos.”
The yen manipulation stands out in another significant way: In a deal with the U.S. Justice Department, UBS’s Japanese subsidiary admitted to wire fraud. As we previously noted, wire fraud is one of the primary statutes U.S. prosecutors could use in pursuing criminal charges against individuals involved in Libor manipulation. The statute prohibits the use of any interstate or international communication in furtherance of an effort to deceive for personal gain. It carries a sentence of as much as 30 years in prison.