The Spider Network
Dedication
For Kirsten, Henry, and Jasper
Contents
Cover
Title Page
Dedication
Cast of Characters
Prologue
Part I: The Scam Chapter 1: Watching the Coronation
Chapter 2: The Hall of Mirrors
Chapter 3: Classy People
Chapter 4: Peak Performance
Chapter 5: The Lucky Turnstile
Chapter 6: The Sycophants
Chapter 7: Your Name in Print
Chapter 8: A Yacht in Monaco
Part II: Ascendance Chapter 9: What’s a Cabal?
Chapter 10: Entre Nous
Chapter 11: Gods of the Sea
Chapter 12: In the Flag Room
Chapter 13: A Slap on the Wrist
Part III: The Second Scam Chapter 14: He’s the One
Chapter 15: Spiders
Chapter 16: A Crook of the First Order
Chapter 17: The Unit Cost of Steak
Chapter 18: Charades
Part IV: Victory Chapter 19: Within the Ark
A Note on Sources
Acknowledgments
Notes
Index
About the Author
Copyright
About the Publisher
Cast of Characters
The Family
Tom Hayes. Photograph used with permission from Andrew Cowie/AFP/Getty Images.
Tom Hayes: Star trader at a succession of banks
Nick: Hayes’s father
Sandy: Hayes’s mother
Robin: Hayes’s younger brother
Peter and Ben O’Leary: Hayes’s stepbrothers
Sarah Tighe: Lawyer who eventually marries Hayes
The Traders and Bankers
Royal Bank of Scotland (RBS)
Brent Davies: Hayes’s mentor, later an ICAP broker
Paul White: Libor submitter
Neil Danziger: Party-loving trader
Sarah Ainsworth: Trader; Hayes’s girlfriend; later, Crédit Agricole trader
UBS
Mike Pieri: Trader and manager who hires Hayes in Tokyo
Mirhat Alykulov: Junior trader, nicknamed “Derka Derka”
Roger Darin: Trader and Libor submitter who becomes Hayes’s nemesis
Yvan Ducrot: Executive aligned with Darin
Naomichi Tamura: Trader and manager
Sascha Prinz: Risk-loving trader and executive
Carsten Kengeter: Co-head of investment banking division
Alex Wilmot-Sitwell: Co-head of investment banking division
Panagiotis Koutsogiannis: Trader known as “Pete the Greek”
Holger Seger: Manager
Andrew Smith: Trader and Libor submitter
Citigroup
Chris Cecere: Trader, Hayes’s boss
Brian Mccappin: Karaoke-loving CEO of Japanese investment bank
Hayato Hoshino: Trader in London tasked with helping Hayes
Andrew Morton: Senior investment banking executive
Andrew Thursfield: Libor submitter and manager in London
Laurence Porter: Libor submitter, Thursfield’s underling
Burak Celtik: Libor submitter, Porter’s underling
Deutsche Bank
Guillaume Adolph: Trader, nicknamed “Gollum”
David Nicholls: Trading manager
Mark Lewis: Executive who talks with Hayes about possible job
Other Banks
Alexis Stenfors: Hotshot trader at Bank of America Merrill Lynch
Paul Robson: Rabobank trader and Libor submitter, nicknamed “Pooks”
Stuart Wiley: J.P. Morgan trader
Luke Madden: HSBC trader
Miles Storey: Barclays Libor official
Paul Ellis: Credit Suisse trader
The Brokers
Darrell Read, Noel Cryan, Colin Goodman, Terry Farr, Danny Wilkinson, and Jim Gilmour. Photograph used with permission from BBC Motion Gallery/Getty Images.
ICAP
Darrell Read: Broker renowned for his university degree and large nose
Colin Goodman: Broker who sends out influential Libor “run-throughs”
Danny Wilkinson: Red-faced broker and manager
Frits Vogels: Manager in London
Michael Spencer: Founder and CEO
David Casterton: Spencer’s right-hand man, nicknamed “Clumpy”
Anthony Hayes: Broker at Tokyo affiliate, nicknamed “Abbo”
RP Martin
Terry Farr: Happy-go-lucky, motorcycle-crashing broker
Jim Gilmour: Down-on-his-luck broker
Lee Aaron: Broker, nicknamed “Village”
Cliff King: The three brokers’ manager
David Caplin: CEO, nicknamed “Mustard”
Tullett Prebon
Noel Cryan: Amateur boxer, broker
Mark Jones: Party animal, broker
Nigel Delmar: Broker, Hayes’s best friend in Tokyo
Danny Brand: Broker in Hong Kong
Angus Wink: Senior executive
The Authorities
Bank of England
Mervyn King: Governor
Chris Salmon: Senior official
British Bankers’ Association (BBA)
Angela Knight: CEO
John Ewan: Official in charge of Libor
U.S. Commodity Futures Trading Commission (CFTC)
Gary Gensler: Chairman
David Meister: Head of enforcement division
Stephen Obie: Enforcement official
Vincent McGonagle: Enforcement official
Gretchen Lowe: McGonagle’s deputy
U.S. Justice Department
Denis McInerney: Head of fraud division
Robertson Park: Lawyer in fraud division
William Stellmach: Lawyer in fraud division
Scott Hammond: Lawyer in antitrust division
U.K. Financial Services Authority (FSA)
Margaret Cole: Head of enforcement
Patrick Meaney: Investigator
U.K. Serious Fraud Office (SFO)
David Green: Director
Matt Ball: Investigator
The Lawyers
Lydia Jonson: Hayes’s lawyer, from Fulcrum Chambers
Ivan Pearce: Hayes’s lawyer, from Fulcrum Chambers
Steven Tyrrell: Hayes’s U.S. lawyer (previously at Justice Department)
George Carter-Stephenson: Hayes’s barrister before his trial
Neil Hawes: Hayes’s barrister during his trial
Mukul Chawla: Barrister representing the SFO
Jeremy Cooke: Judge presiding over Hayes’s trial
Gregory Mocek: Barclays lawyer (previously at CFTC)
Gary Spratling: UBS lawyer (previously at Justice Department)
Prologue
The small ski resort town, nestled in the mountains outside the city of Karuizawa, was a popular destination for day trips for Japanese families. Bustling during the day, it was mostly quiet this Saturday night. Clouds cloaked the moon.
A chartered bus pulled up outside a bar, its windows aglow. A light snow was falling. Out into the peaceful evening stumbled dozens of rowdy bankers, some toting tall cans of Asahi and Kirin. Most of them were drunk. They quickly took over the small bar.
The drinkers were employees of the American bank Citigroup, one of the world’s largest and most troubled financial institutions. A year earlier, at the beginning of 2009, American taxpayers had finished pumping a staggering $45 billion into Citigroup to bail out the collapsing behemoth. Now the transfused recipient was treating dozens of its investment banking employees to a weekend getaway. The bankers were housed nearby in a sprawling luxury hotel, each employee’s room designed in Japa
n’s typical spare style.
These festivities weren’t so spartan. The point was to foster camaraderie, and that was happening in spades. The party had begun on the hundred-mile ride on the bullet train out from Tokyo. After a day of hitting the slopes, Citigroup ferried the bankers to a bowling alley, where they drank and bowled and drank some more. Their bus had then deposited the intoxicated crew at this bar, before leaving the partiers behind to fend for themselves.
One of the fiesta’s ringleaders was a wiry, curly-haired American named Chris Cecere. You wouldn’t know it from his behavior now, but he was one of the sharpest people in Tokyo’s cutthroat financial markets. A foul-mouthed veteran of the doomed Wall Street firm Lehman Brothers, Cecere (pronounced CHECK-er-ay) had only worked in Japan for a year or so, but he had quickly assembled a team of rock-star traders. His mandate was to push the already risk-hungry Citigroup into brave new financial frontiers.
That wasn’t all Cecere was pushing. This snowy night, he was practically pouring shots down the throat of his subordinate, a disheveled British thirty-year-old named Tom Hayes. Slim and nearly six feet tall, Hayes was a brilliant mathematician, one of the most prolific, aggressive traders in Tokyo, if not the world. As with Cecere, he didn’t look or act the part. Bespoke suits and expensive shoes were found nowhere in his wardrobe. Specks of dandruff dusted his shoulders. He was far happier with a glass of orange juice or a mug of hot chocolate than a pint of beer, a preference that once earned him the nickname “Tommy Chocolate.”
Hayes found social situations uncomfortable to the point of painful—this one included. Before departing for the ski weekend, he had grumbled to his fiancée that he didn’t want to go. She told him he didn’t have a choice. Hayes’s life revolved around work, and Citigroup was his new family. He had only started there a couple of months earlier, and it was important that he make a good impression on his colleagues. So far, he was off to a promising start in that regard. His new bosses bathed him in praise, introducing him around Citigroup’s global organization as their newest trophy asset. Only hours before they showed up at the bar, a top Citigroup executive, Brian Mccappin, had described Hayes as “a star” who represented the future of the firm’s enormous business in Tokyo. Mccappin proclaimed that their division would further shift its trading approach to take advantage of their new hire’s extraordinary talent. Hayes was certainly being paid like a star. After years of feeling like he was getting stiffed by six-figure payouts at his former employer, the Swiss bank UBS, he had pocketed a roughly $3 million cash signing bonus when he joined Citigroup.
Mccappin, the CEO of Citigroup’s investment bank in Japan, came along to the bar that night, along with Cecere and Hayes. A native of the gritty English city of Birmingham, Mccappin was tall, with a chubby, dimpled face. A talented singer at thirteen, he and a friend had formed a band called Deadline that sometimes performed at a pub frequented by workers, including Mccappin’s father, emptying out of a nearby Rolls-Royce plant. After Deadline split, some of its members went on, years later, to form Ocean Colour Scene, which briefly rose to fame touring with Oasis. By then Mccappin had moved on to other things, but that didn’t stop him from occasionally claiming that he’d been a founding member of the infinitely more familiar band.
At the time Hayes arrived at Citigroup, the main outlet for Mccappin’s stymied musical ambitions was karaoke, and he was a frequent and enthusiastic practitioner. As Mccappin belted out tunes this night, Hayes grudgingly accepted shot after shot of Jägermeister from Cecere. He struggled to swallow the sweet herbal concoction, fighting an increasingly powerful gag reflex. But he kept throwing the shots back, unwilling or unable to withstand Cecere’s schoolboy pressure. Hayes didn’t want to disappoint his boss. The earlier part of the day had been easier: Hayes was an expert skier, who embraced risk as eagerly on a black-diamond trail as he did on a frenzied trading floor, and he thrived in the deep powder of the Karuizawa resort. Now, though, beads of sweat started tingling on his scalp. The room began to spin. Hayes staggered to the bathroom and vomited. Then he rejoined the party.
* * *
Three years later, in January 2013, I was sitting on a sofa in my cramped apartment in London’s Clerkenwell neighborhood. Centuries earlier, the area had been the stomping ground of knights who were about to embark on crusades to the Holy Land. In a nod to that history, the narrow alleyway that my wife and I shared with a Belgian beer hall was named Jerusalem Passage. The neighborhood had been repopulated by trendy design studios, sushi bars, and art galleries.
It was just after 8 p.m. when my iPhone buzzed with a text message from a number I didn’t recognize. “I’ll meet you tomorrow but I need to be certain I can trust you,” the text read. “This goes much much higher than me and a lot of what I know even the DOJ [Justice Department] is in the dark.”
The message was from a terrified, and very sober, Tom Hayes.
* * *
Less than two months before Hayes contacted me, the attorney general of the United States had stood at a lectern in Washington, D.C., and announced criminal fraud charges against Hayes, branding him as a greedy, deceitful trader who had ripped off countless innocent victims in order to enrich himself. Here, the planet’s most powerful cop declared, was the mastermind of a sprawling, multibillion-dollar scam.
Spread out across time zones and continents, a group of bankers, brokers, and traders had tried to skew interest rates that served not only as the foundation of trillions of dollars of loans, but also as an essential vertebra of the financial system itself. It all boiled down to something called Libor: an acronym for the London interbank offered rate, it’s often known as the world’s most important number. Financial instruments all over the globe—a volume so awesome, well into the tens of trillions of dollars, that it is hard to accurately quantify—hinge on tiny movements in Libor. In the United States, the interest rates on most variable-rate mortgages are based on Libor. So are many auto loans, student loans, credit card loans, and on and on—almost anything that doesn’t have a fixed interest rate. The amounts that big companies pay on multibillion-dollar loans are often determined by Libor. Trillions of dollars of exotic-sounding instruments called derivatives are linked to the ubiquitous rate, and they have the ability to touch virtually everyone: Pension funds, university endowments, cities and towns, small businesses and giant companies all use them to speculate on or protect themselves against swings in interest rates. If you bought this book with a credit card, you quite possibly brought Libor into it. So, too, if you drove to the bookstore in a car not yet paid off—or if you’re carrying a mortgage or student loans, or if your town borrowed money to pave its roads, or if you work for a company that issues debt. So if something was wrong with Libor, the pool of potential victims would be vast. As it turned out, something wasn’t wrong with Libor, everything was.
Hayes didn’t come up with the idea of manipulating Libor to turbocharge his profits. But during the course of his career, he took the practice to fantastic new heights, oblivious to or uninterested in the fact that he was engaging in unethical activity with the real potential to harm unsuspecting victims. That initially helped catapult the nerdy trader into the upper echelon of the most profitable industry on earth. By the time I met him, it had thrust him into the crosshairs of regulators and prosecutors on three continents, who were yearning to find someone to hold accountable for the mass destruction that the banking industry recently had inflicted on Western economies.
I had spent nearly a decade writing about banks and their misadventures for the Wall Street Journal and other publications. But this was a misadventure like none other. On the surface, it wasn’t the most eye-catching scandal—which is the very reason it was so easy to pull off. The conspirators were fiddling on the margins with something that few people paid much attention to. But the stakes were so high that even small-scale tinkering had the capacity to spawn fat profits—to the tune of tens if not hundreds of millions of dollars—with commensurate losses afflicting the ofte
n-unsophisticated victims.
But the hunt to nab Hayes and his confederates—a group that one participant dubbed the “spider network”—exposed far more than a scheme to manipulate the underpinnings of modern banking. I began to see the saga as rooted in a corrupt, broken financial system, as well as the minimalist, see-no-evil regulatory infrastructure that theoretically was supposed to keep the industry in check. Hayes’s moral compass certainly was skewed—perhaps in part due to the mild case of autism he was eventually diagnosed with, which helped explain his incompetence at human relations and his affinity for numbers over people. But just about everyone I encountered suffered from a version of the same defect: obsessed with numbers and profits, eager to use other people as tools for self-advancement, convinced that anyone on the losing end wasn’t so much a victim as a sucker who deserved whatever mistreatment he got. And the more I dug, the more it seemed that, at least in some ways, Hayes himself was that sucker, the hapless guy positioned to take the fall for an entire industry’s era of anarchic, reckless behavior. His odyssey, as well as the institutions and individuals that goaded him along, reveals a lot about why the banking industry has become synonymous with scandal—and why, even today, its awful reputation remains firmly intact.
Part I
The Scam
Chapter 1
Watching the Coronation
The Brackenbury Primary School, in the dumpy west London neighborhood of Shepherd’s Bush, was in a three-story, redbrick Victorian-era building. From outside, the school looked grand. Inside, it was a different matter: High ceilings created a cavernous, intimidating vibe, paint was peeling from the walls, and cold air drafted in through ragged insulation. The small campus, just down the street from the Goldhawk Road Underground station, was in a part of London marked by tracts of similar-looking, century-old houses and down-on-their-luck convenience stores, pubs, and Laundromats. Brackenbury’s student body, drawn from the surrounding neighborhoods, was primarily working class.