The End of LIBOR: Hotel California Edition [Part VI]

Read last year’s earlier update here.

The results and ramifications of the court’s critical decision involving Tom Hayes and Carlos Palombo were summarized in late 2025 in The End of LIBOR: Hotel California Edition [Part V].

Described in this alert are other criminal cases dismissed in the United States, either on procedural or substantive grounds. Relatedly, we explore manipulation terms of art in connection with the LIBOR scandal, and related cases including the complaint filed in October 2025 by Tom Hayes seeking $400 million from his employer. This complaint was filed after the UK Supreme Court issued its opinion in July 2025, quashing his conviction in the LIBOR scandal due to improper jury instructions as summarized in Part V of this series.

Criminal Cases

General

Although there was alleged significant LIBOR manipulation in other jurisdictions, such as the European Union and Japan, cases were generally brought either in the UK or the United States. The LIBOR scandal became public in June 2012.

Dismissals

Procedural

In the 2019 case United States v. Sindzingre, two defendants, Danielle Sindzingre and Muriel Bescond, both citizens and residents of France, were charged with transmitting false, misleading, or knowingly inaccurate commodities reports and with related conspiracy charges in violation of the Commodity Exchange Act, in connection with an alleged effort to influence the daily LIBOR calculation. Because the alleged misconduct took place in France, the defendants moved to dismiss the indictment, arguing that they were impermissibly charged with extraterritorial violations of the Commodity Exchange Act, the prosecution violated their Fifth Amendment due process rights, the government selectively prosecuted them because they were women, and that the statute of limitations had run.

The US District Court for the Eastern District of New York concluded that the defendants were fugitives, exercised discretion to apply the fugitive disentitlement doctrine, and declined to decide the merits of the defendants’ motions, noting that additional briefing would be necessary. The district court also included an alternative ruling to provide the Second Circuit with a complete record on review, rejecting the defendants’ extraterritoriality and due process challenges on the merits and did not rule on the selective prosecution and statute of limitations claims.

On appeal, the Second Circuit reversed the district court’s decision, ruling that the defendants were not fugitives as required for the fugitive disentitlement doctrine and the district court’s disentitlement of the defendants was an abuse of discretion. The court remanded for further consideration on the merits of their motions to dismiss. The Second Circuit dismissed the appeal regarding the merits of the extraterritoriality and due process challenges.

Following the Second Circuit’s ruling, and other decisions undermining the prosecution’s position, the charges were dropped and the Sindzingre case was dismissed in March 2023.

Substantive

United States v. Allen

In United States v. Allen, the Second Circuit again reviewed conduct that entirely took place outside of the United States. The court reviewed an appeal brought by defendants Anthony Allen and Anthony Conti, two UK citizens, challenging their convictions in the Southern District of New York for wire fraud and conspiracy to commit wire fraud and bank fraud in connection with their submission of statements to manipulate LIBOR.

The defendants had worked in the London office of an international bank until 2008 and 2009, respectively, and were official USD LIBOR submitters for the bank. Paul Robson, another trader working under Allen, was tasked with submitting the bank’s Yen LIBOR rates.

By 2013, Allen and Conti, amongst others, were being investigated by the UK enforcement agency, the Financial Conduct Authority (FCA), for their involvement in manipulating LIBOR rates. It should be noted that the Financial Services Authority had been the governmental entity regulating LIBOR but was dissolved as a result of the LIBOR scandal and was replaced by the FCA.

In interviews with the FCA, Allen and Conti were compelled to testify, as the refusal to do so could result in imprisonment. The FCA also initiated an enforcement action against Paul Robson and disclosed the Allen and Conti testimony to Robson. The FCA later dropped its case against Robson, and the Fraud Section of the US Department of Justice (DOJ) picked it up in January 2014. Robson pled guilty and cooperated with the US government, which ultimately led to Allen and Conti’s indictment.

On appeal, Allen and Conti challenged their conviction on several grounds, but the Second Circuit only considered their Fifth Amendment due process claim. The Second Circuit ruled that the Fifth Amendment’s prohibition on the use of compelled testimony in American criminal proceedings applies even when the testimony was compelled by a foreign sovereign. The court held that Allen and Conti’s compelled testimony was improperly used against the defendants. Further, regarding Robson’s testimony, the court held that when a witness has had substantial exposure to a defendant’s compelled testimony, the government must prove that this exposure did not influence or affect the government’s evidence. Robson’s general assertion that his testimony was not materially altered by his exposure to the defendants’ compelled testimony was found to be insufficient. As a result, the Second Circuit reversed Allen and Conti’s convictions and dismissed their indictments in 2017.

Parietti v. United States

Following the United States v. Connolly decision in 2022, the Southern District of New York heard the case of Parietti v. United States. Timothy Parietti, a US citizen and former trader at an international bank, pled guilty before the court pursuant to a cooperation agreement for conspiracy to commit wire and bank fraud. The guilty plea was based on the theory that Parietti and others at an international bank had caused the bank to make false, fraudulent, and misleading submissions to the British Bankers’ Association (BBA) with the goal of influencing LIBOR. 

By way of background, the BBA, a UK banking trade association, determined LIBOR for multiple currencies and tenors until shortly after the LIBOR scandal broke. In 2014, the calculations of LIBOR were taken over by International Exchange Benchmark Administration Limited. Ultimately, USD LIBOR was no longer calculated in 2024 and was replaced by, among other benchmarks, the Secured Overnight Financing Rate (SOFR) and Term SOFR. See The End of LIBOR: Hotel California Edition [Part I] and The End of LIBOR: Hotel California Edition [Part IV].

Parietti provided testimony at the 2018 trial of his alleged co-conspirators Connolly and Black, who were convicted under the same theory. The court, relying on the Connolly decision, found that there was insufficient evidence as a matter of law to establish that Parietti’s statements caused the bank to make false, fraudulent, and misleading submissions to the BBA. As a result, the judge vacated Parietti’s guilty plea and ordered that the government return to Parietti the $1 million fine he was ordered to pay. 

Manipulation

Terms of Art

In addition to benchmark rate manipulation, the Financial Industry Regulatory Authority (FINRA) prohibits certain trading practices that cause market manipulation. Among these are the following practices defined by FINRA in its 2025 Annual Oversight Report.

• Front Running: The act of using non-public information to trade ahead of an order and to profit from the artificial price movement.

• Momentum Ignition and Market Price Ramping: The trading of a financial instrument with no legitimate rationale for the trading activity, artificially driving changes in the price as a result.

• Spoofing: The practice of placing an order to buy or sell a financial instrument with the intent to cancel the order before its execution, causing artificial price shifts.

• Trading Ahead: The prioritization of orders from a trader or firm ahead of other orders.

• Wash Trades: The act of buying and selling the same financial instrument simultaneously to create the appearance of market activity while not incurring market risks.

Spoofing Case Study

Between 2010 to 2011, John Pacilio and Edward Bases, senior traders at a US bank, were involved in a scheme to manipulate the price of precious metals through a practice known as “spoofing.” Spoofing is generally defined as entering an order on an exchange that the trader intends to cancel before execution for the purpose of falsely indicating the existence of greater supply or demand on one side of the market and thereby artificially moving the market price of the security or commodity at issue.

The defendants conducted their trading on the COMEX and NYMEX exchanges, utilizing the Globex electronic trading platform, all operated by the Chicago Mercantile Exchange (CME). The traders manipulated the market by placing “iceberg” orders (orders where only a portion of the size of the total order is visible to the market) to either sell or buy commodity contracts, while simultaneously placing visible “spoof” orders on the other side of the market. When market prices shifted as a result of the defendants’ spoofing orders, the iceberg orders were filled at the manipulated market price and the traders then cancelled their visible spoof orders. In 2021 in United States v. Pacilio, the defendants’ actions led to an indictment by a federal grand jury on multiple counts, including conspiracy to commit wire fraud, wire fraud affecting a financial institution, commodities fraud, and a violation of the anti-spoofing provision of Dodd-Frank.

During trial, CME representatives testified that CME Rule 432, enacted in 1989, prohibited spoofing as a form of market manipulation despite the fact that the rule did not refer specifically to spoofing. The defendants attempted to exclude this testimony, arguing that the exchanges’ “subjective interpretations” of Rule 432 were not disclosed to market participants and could not support a finding of intent to defraud. However, the US District Court for Northern District of Illinois allowed the testimony, deeming it relevant. Ultimately, the jury found Pacilio guilty of conspiracy to commit wire fraud, wire fraud affecting a financial institution, and commodities fraud, but not guilty of spoofing under Dodd-Frank. Bases was found guilty of conspiracy to commit wire fraud and wire fraud affecting a financial institution, but not guilty of commodities fraud. Both received sentences of 12 months and a day in prison and appealed their convictions, arguing, inter alia, that the statutes were unconstitutionally vague as applied to them, thus violating their Fifth Amendment rights. 

On appeal in the Seventh Circuit in 2023, the defendants argued that their Fifth Amendment right to due process was violated because the commodities and wire fraud statutes were “unconstitutionally vague as applied to them.” They contended that the statutes did not provide clear notice that their specific conduct — engaging in spoofing to manipulate the precious metals market — was illegal. 

The court held that the statutes were not vague and that the defendants’ actions clearly fell within the prohibited conduct. The court emphasized that spoofing, as a form of market manipulation, was well understood to be illegal under the Commodity Exchange Act and related wire fraud statutes. The court found that the defendants had the requisite intent to defraud, as evidenced by their pattern of placing and canceling orders to create false market signals. Finally, the Seventh Circuit held that the testimony by CME representatives concerning the meaning of Rule 432 was relevant and admissible because the testimony established that the defendants were on notice that CME rules prohibited entering orders with the intent to cancel them and because the testimony demonstrated that the defendants intended to manipulate the market by placing orders with the intent to cancel — spoof orders the market would perceive as being bona fide. Consequently, the court upheld the convictions, affirming that the existing legal framework at the time of the activities at issue provided sufficient notice to the defendants that their conduct was unlawful.

LIBOR Manipulation

Background

As previously mentioned, after the UK Supreme Court quashed the conviction of former derivatives trader and UK national Tom Hayes, he filed a complaint in the United States on October 23, 2025. As cited in the complaint, an electronic chat shortly after Lehman Brothers filed for bankruptcy on September 15, 2008, captures the essence of the LIBOR scandal:

Bank Employee #1:    why is the [Investment Bank] cash curve for USD so much higher than Libor? Offered 35bps above libor currently

Bank Employee #2:    because the real cash market isn’t trading anywhere near Libor…Libors currently are even more fictitious than usual

Bank Employee #1:    isn’t libor meant to represent the rate at which banks lend to each other?

Bank Employee #2:    that’s the theory…in practice, it’s a made up number…hence all the critisism [sic] it was getting a few months ago

Bank Employee #1:    why do banks undervalue it in times like this?

Bank Employee #2:    so as not to show where they really pay in case it creates headlines about that bank being  desperate for cash…I suspect

Tom Hayes was the first person convicted in the LIBOR scandal and served five and a half years in prison for his role in the scandal; the longest of any scandal participant. 

Hayes’ Complaint

The complaint was filed against his former employer, an international bank, for malicious prosecution in connection to his alleged misconduct regarding the bank’s LIBOR submission. This malicious prosecution claim alleged that the bank initiated and continued criminal proceedings against him by making materially false representations and misleading omissions to encourage the US government to prosecute Hayes.

To counter the prosecution claims against Hayes, the complaint alleges that he was a high-performing Yen derivatives trader at the bank who followed the bank’s longstanding practice of factoring its commercial interests into LIBOR submissions. The complaint also alleges that Hayes always performed with direction and approval from his supervisors and senior management and without any knowledge that his conduct surrounding LIBOR submissions was improper. According to the complaint, Hayes’ LIBOR submissions benefitted the bank’s trading positions and no one ever told him to stop taking the bank’s commercial interests into account. 

In 2010, before the LIBOR scandal broke, regulator scrutiny over LIBOR submission processes intensified, and the bank allegedly mischaracterized Hayes as a rogue “evil mastermind” in order to deflect attention from the bank’s longtime practice of making commercially influenced LIBOR submissions backed by senior leadership and to secure leniency from regulators. In the complaint, Hayes asserts that he stopped similar practices when explicitly told to do so at a subsequent employer, underscoring that he always followed rules as they were explained to him at each institution. 

Hayes seeks punitive damages and compensatory damages in an amount not less than $400 million, exemplary damages, and an award of attorneys’ fees.

Concealed Materials; Selective and Misleading Disclosures

The complaint further contends that the bank conducted a biased internal investigation, concealed exculpatory materials, and made selective and misleading disclosures to the US government that omitted the bank-wide policy and knowledge of making commercially influenced LIBOR submissions. 

Some examples of concealed materials as well as examples of other misconduct showing that Hayes was not a “rogue” employee include, among others:

Electronic Chat #1

[July 22, 2009]

Broker: if you drop your 6m dramatically on the 11^th mate, it will look v fishy, especially if [Bank D] and [Bank B] go with you. I’d be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you.

Trader: don’t worry will stagger the drops…ie 5bp then 5bp

Broker: ok mate, don’t want you getting into [trouble]

Trader: us then [Bank B] then [Bank D] then us then [Bank B] then [Bank D]

Broker: great the plan is hatched and sounds sensible

Electronic Chat #2

[June 10, 2009]

In discussions between a trader and a broker in submitting “spoof” bids to influence Yen LIBOR, the broker remarked to the trader:

mate yur getting bloody good at this libor game…think of me when yur on yur yacht in Monaco wont yu.

Following the bank’s internal investigation and production of documents to US prosecutors, prosecutions of Hayes in the United States and the UK commenced. The US case was dismissed in 2022. 

Her mind is Tiffany-twisted,

She got the Mercedes bends

– Eagles, “Hotel California”