Investigation of Currency Manipulation Reported

In a report dated November 14, 2013, The New York Times reported that U.S. and foreign law enforcement authorities were investigating allegations of manipulation of prices in currency trading. Nine of the largest banks involved in this type of trading have announced that they are under investigation. The inquiry, while in its early stage, is examining whether currency traders in the banks colluded to manipulate international currency prices to benefit the banks at the expense of their customers.

Currency trading is the largest and least regulated of the world’s financial markets. It is also the largest with trading of more than $5 trillion daily, a figure much higher than that for any stock or bond market. While the design of securities markets is to ensure as much transparency as possible, the currency market exists in a world of opaque secrecy. Trading is done on platforms within banks, which then control the release of information. It is undertaken in an atmosphere of virtually no regulation.

This suspected fraud is similar to the LIBOR manipulation that international law enforcement acted against last month. (See October 29, 2013, post.) Investigators believe that the traders obtained information from clients, exchanged the information online, and agreed to flood the market with currency orders shortly before 4:00 p.m. London time. That time is important because it is just before WM Company, an independent service, set benchmark currency rates. The flood of orders could alter the rates in the favor of the banks. As in any typical market manipulation, the banks would flood the market with orders to drive up the price paid by their clients.

According to The New York Times, the investigators have secured the cooperation of at least one trader. For the United States the investigation is being conducted by the criminal and antitrust divisions of the Department of Justice and the Commodity Futures Trading Commission, which has recently became an active and diligent regulator. Authorities from the United Kingdom, the European Union, Switzerland, and Hong Kong are also involved.

As a result of the investigation, the banks involved have placed approximately a dozen currency traders on leaving pending the outcome.

For more information, please see The New York Times article.

About Richard Serafini

Welcome to my blog. I am an attorney and practice in the area of corporate trial work. Areas of particular emphasis are white collar defense, securities litigation, health care litigation, internal investigations, RICO, and financial litigation. I will be posting interesting developments in my areas of interest. I hope that you find this blog helpful and informative.