Stephen Crowley/The New York Times)
President Obama, meeting Monday with US regulators, said progress is being made in implementing a four-year-old overhaul of financial regulation but urged them to do more to prevent the kind of risk-taking that started the 2008 crisis.
NEW YORK — The Justice Department is
preparing a fresh round of attacks on the world’s biggest banks, again
questioning Wall Street’s role in a broad array of financial markets.
With
evidence mounting that a number of foreign and US banks colluded to
alter the price of foreign currencies, the largest and least regulated
financial market, prosecutors are aiming to file charges against at
least one bank by the end of the year, according to interviews with
lawyers briefed on the matter. Ultimately, several banks are expected to
plead guilty.
Interviews with more than a dozen lawyers who
spoke on the condition of anonymity open a window onto previously
undisclosed aspects of an investigation that is unnerving Wall Street
and the defense bar. While cases stemming from the financial crisis were
aimed at institutions, prosecutors are planning to indict individual
bank employees over currency manipulation, using their instant messages
as evidence.
The charges will most likely
focus on traders and their bosses rather than chief executives. As a
result, critics of the Justice Department might view the cases as little
more than an exercise in public relations, a final push to shape the
legacy of Attorney General Eric H. Holder Jr., who was criticized for a
lack of criminal cases against Wall Street executives.
Yet
the breadth of the alleged wrongdoing in the currency inquiry —
Deutsche Bank, Citigroup, JPMorgan Chase, Barclays, and UBS are among
the dozen or so banks under investigation — might distinguish it from
the piecemeal nature of the crisis-era investigations.
And prosecutors are testing a new negotiating
tactic, two lawyers said, using the currency investigation as a cudgel
to potentially reopen other cases. Arguing that the misconduct would
violate earlier settlements involving interest rate manipulation,
prosecutors have threatened to impose new penalties in the interest rate
cases.
Those interest rate cases, which
have led to settlements with five banks, are experiencing something of a
resurgence. For one thing, prosecutors are preparing additional charges
against at least one trader suspected of manipulating the London
interbank offered rate, or Libor, a benchmark that underpins the cost of
trillions of dollars in credit card, mortgage, and other loans.
Prosecutors
are discussing plans to force Deutsche Bank or one of its subsidiaries
to plead guilty to manipulating Libor, the lawyers said, noting that
prosecutors have not made a final decision. The lawyers added that the
German bank’s New York branch faces a separate action from Benjamin M.
Lawsky, New York state’s banking regulator, who until now has sat out
the Libor settlements.
A Deutsche Bank
spokeswoman said the bank is cooperating in the investigations “and
conducting its own ongoing review,” adding that “no current or former
member of the management board had any inappropriate involvement.”
The
Justice Department’s focus on financial misdeeds comes at a time of
transition. Top prosecutors are leaving its criminal division, which is
handling the benchmark investigations along with the antitrust division.
For Holder, the cases offer a last chance to address public and
political complaints that prosecutors have treated Wall Street with kid
gloves.
He has sought to swing the tide
through a series of recent cases: record fines for JPMorgan Chase and
Bank of America and guilty pleas from Credit Suisse and BNP Paribas.
The
public lust for charges is at odds with the view on Wall Street, where
bankers and lawyers report fatigue with what seems like unrelenting
investigations. With each inquiry, the fines have multiplied, stretching
to nearly $17 billion for Bank of America.
In
the currency investigation, it is unclear which bank will settle first
or which will plead guilty. As was the case in the Libor investigation,
lawyers said, UBS was accepted into the antitrust division’s leniency
program in exchange for its cooperation, though it still faces an action
from the criminal division. At least one US bank is expected to plead
guilty.
Prosecutors have explained publicly
that banks would earn credit for exposing their misbehaving employees
and face charges for protecting them. Already, banks have fired or
suspended about 30 employees linked to the currency probe, though no one
has been accused of wrongdoing.
While
prosecutors aim to bring at least one currency case this year, the
workload could delay action until early next year. And the pace could
stall as prosecutors seek to coordinate with the Commodity Futures
Trading Commission, Lawsky, and federal banking regulators.
In
Britain, regulators are nearing a settlement with several banks in the
currency case. The Financial Conduct Authority met last month with six
banks — Citigroup, JPMorgan, Barclays, UBS, Royal Bank of Scotland, and
HSBC — to discuss a collective settlement.
The
banks are not necessarily the most culpable, but rather the ones most
willing to settle. US prosecutors have not ruled out joining a global
settlement, lawyers said, but that appears unlikely.
Collectively,
the British regulator could collect fines that total up to $3.3
billion, people briefed on the matter said. At Deutsche Bank, facing
Libor and currency investigations, there is growing momentum to resolve
at least one of them.
