As the Libor manipulation scandal at British banking giant Barclays continues to escalate with the launch of a criminal probe, U.S. traders, former regulators and finance executives say other firms likely engaged in such behavior -- and that inquiries could even lead to jail time.
On Friday, U.K. regulators announced that Britain's Serious Fraud Office is launching a criminal investigation into bank manipulation of the key global interest rate known as Libor.
The announcement comes on the heels of Barclays' agreeing in late June to pay $450 million, admitting misconduct in connection with U.S. and U.K. regulators' charges that it had manipulated Libor to its own benefit. Since then the spotlight has been cast on a dozen other banks, with other firms including Bank of America, Citigroup and UBS under scrutiny, as Bloomberg has reported.
Faced with angry questions during a parliamentary inquiry in London on Tuesday, Barclays CEO Robert Diamond added fuel to the speculation that attempts at Libor manipulation were not limited to his institution, suggesting during his testimony that other banks were also involved in similar behavior. Diamond stepped down earlier this week.
A spokesman for Barclays declined to comment for this story.
The criminal probe raises the prospect of jail time for those responsible, said Michael Greenberger, professor at the University of Maryland School of Law and former director of the division of trading and markets at the Commodity Futures Trading Commission. "This is not just a civil problem," said Greenberger. "Manipulation ... can mean time spent in jail for those who do it."
And finance industry insiders are betting that Barclays was not the only bank involved in Libor manipulation.
"I don't believe Barclays was the only bank doing it," said Kamal Mustafa, a former Citigroup executive and CEO of Invictus Group. Mustafa added that if Barclays had been the only firm involved, "it would stand out like a sore thumb."
Peter Tchir, founder of TF Market Advisors, a trading strategy platform, agreed. "I assume you’ll find similar activities took place at other banks," he said, adding that he wouldn't recommend buying bank stocks in the short term. "It's become quite clear they're incentivized to make as much money for themselves as possible."
Despite the scandal, some say that it is unlikely traders will sour on the banking sector. "This is going to make me more cautious about investing in banks until this plays out," said Tchir, adding, though, that he thinks the industry will emerge relatively unscathed. "The banks were already not the most popular industry out there," said Dan Alpert, founding managing partner of real estate-focused investment bank Westwood Capital. "So those who were inclined to be cynical have already reflected it in their investing."
But Alpert is skeptical that bank executives will face prison because of the scandal. "There's no question that market manipulation is a very, very serious crime, and it's something we've thrown people into jail for," he said. But "I don't think anyone's going to jail," he added. If they do, "it won't be for a long time."
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