Matthew Connolly (C) leaves the Manhattan Federal Courthouse after having his interest rate rigging verdict overturned. Photo: Brendan McDermid/Reuters

A US federal appeals court has overturned the convictions of two former Deutsche Bank traders convicted of manipulating interest rates, a decision that is up against UK courts.

Matthew Connolly, 58, of New Jersey and Gavin Black, 52, of Twickenham, Middlesex, were charged in 2016 by US prosecutors with conspiring with other traders and colleagues to submit false rates to influence the daily interbank offered rate in London, known as Libor.

The Libor benchmark has now been largely phased out, but used to be a system for determining how much banks should pay to borrow money from other banks. It has been used to set interest rates on millions of residential and commercial loans around the world.

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The figure was released daily on an average of what 16 banks said they were willing to pay to borrow.

Prosecutors said Connolly instructed his subordinates to stage bogus bids in line with the interests of his traders, while Black encouraged bogus bids to benefit his own derivative trade. The alleged plot took place from 2004 to 2011.

Connolly had headed Deutsche Bank’s pool trading desk in New York, while Black worked in the bank’s money market and derivatives desk in London.

The evidence against traders in both the US and UK was emails and messages asking their colleagues to post “high” or “low” estimates of the cost of cash borrowing.

Both were convicted in October 2018 of charges of wire fraud and conspiracy to commit wire and bank fraud.

Connolly was sentenced to six months house arrest and ordered to pay a $100,000 (£74,000) fine, while Black was sentenced to nine months house arrest and a $300,000 fine.

The lawsuit was one of the US government’s most high-profile court victories related to the 2008 financial crisis.

But now a three-judge panel at the Second U.S. Circuit Court of Appeals in Manhattan has ruled that the U.S. government “failed to show that any of the merchant-influenced submissions were false, fraudulent, or misleading.” “.

All convictions from the US trials in connection with the Libor crisis have now been overturned.

The legal ruling that it was not against the rules to seek to influence a bank’s estimates of the cost of cash borrowing comes up against a UK Court of Appeal ruling that has been used to prosecute 24 traders in the UK.

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Former UBS and Citigroup trader Tom Hayes was jailed in the UK for conspiring to rig the benchmark Libor interest rate in 2015.

The first person in the world to be convicted by a jury of the Libor scandal, Hayes was sentenced to 14 years in prison, later reduced to 11 years.

He was released from prison after serving five and a half years. Eight other traders were imprisoned between 2015 and 2019.

According to the British judges, banks were not allowed to take into account commercial interests, such as commercial positions linked to the Libor rate, when making their estimates.

In practical terms, interest rate rigging is a crime in the UK, but not in the US.

Deutsche Bank agreed in 2015 to pay $2.5 billion in fines to resolve Libor charges in the US and UK, and a London unit of the bank pleaded guilty in the US to a charge of wire fraud.

The scandal triggered the end of the Libor benchmark, with the phasing out of interest rates and a ban on banks entering into new contracts using the index.

Most countries have opted for a single Libor replacement, such as the British Pound Overnight Index Average (Sonia) in the UK, the Tokyo Overnight Average Rate (TONAR) in Japan for the yen or the euro short-term rate (€STR) in the United Kingdom. EU.

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