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Sunday, July 22, 2012

What the LIBOR Investigation Means

There is a breaking report Sunday night that federal authorities are "close to arresting individual traders and charging them with colluding to manipulate global benchmark interest rates, according to people familiar with a sweeping investigation into the rigging scandal."

First, the macro point.  This is a tremendous, planet-shaking scandal that is unfolding, perhaps the largest of our lifetimes.  These interest rates affect virtually all commerce and finance, whether directly or indirectly. The scandal threatens to further undermine global investor confidence in the markets, which is unfortunate if not dangerous during an age where demagogues appealing to class envy and the basest of human instincts -- that is, greed and avarice -- threaten to destroy freedom, wealth and the emotions and motives necessary to create and sustain it while cloaking their malicious motives under the guise of equality, fairness and, dare I say it, democracy.

As someone who has counseled defendants on how to cope with investigations and ongoing prosecutions (and sometimes the unfortunate aftermath of getting convicted and fighting thereafter to stay out on bail), as well as someone who has been involved on the periphery of a major federal investigation, I lend my perspective on what these developments really mean.

First, the CNBC report states that the investigation has been ongoing for three years. If that is news to you, then good! Smart, confident investigators keep things quiet, the better to avoid tarnishing the innocent while preserving evidence and allowing prosecutors to build smart, airtight cases. The investigators and prosecutors who jump the gun, prawn before the cameras and seek media attention are often pure idiots with an eye not on justice, but on their next job.  They are dangerous; they will destroy your reputation to bolster their reputation or Q-factor, and making mistakes or irretrievably harming innocent people will not deter or slow them down one bit.  This is why when we hear critical information about terrorism investigations, I cringe because these facts should not ever be made public. Rather, you have some emotionally-immature show-off willing to blow an investigation (pardon the pun) in order to try to look smart.

Second, you can be sure that investigators and prosecutors have cast a very wide net. Many people are "cooperating," but this means different things. There are three categories of "cooperators."  First, however, you must understand the different, non-Webster's Dictionary meaning (that is, the Justice Department meaning) of "cooperation."

Cooperation in the true Justice Department sense means you provide information to the prosecutors, often in exchange for an unenforceable promise of a recommendation for leniency at sentencing because you will often be pleading guilty to, well, to something.  Cooperation involves leverage - the government has leverage over you and can pressure you to tailor your information to meet their requirements, demands or desires.  If you are truly innocent, it is rare (in my humble opinion) for the government to want your information, because it has no leverage over someone who is innocent or at the very least is someone they cannot pressure with prosecution, conviction and imprisonment.  So when you hear someone "cooperating," understand this is far from a benign term.

As for the three categories of cooperators, you have the innocent -- who are rare and who end up as government witnesses but rarely as star witnesses. Often this class of people have smart lawyers who insist on the government giving them a non-prosecution agreement, because without it the truly innocent witness has a risk he or she has no business having to assume.

You then have the guilty cooperators, those who have admitted to the government that they have done something wrong, but whom the government has decided not to prosecute.  These people often receive immunity from prosecution, but immunity means you have admitted criminal wrongdoing or are in jeopardy of being investigated for wrongdoing but have been granted immunity so the government can save its time and energy going after someone else instead of you. 

Finally, you have the officially guilty, those people who are cooperating but who have agreed in plea agreements to admit guilt to one or more criminal charges.  These people have not been sentenced, however, and depend on the government prosecuting them to be lenient at sentencing.  This set-up provides a surefire incentive for witnesses who have pled guilty to lie, embellish or invent information.  These are far from innocent mistakes, and can lead to very innocent people getting investigated, prosecuted, convicted and worse.

My third note is that the report indicates that Barclays Bank has been granted immunity from criminal prosecution while its traders and other employees remain subject to investigation and the risk of prosecution.  So there you have it, a too big to fail bank getting a pass while it -- with the proverbial blood on its hands -- gets to pick and choose which unfortunate employees it will sacrifice.  Warning: this could be you!

You employees out there should think long and hard about the meaning of corporate loyalty.  If and when your employer is involved in malfeasance, ALWAYS assume that your freedom is in danger.  Because, quite simply, it can be and often is.

Now, what happens if you work at one of those banks and might have been involved -- however innocently -- with anyone dealing with the LIBOR?

Here's one important bit of free advice (and I don't repeat free advice, so pay attention the first time): Never speak to anyone from the government, for any reason, without speaking with (and retaining) a knowledgeable attorney first and preferably without having that attorney present with you.  Especially...especially...and particularly if you are innocent.

I also highly recommend if not insist that all interviews you have with the authorities be independently videorecorded.  Currently, investigators can take notes of your interview -- the FBI calls its report the Form 302 -- and the contents of the report depend on the attentiveness, thoroughness, understanding of context -- and integrity -- of the government agent taking the notes and creating the report.  This report can become evidence in your criminal or civil case, and can even become the basis for your indictment, prosecution and conviction (as it was with Martha Stewart's conviction for obstruction of justice).  Even if the report is wrong.  Even if you are totally innocent.

Better to remain silent and be thought guilty, than to speak, and become guilty.

Eric Dixon is a New York attorney.

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