
The Fall of a Star Trader - jgalt212
https://www.bloomberg.com/news/articles/2018-03-19/from-a-126-million-bonus-to-jail-the-fall-of-a-star-trader
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neerkumar
I would suggest anyone interested in learning more about this to watch the BBC
documentary The Big Bank Fix. It shows how these traders didn't do anything
wrong.

The documentary shows how there were some really high level bank executives
involved in libor frauds and that was getting media attention. Therefore, SFO
met with banks and eventually, based on documents provided by the banks,
decided to prosecute simple traders.

The reason traders have been sent to trial has nothing to do with the actual
libor fraud carried out by executives. But since it is still about libor, has
been sold to the media as the libor trial. Start and end date of the "crime"
have been carefully chosen to not include evidence of the executive crimes
(such as the phone call shown in the documentary). SFO experts have admitted
during trial to lie in order to convict these traders.

Many of these traders were in their early 20s when the alleged crime happened.
Germany, France, and EU have already said that it was not a crime at the time
and rejected extradition.

I rarely felt as sad as after watching that documentary.

~~~
nubbins
I read The Spider Network (fantastic look into how bank prop trading worked)
and came to mostly the same conclusions. The idea of just prosecuting "rouge
traders" is a complete injustice, as trying to adjust the rate submissions was
apparently a widely known practice in banks. Tom Hayes, a mildly autistic
savant just doing what everyone else was got 14 years, essentially a murder
sentence in the UK. Fire the traders and maybe ban them from trading for a few
years.

Of course the investing public with LIBOR based loans wants blood, and they
just believe the headlines that a few traders "conspired" to fix rates. In
reality the entire system was built on a profoundly flawed incentive structure
of trusting banks with positions that profit from LIBOR moves to not alter
LIBOR submissions to make themselves money. But LIBOR is too big to fail at
this point so they chose to scapegoat a few traders instead of admitting the
whole system is corrupt.

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rdiddly
Is it clickbaiting or just misplaced hero-worship to call this the "fall" from
"star trader" to criminal? Seems to me more like one minute he's a crook who
hasn't been caught, the next he's a crook who's been caught. Rather than
causing even a second of cognitive dissonance it should simply set you to
scanning all his other accomplishments for fraud as well.

~~~
dredmorbius
"Behind every great fortune there is a crime."

[https://quoteinvestigator.com/2013/09/09/fortune-
crime/](https://quoteinvestigator.com/2013/09/09/fortune-crime/)

J.K. Galbraith: the notion of the "bezzle", from _The Great Crash: 1929_ :

[https://www.goodreads.com/author/quotes/23458.John_Kenneth_G...](https://www.goodreads.com/author/quotes/23458.John_Kenneth_Galbraith)

[http://www.users.globalnet.co.uk/~rxv/business/bezzle.htm](http://www.users.globalnet.co.uk/~rxv/business/bezzle.htm)

~~~
valuearb
"Behind every great fortune there is a crime."

It's a great sounding quote, but obviously entirely untrue.

~~~
dieterrams
Can you explain? It’s not obvious to me.

~~~
dmix
If it's not obvious to you, then the crimes of these people must then be
obvious, no?
[https://www.forbes.com/billionaires/list/](https://www.forbes.com/billionaires/list/)

Care to share a few of them which generated their wealth?

~~~
dieterrams
Obvious criminality is not the same as obvious non-criminality.

You seem to be getting pretty worked up about this. The reason I don’t think
the claim is obviously untrue is because I believe the magnitude of wealth
involved, and often the scale of operations/actors, increase the probability
of actions ranging from morally dubious but legal to outright criminal.

Per one of your other replies, we can quibble about the quote and what “behind
every great fortune” means, exactly. You seem to be interpreting it to say
that criminal action was a major factor responsible for the fortune, while I
interpret it more loosely, the impact being irrelevant.

At any rate, I doubt the quote is meant to be taken strictly literally, and is
more of an aphorism.

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lifeisstillgood
Can Deutsche now claw back the bonuses given to him earned through his
manipulation of Euribor? Are they going to? Or will he be fined an equal
amount?

~~~
jsiepkes
I highly doubt Deutsche Bank wants that kind of attention. What if he starts
arguing Deutsche Bank knew about it more then they previously said after they
start going after him?

~~~
lifeisstillgood
Every prosecutor loves it when the perps start rolling over on each other :-)

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blackrock
So, can someone ELI5 this? What exactly did he do wrong here?

He was monitoring basis points to attempt to capitalize on it. But the SEC
accused him of manipulating the markets?

I don't think he hacked any systems doing this. I don't think he created a
fraudulent pyramid scheme here.

Did he violate some kind of public trust?

~~~
tvladeck
My understanding is that the EURIBOR rate is an index that attempts to track
the overnight interest rate that banks lend to each other at. These numbers
are not public (the trades are made "over the counter"), so the body that sets
the rate relies on information given to them by the banks. To calculate it,
they do something like taking the median of all submissions.

At the same time, there is a lot of money riding on what the EURIBOR is at any
time. The allegation is that this guy (and others) conspired to change their
submissions to change the listed EURIBOR and make a lot of money.

I'm no expert though, and I could be wrong in my understanding.

~~~
blackrock
Thanks. This was a more detailed answer. I didn't see this anywhere in the
article.

~~~
nubbins
Essentially (for example) the trader has a position that makes money if LIBOR
goes down, so he calls the LIBOR submitter at his bank or someone he knows
through contacts at another bank and says "hey it would be nice if your 3
month LIBOR could go from .7% to .65%", and the submitters who were themselves
often low level functionaries just did it as a favor. Though they could only
move it within bank guidelines so the profits made were not huge in any case.

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blackrock
Speaking of trading.

Can someone provide some insight on the best way to get into the industry as a
Trader?

Can you still enter that industry when you are in mid-career?

I would think that since trading requires a lot of patience, and analytical
skills, that something like this is better suited to more mature people. This
is probably not something that you would entrust to a young early 20s person.

This guy's background says he joined as a quantitative analyst after college.
And then rose to the role of a trader.

~~~
soVeryTired
Dodd-frank means that prop trading isn't really a thing the way it used to be.
Most trading in banks is now flow trading: the bank will take one side of a
trade for a client in exchange for a fee. They'll then make sure their book is
hedged so they don't have meaningful market exposure.

Asset managers still make big, directional bets though. Exactly how decisions
are made varies from place to place, but decision makers will typically be
older and have plenty of experience. Asset managers get lots of due diligence
questions so no-ones handing millions out to a junior in their early twenties.

With regard to entering the industry, it's pretty hierarchical, and can be
siloed: techies do tech, traders do trading, and there's not much crossover.

The most reliable way of entering the industry is to get on a graduate program
and work your way up. Failing that, a quantitative PhD might get a hedge fund
or HFT interested.

Do be aware that while it's a ticket to a comfortable upper middle class life,
the salaries are not what they once were. Seven-figure bonuses are pretty much
a thing of the past for most front office staff.

~~~
physguy1123
> With regard to entering the industry, it's pretty hierarchical, and can be
> siloed: techies do tech, traders do trading, and there's not much crossover.

Not really true. It's true that there are software roles that don't interact
with strategy much, and often traders/quants that don't do much proper
software. But in many places the line can be very blurry.

> The most reliable way of entering the industry is to get on a graduate
> program and work your way up. Failing that, a quantitative PhD might get a
> hedge fund or HFT interested.

HFTs and hedge funds all hire of plenty of new grads and experienced-but-not-
PhDs doing quant/trading style work - Hudson River, Jane Street, Two Sigma,
Tower, I think Citadel all will.

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osrec
As a little side note, Libor is so idiotic that I don't understand how the
general public allow it to underpin most of the financial products they buy.
We need a bit of a revolution in the rates/banking space. The current
financial system is inherently unstable, frought with moral hazard and serves
the rich to make them richer still.

~~~
osrec
Maybe one solution is to actually start teaching some simple economics at
school. The curriculum in the UK conveniently skips over the details of
banking. If people knew how it really works, I'm certain they would feel taken
advantage of.

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wishart_washy
[http://knowledge.wharton.upenn.edu/article/libor-
scandal/](http://knowledge.wharton.upenn.edu/article/libor-scandal/)

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tardygrad
Funny how it's always only the people who steal millions that go to jail,
never those who steal billions.

I guess aiming big is the way to go in the finance world.

~~~
qaq
Michael Milken, Bernard Madoff, Bernard Ebbers I am sure there are many more

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hedvig
What about punishment for his superiors?

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toblender
Feels like the movie "Limitless".

