BUST! How the currency manipulation rogue traders were caught

19 February 2017 - 02:05 By THANDUXOLO JIKA and ATHANDIWE SABA
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File photo.
File photo.
Image: Gallo Images/Thinkstock

These are two of the dodgy traders identified in the Competition Commission's explosive report on currency manipulation.

The "rogue" traders are among those named this week when the commission lodged a Competition Tribunal application implicating 18 local and international banks in illegally fixing the dollar/rand exchange rate. They are part of a group of traders that has been working out of Johannesburg, New York and London.

Three of them are South African while the rest are based in the US and Britain.

Two of them have already been convicted after pleading guilty in the US early this year to price manipulation. One of the local traders assisted the commission in cracking open an international chatroom group known as The Cartel.

The South African investigation comes after some of the biggest banks internationally were fined billions of dollars in the US and Britain for currency manipulation in the past couple of years.

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Among the traders singled out as key figures are:

• Two Absa senior traders, Duncan Howes and John Daly;

• Investec's Clint Fenton;

• US-based Jason Katz and Chris Cummins - who recently admitted in a New York court to conspiring to fixing prices in the foreign-exchange market.

The traders colluded with one aim in mind: to enrich themselves.

However, none of them will face criminal charges in South Africa as the law that could put them behind bars only recently came into effect.

"There will be no criminal charges because the acts of price-fixing happened before the criminalisation of this ... The act only came into effect late last year and the evidence we have shows that the price-fixing happened between 2007 to 2013," said the Competition Commission's cartel division manager, Makgale Mohlala.

By law, traders are supposed to enter trades that are genuine and posted independently, without discussing them with competing traders.

But the rogue traders allegedly used various means to:

• Divide the markets by agreeing when to refrain from trading;

• Take turns to trade;

• Pull or hold a trade;

• Post fictitious trades to manipulate prices to maximise profits or avoid losses; and

• Illegally share information on customers' identities and details of their trades.

Competition Commission investigator Mfundo Ngobese alleges that Howes, Katz and their co-conspirators used Reuters and Bloomberg platforms to enter into agreements to fix prices, using coded language.

The traders also agreed who would trade first and posted fictitious prices.

In one example presented to the courts by the New York department of financial services, a Barclays trader explicitly discusses with a JP Morgan trader how to co-ordinate the prices on the rand and US dollar exchange rate. "If you win this we should co-ordinate you can show a real low one and will still mark it little lower, ha ha," writes the Barclays trader.

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The JP Morgan trader suggests that they "prolly shudnt put this on perma chat". The Barclays trader responds: "if this is the chat that puts me over the edge than oh well. much worse out there."

Mohlala said the investigation kicked off when the commission was approached by a local bank, believed to be Absa, in 2015 and told what was happening.

"We asked for the evidence and they produced the chatroom evidence. From those chatroom conversations we were able to pinpoint who each individual was and where they worked," he said.

Mohlala said that the commission approached the banks with the evidence it had gathered locally.

"Like any other investigation when you have uncovered sufficient evidence of contravention of the law you approach the person or firm implicated and advise them that they had been implicated in certain conduct and they should decide whether to settle this or defer it for prosecution.

"The banks in this case said no, they are not going to discuss a settlement, and that is why we referred it for prosecution."

Last month Katz, who was a dealer in Central and Eastern European, Middle Eastern and African currencies, entered into a plea bargain with the US State Attorney and disclosed how he had conspired to manipulate prices through "non-bona fide trades".

Katz worked for various banks, including BNP Paribas, Standard New York and Barclays.

Locally, the first person to spill the beans is believed to have been the Absa trader Howes, who lives in Bryanston.

Howes, who has been extensively quoted in the media as Absa's trader and an expert in rand performance over the years, was suspended in 2015 on full pay. The Sunday Times has established that as part of the deal between Absa and the commission, Howes agreed to co-operate and disclose information.

It has also been established that Absa handed over the work stations of both Howes and Daly to the investigation.

When Howes was contacted this week his wife picked up the phone and angrily said: "We are unavailable for comment thank you," before slamming down the phone.

It is not clear when his colleague Daly, from Kempton Park, was put on special leave with full pay, but he is one of the implicated traders.

"I am playing golf, I was told my name is not mentioned because I am not involved with the investigation at all. I know nothing about it, it is news to me. I am on leave," he replied when approached for comment.

Another local currency trader implicated in the scandal, Clint Fenton, who lives in Waterfall Estate, was removed by Investec as its currency trader in July last year. Investec wrote to the JSE on July 6 requesting that Fenton be withdrawn from the Register of Officers under Investec.

However, the bank would not divulge whether it had withdrawn Fenton because of his role in currency-trading collusion.

"The bank has received the complaint referral lodged by the Competition Commission. We note that the case against Investec Limited is confined to the conduct of a single trader who is employed by the bank. The bank intends to seek further information from the commission with respect to the specifics of the charges in order to continue to co-operate with them in this regard," Investec said in a statement.

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Although details of their lifestyles are opaque, the trio of local dealers have amassed close to R12-million in properties, paying cash, since 2009.

According to the deeds registry, Howes bought a R4.5-million property for cash in the upmarket suburb of Bryanston in 2009.

Daly bought three properties worth R5.5-million between 2010 and 2015, and Fenton bought one property worth R1.8-million two years ago, also for cash.

An industry insider said anti-competitive behaviour by traders short-changed corporate clients. "In a normal competitive market you as the customer can buy from whoever you want at the best price, which is determined by demand and supply factors ... So you can imagine if banks are colluding and holding more dollars than rands then they would want the dollar to be stronger than the rand, hence the manipulation among each other to improve their holdings and get themselves better gains than the market price."

Although the commission has not revealed how much the three South African s implicated pocketed, they are believed to have scored massive bonuses and commissions during this period.

While the commission revealed its investigation this week, in the US a federal court has already received submissions for a class-action suit against individuals and banks found to have been involved in the price fixing.

jikat@sundaytimes.co.za, sabaa@sundaytimes.co.za

 

CORRECTION: This article previously identified the individuals involved in the Competition Commission's report on currency manipulation. One of the individuals named in the article was Jason Katz, a US-based trader who has worked for various banks including BNP Paribas, Standard New York and Barclays.

The photograph published in the original article, and published with this apology, is in fact of a different individual also named Jason Katz, who is a London-based international financier and entrepreneur.

We very much regret that the photograph of this Jason Katz was published by the Sunday Times in error.

We had no intention of misleading our readership as to the identity of the correct Jason Katz. We also sincerely apologise to Mr Katz and his family for any distress our error may have caused.

Wrongly identified London-based international financier and entrepreneur, Jason Katz.
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