United States v. Hayes

• Decision Date: 20 March 2015
• Docket Number: No. 12 MJ 3229.,12 MJ 3229.
• Citation: 99 F.Supp.3d 409
• Parties: UNITED STATES of America, Plaintiff, v. Tom Alexander William HAYES and Roger Darin, Defendants.
• Court: U.S. District Court — Southern District of New York

99 F.Supp.3d 409

UNITED STATES of America, Plaintiff

v.Tom Alexander William HAYES and Roger Darin, Defendants.

No. 12 MJ 3229.

United States District Court, S.D. New York.

Signed March 20, 2015.

William J. Stellmach, Esq., Thomas B.W. Hall, Esq., Assistant U.S. Attorneys United States Department of Justice, Washington, DC, for Plaintiff.

Bruce A. Baird, Esq., James M. Garland, Esq., Alexander A. Berengaut, Esq., Covington & Burling LLP, Washington, DC, for Defendants.

MEMORANDUM AND ORDER

JAMES C. FRANCIS IV, United States Magistrate Judge.

Roger Darin seeks to dismiss the criminal complaint filed against him by the United States of America (the “Government”), which alleges that he conspired with co-defendant Tom Alexander William Hayes to commit wire fraud by manipulating the London Interbank Offered Rate (“LIBOR”) for Yen. The motion is denied.

Background

LIBOR is “the primary global benchmark for short-term interest rates.” (Complaint, attached as Exh. A to Declaration of Bruce A. Baird dated Oct. 2, 2014, ¶ 7). During the relevant time period (roughly 2006–2009), the British Bankers' Association (“BBA”) administered the LIBOR for Yen through its agent Thomson Reuters, which solicited each day from sixteen member banks “the rate at which members of the bank's staff primarily responsible for management of the bank's cash perceive that the bank can borrow unsecured funds from another bank in the designated currency over the specified maturity.” (Complaint, ¶¶ 7–9; Memorandum of Law in Support of Defendant Roger Darin's Motion to Dismiss the Criminal Complaint (“Def. Memo.”) at 1). After excluding the highest and 1 lowest four rates, Thomson Reuters averaged the remaining eight to derive the Yen LIBOR figure for the day. (Complaint, ¶ 10; Def. Memo. at 1–2). The resulting rate was widely published, including in New York. (Complaint, ¶ 10).

Member banks of the Yen LIBOR panel such as UBS AG (“UBS”) trade Yen LIBOR-based derivative products. (Complaint, ¶¶ 12, 17). One such product, an “interest rate swap,” is an arrangement between two parties in which

each party agrees to pay either a fixed or floating rate denominated in a particular currency to the other party. The fixed or floating rate is multiplied by a notional principal amount to calculate the cash flows which must be exchanged at settlement. This notional amount generally does not change hands.

(Complaint, ¶ 17). An interest rate swap is “effectively [a] wager[ ] on the direction in which Yen LIBOR [will] move.” (Complaint, ¶ 18). Traders are compensated, in part, based on the profitability of their trading positions. (Complaint, ¶ 18).

The Complaint alleges that both Mr. Darin and Mr. Hayes worked at UBS and traded in short-term interest rates. Mr. Hayes was a senior Yen swaps trader at UBS in Tokyo; Mr. Darin traded in short-term interest rates at UBS in Singapore, Tokyo, and Zurich, and was responsible, either as principal or as supervisor, for the bank's Yen LIBOR submissions to the BBA. (Complaint, ¶¶ 15–16). According to the Complaint, Mr. Hayes conspired with Mr. Darin to manipulate the Yen LIBOR by presenting false and misleading submissions to the BBA on behalf of UBS in order to increase the profitability of UBS' trading positions to the detriment of its counterparties, at least one of which was located in New York. (Complaint, ¶¶ 2, 19, 22). Mr. Hayes would ask Mr. Darin or Mr. Darin's subordinates (who had been instructed to heed the requests of Mr. Hayes and other UBS traders) that UBS' submission be raised or reduced—depending on Mr. Hayes' trading positions—from the rate that Mr. Darin would otherwise have submitted. Mr. Darin complied, resulting in considerable yield to Mr. Hayes' positions. (Complaint, ¶ 21(b)-(h)). For example, in one such communication, Mr. Hayes requested a low Yen LIBOR submission from UBS. (Complaint, ¶ 21(d)(i)). Mr. Darin informed him that the “ ‘unbiased’ 3–month Yen LIBOR submission would be 0.69 percent and that he could not set too far away from the ‘truth’ or he would risk getting UBS ‘banned’ from the Yen LIBOR panel.” (Complaint, ¶ 21(d)(ii)). UBS' submission that day was 0.67 percent, resulting in a “3–month Yen LIBOR fix [ ] 1/8 of a basis point lower than it otherwise would have been.” (Complaint, ¶ 21(d)(iv)). Such requests were made by Mr. Hayes or at his direction on approximately 335 out of 738 trading days between November 2006 and August 2009. (Complaint, ¶ 21(h)). The manipulated LIBOR was published to servers in New York. (Complaint, ¶ 10). Moreover, confirmations for certain trades with a New York counterparty affected by those manipulated rates were electronically routed from UBS' overseas offices to servers located in this district.¹ (Complaint, ¶ 22).

The Government filed the Complaint in December 2012. It charges Mr. Darin with conspiracy to commit wire fraud, pursuant to 18 U.S.C. § 1349, by engaging in the activities outlined above. Mr. Darin, a Swiss citizen living in Switzerland, now seeks to dismiss the Complaint, arguing that it violates his Fifth Amendment right to due process. Specifically, he contends that, as “a foreign national[ ] [charged] with conspiring to manipulate a foreign financial benchmark, for a foreign currency, while working for a foreign bank, in a foreign country,” he lacks a sufficient nexus to the United States and did not have constitutionally adequate notice that his alleged conduct was criminal. (Def. Memo. at 1–2). In addition, he argues that prosecuting him under these circumstances would violate the presumption against extraterritorial application of American law.

Discussion

The Government opposes Mr. Darin's substantive arguments but also contends that the Fifth Amendment is inapplicable at this juncture and that the fugitive disentitlement doctrine counsels against addressing the constitutional and statutory arguments presented. I will address these two threshold questions first.

A. Applicability of the Fifth Amendment

Relying primarily on Johnson v. Eisentrager, 339 U.S. 763, 70 S.Ct. 936, 94 L.Ed. 1255 (1950), the Government contends that Mr. Darin “currently cannot assert claims under the Fifth Amendment” because he is a foreign national at liberty on foreign soil. (Gov't Memo. at 8–10). This argument is not legally sound.

Eisentrager concerned the post-World War II conviction by a United States military tribunal in China of a number of German nationals for “violating the laws of war[ ] by engaging in, permitting or ordering continued military activity against the United States after surrender of Germany and before surrender of Japan.” 339 U.S. at 765–66, 70 S.Ct. 936. The prisoners petitioned for writs of habeas corpus, arguing that “their trial, conviction and imprisonment violate[d]” various constitutional provisions including the Fifth Amendment. Id. at 767, 70 S.Ct. 936. The Supreme Court denied the writ, holding that constitutional protections did not extend to enemy aliens, and noting that the “prisoners at no relevant time were within any territory over which the United States is sovereign, and the scenes of their offense, their capture, their trial and their punishment were all beyond the territorial jurisdiction of any court of the United States.” Id. at 777–78, 70 S.Ct. 936. The Government appears to contend that Eisentrager announces a rule that Fifth Amendment protections can never apply to non-citizens who are not “presen[t] in the United States (or U.S.-controlled) territory.” (Gov't Memo. at 10).

That is too facile a reading. Boumediene v. Bush warned against a “formalis[tic]” application of Eisentrager because the extraterritorial application of constitutional principles “turn[s] on objective factors and practical concerns.” 553 U.S. 723, 764, 128 S.Ct. 2229, 171 L.Ed.2d 41 (2008). And the types of objective circumstances and practical considerations with which the Eisentrager Court was concerned—for example, the fact that affording the enemy alien petitioners the Fifth Amendment rights they sought would “put [ ] them in a more protected position than our own soldiers,” Eisentrager, 339 U.S. at 784, 70 S.Ct. 936 —are not present here. See also In re Terrorist Bombings of U.S. Embassies in East Africa, 552 F.3d 177, 201 (2d Cir.2008) (“[T]he Court's rejection of the Fifth Amendment claim in Eisentrager cannot be unmoored from the salient facts of the case: an overseas conviction of ‘nonresident enemy aliens,’ following the cessation of hostilities, by a duly-constituted military court.”).

To be sure, the Court in United States v. Verdugo–Urquidez, 494 U.S. 259, 269, 110 S.Ct. 1056, 108 L.Ed.2d 222 (1990), characterizes Eisentrager as “reject[ing][ ] extraterritorial application of the Fifth Amendment [ ] emphatic[ally],” but that dictum must also be construed in context. In that case, Mexican officials apprehended Rene Martin Verdugo–Urquidez, a Mexican citizen and resident, pursuant to a United States arrest warrant and transported him to United States territory to be arrested. Id. at 262, 110 S.Ct. 1056. In concert with Mexican law enforcement personnel and without a search warrant, the Drug Enforcement Agency then searched the defendant's Mexican properties and seized certain documents. Id. at 262, 110 S.Ct. 1056. The Supreme Court held that the Fourth Amendment did not apply “to the search and seizure by United States agents of property that is owned by a nonresident alien and located in a foreign country.” Id. at 261, 110 S.Ct. 1056. At the outset of its analysis, the Court stated that the Fourth Amendment “operates in a different manner than the Fifth Amendment,” offering the example that “[t]he privilege against self-incrimination guaranteed by the Fifth Amendment is a fundamental trial right of criminal defendants.” Id. at 264, 110 S.Ct. 1056. Thus, the Court's later reference to Eisentrager's “emphatic” holding is consistent with the proposition that the applicability of Fifth Amendment protections depends on the venue and the tribunal:...