Earlier this week, it was widely reported that Tom Hayes is suing his former employer UBS for over $400million.[1] The lawsuit alleges a malicious prosecution and using him as a “hand-picked scapegoat” to deflect regulatory and criminal liability from UBS and its senior management.[2]Undoubtedly, other defendants will follow developments in this case closely. In this Martello View, we set out the context surrounding this controversial case from the point of view of one of our experts who had overall responsibility for LIBOR submissions during this period.
As a quick reminder, LIBOR (the London Interbank Offered Rate) was the rate at which the LIBOR-setting banks in London could borrow unsecured funds from other banks in the London market. Specifically, LIBOR was defined as, the rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11:00 London time.
Prior to the Global Financial Crisis, LIBOR was a critical financial benchmark used throughout the financial markets, for example:
The daily LIBOR submission for each tenor (3-month being the focal point) was calculated originally by the British Bankers Association (“BBA”) and subsequently by Intercontinental Exchange Limited (“ICE”).[3] Depending on the currency, there were around 15 LIBOR-submitting banks and their submissions formed the basis of the LIBOR rate, which was calculated by excluding the top and bottom quartile of rates submitted and subsequently taking the arithmetic mean of the remaining submissions.
Prior to 2008, there was an active interbank market where banks routinely borrowed funds on an unsecured basis.[4] Accordingly, LIBOR submissions were generally based on real trade data (i.e., what trades were done in the lead up to 11am). However, in the period during and after the financial crisis, unsecured lending between banks was rare.
For example, during this period the author was working at a large UK bank and was required to make LIBOR submissions for all tenors in Sterling, Euro, Japanese Yen, US Dollars and Swiss Francs. By way of illustration, there were no material trades of any description either in Swiss Francs or Japanese Yen on which to base a LIBOR submission. Therefore, Swiss Franc or Japanese Yen LIBOR submissions were best estimates based on other financial reference points (i.e., short term issuance, the futures market or forward FX rates and interpolations from these). These rates were best estimates of unsecured borrowing costs – they were not based on real trading data.
The author’s experience was not an outlier within the market. When providing submissions for Swiss Franc LIBOR during the period post the financial crisis, it is the author’s opinion that the majority (if not all) of LIBOR submissions would be best estimates, with only 2 of the 12 banks[5] submitting (being the Swiss banks) likely to have trade reference points for their submissions. The remaining banks, from the UK, the US, Holland, France, Japan would have limited trade information to base their LIBOR submission.
Even prior to the financial crisis however, it is the author’s opinion that there was rarely a definitive submission for a single LIBOR tenor, rather a range of reasonable possibilities.
During the financial crisis, high LIBOR rates were considered a sign of stress (i.e., a bank was required to pay a higher interest rate for borrowing on an unsecured basis to compensate the lender for the higher risk of default). In October 2008, the Executive Director for Markets at the Bank of England, Paul Tucker, contacted Bob Diamond, the CEO at Barclays, and according to Bob Diamond’s contemporaneous note of the call suggested that Barclays LIBOR submission “did not always need to be the case that we appeared as high as we have recently”.[6] By the time this conversation was relayed to Barclay’s LIBOR setting team, it was interpreted as a directive to lower their LIBOR submissions illustrating that within reason, a range of submissions was possible.[7]
Prior to the LIBOR crisis, the traders managing the money market business and setting the LIBOR rates would typically be situated on the same dealing floor as the interest rate derivative traders (often in close proximity). Estimates for the size of the interest rate derivatives market around 2010 were in excess of $400 trillion.[8] The Bank for International Settlements (“BIS”) estimated that daily turnover exceeded $2 trillion and that the LIBOR rate would impact the economics of every interest rate derivative trade settled.[9] As the LIBOR crisis evolved, it emerged that derivatives traders routinely asked their LIBOR setting colleagues to adjust LIBOR submissions higher or lower to suit their interest rate derivative settlements that day.
Whilst the author is of the opinion that there was a reasonable range that a LIBOR submission could fall into, whether a derivatives trader asking his LIBOR setter to adjust their rate (presumably within this reasonable range) was appropriate will again be a topic for discussion in Tom Hayes’ $400m US lawsuit.
The lawsuit alleges a malicious prosecution and using him as a “hand-picked scapegoat” to deflect regulatory and criminal liability from UBS and its senior management.[10] This is likely to ensure that LIBOR rate rigging remains headline news for the foreseeable future and points to a further examination of the nature of LIBOR as an estimate and judgement of unsecured borrowing costs (not a precise trade-based benchmark).
[1] ‘Former Trader Tom Hayes returns to court as he sues ex-employer for $400million in damages’, The Law Society Gazette, 28 October 2025.
[2] Tom Hayes v UBS Group AT et al., Complaint for Malicious Prosecution, filed 23 October 2025, Connecticut Superior Court.
[3] The most widely recognised LIBOR tenors were overnight, 1 week, 1 month, 2 months, 3 months, 6 months and 12 months.
[4] Unsecured refers to lending with no security (i.e., no collateral is provided) to support the loan.
[5] UBS AG, Credit Suisse, Barclays Bank, HSBC, Lloyds Bank, Royal Bank of Scotland, JP Morgan Chase, Citibank AG, Rabobank, Societe Generale, Bank of Tokyo-Mitsubishi UFJ (now MUFG Bank) and Royal Bank of Canada.
[6] Email sent from Bob Diamond to John Varley, 30 November 2008.
[7] Officially documented in evidence given to the UK Parliament’s Treasury Select Committee. Bob Diamond appeared before the Treasury Committee on 4 July 2012, where details of the October 2008 phone conversation and subsequent actions at Barclays were discussed.
[8] International Swaps and Derivatives Association, OTC Derivatives Market Analysis Year-end 2010.
[9] Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity, April 2010.
[10] Tom Hayes v UBS Group AT et al., Complaint for Malicious Prosecution, filed 23 October 2025, Connecticut Superior Court.
