Tom Hayes: Trial By Fire

32 Pages Posted: 3 Sep 2015 Last revised: 17 Sep 2015

See all articles by Asad Ali Khan

Asad Ali Khan

Advocate High Court Pakistan - Barrister-at-Law (Middle Temple)

Date Written: September 1, 2015


As ever, the world of finance is abuzz with news of misconduct. For example, the judgment in Plevin [2014] UKSC 61 may induce refunds for Payment Protection Insurance (PPI) mis-selling to the tune of £33.5 billion. Equally, recent events leave little room for doubt that the LIBOR scandal was just the tip of the iceberg because the rigging of the $5.3 trillion-a-day forex markets completely dwarfs the total $500-$800 trillion value of financial contracts underpinned by LIBOR. In the first LIBOR trial, Tom Hayes, an obscure yen derivatives trader in UBS and Citigroup became the world’s first individual to be tried and convicted for benchmark rigging. He got 14 years’ imprisonment for his crimes. Against this nightmare sentence, his trial has set a chilling precedent for the 12 others in his shoes who are awaiting trial (one of whom pleaded guilty after sentence was passed on Hayes). Hayes used “clever” tactics that enabled him to avoid extradition to the US and allowed his trial to be conducted in the UK. However, he was unanimously convicted by the jury.

Hayes contended that he was operating in a “grey area” where there were “no rules” and that he had no compliance training, but this did nothing to help him. The archetypical Foucauldian fiend, he stood accused of using corruption and accepted making “concerted efforts to influence LIBOR” but argued he “was operating within a system”. Discussing the dilemma’s associated with punishment, in Discipline and Punish, Foucault concludes that the offender is “worse than an enemy” and that transgressing the boundaries set by society makes him “nothing less than a traitor, a ‘monster’.” For Foucault this is so because “it is from within society that he [the offender] delivers his blows.” In discussing concept of punishment, Foucault explains that the philosophy underpinning the evolution of the penal system, from one involving public spectacles (displays) such as public torture and execution, to new modern and discreet technologies is to “punish exactly enough to prevent repetition.” However, the system had to make an example of Hayes to create a deterrent effect. From that perspective, his trial was a show trial. I argue that a lighter sentence would have equally prevented Hayes from engaging in financial misconduct again.

Jonathan Karpoff has advanced a telling analysis about whether reputation works to discipline corporate misconduct when companies “lie, cheat, steal, mislead, disguise, obfuscate, feign, distort, and confuse” in order to maximise profits. For Karpoff, “few matters of economic policy are as contentious as the extent and consequences of misconduct.” In Seven Deadly Sins, Roger McCormick codifies culpability for corporate wrongdoing under seven heads. In the past (see, 28 April 2015), I have applied these to Navinder Singh Sarao and here I argue the counter-point in relation to the “flash crash trader” as it intersects with (applies to) Hayes the LIBOR rigger. I use Karpoff and McCormick’s theories to analyse the comparative financial misconduct evinced in these cases.

In Flash Boys, the impressive Michael Lewis argues that the flash crash occurred “for no obvious reason”. For Lewis, the report of the Securities and Exchange Commission – linking the episode on a large sell order of futures contracts by “an obscure Kansas City mutual fund” – was “only true by accident” because “the regulators did not possess the information they needed to understand the stock market.” So applying the theory proposed by Michael Lewis, it may well be that Sarao has a case to answer in America. And I argue this counter-point here. Sarao’s extradition appeal is due to be heard next month and attempts to postpone the hearing scheduled on 25 September 2015 have been unsuccessful. Sarao was his own master. Whereas Hayes, who was a mere puppet, was just trying to please his masters by making money for them – enough for them to roll in.

In light of the ongoing witch-hunt to bring market manipulators to justice at any costs, bankers are being excoriated for seeing misconduct as no worse than driving over the speed limit. Yet this sentence amply abnegates such arguments. Using Foucault, Karpoff and McCormick as my analytical toolkit, I argue that because of the fact that the average jail sentence for terrorists (jihadis) is a mere two years’ imprisonment, the sentence inflicted upon Hayes can quite easily be described as disproportionate. The sentencing judge was aware that “everyone” was rigging LIBOR. Yet, unmoved by this disturbing fact, he went for overkill in passing sentence on Hayes. We must therefore ask: where are the rest of the people who, in concert, participated in the dishonesty of rigging LIBOR? I conclude that Hayes has clearly borne the brunt for others of his ilk and has been made to pay for their wrongdoing. Ultimately, sacrificing a dozen people over wholesale dishonesty only makes a mockery of justice. Hayes is appealing his conviction and his sentence, the longest ever imposed in the UK for financial fraud. If permission is granted the Court of Appeal will hear his case.

Keywords: Banks, Benchmarks, CFTC, CME, CSR, Crime, Criminal Justice, DoJ, Extradition, FBI, FEMR, Financial Misconduct, Forex, Foucault, HFT, LIBOR, Punishment, Reputation, SFO

Suggested Citation

Khan, Asad A, Tom Hayes: Trial By Fire (September 1, 2015). Available at SSRN: or

Asad A Khan (Contact Author)

Advocate High Court Pakistan - Barrister-at-Law (Middle Temple) ( email )


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