What’s Matthew Connolly suing for?
On the 17th of November, the former head of Deutsche Bank’s New York derivatives trading desk filed a lawsuit against his former employer. In 2018, he was convicted of rigging Deutsche’s LIBOR submission, however, this was overturned at an appeal in January of this year. He is now alleging malicious prosecution and demanding compensation for his economic losses, the torment to his family, damage to his reputation, and the “destruction of his life”. He claims that he was deliberately framed for the crimes of others and that prosecutors failed to prove he influenced the Bank’s submissions in question.
What is LIBOR?
LIBOR is an interbank lending rate; it’s used to value a variety of financial products stretching from car loans to mortgages. After being in existence for almost fifty years, it is currently in the process of being phased out. In fact, the reason for this lies primarily in the fact that it has faced continuous allegations of bank manipulation. Therefore, LIBOR is being replaced with a new, harder-to-manipulate mechanism.
Connolly and his co-litigant, former colleague Gavin Black, claim that the practices of manipulation were common, and were even encouraged by the bank’s leadership. Therefore, as his lawyers have stated; “In order to protect itself and its elite upper echelon, Deutsche Bank and its lawyers convinced the DOJ to instead pursue, indict, scapegoat and prosecute Connolly”. He was sentenced to a $100,000 fine and six months of home confinement.
It’s important to consider here the broader history surrounding the LIBOR scandal. The investigations of the US and other governments into this issue resulted in institutions being forced to pay billions of dollars in fines. Deutsche, in particular, reached a $2.5 billion settlement. Despite this, according to District Judge McMahon in Connolly’s original sentencing, “no member of Deutsche Bank’s protected class of senior management was fined, prosecuted or deregistered”. In 2015, rather, seven traders were fired, of which, Connolly was one. Indeed, at their sentencing, DJ McMahon refused to sentence them to a prison term with the justification that they were “very minor participants”. To go further, she compared the situation to the drug context, in which the “low man” would often get sentenced, but the “big guy” would go free.
At a broader level, there could be a trend of courts sympathising with the predicament of former employees such as Connolly. Just a few weeks ago, charges against the former UBS and Citi trader Tom Hayes were thrown out by a New York court. At this point, the British trader had already served five years in prison following a LIBOR conviction in the UK. Aside from this, in 2019, former Citi trader Rohan Ramchandani filed a suit seeking $112 million in damages, claiming he had been the scapegoat of Forex price fixing. This is currently ongoing.
Key legal concepts involved in malicious prosecution in NY state
The New York State common law recognizes the cause of action for malicious prosecution.
3 elements need to be shown:
1) That the prosecution was undertaken in bad faith (generally inferred where there’s a lack of probable cause or fabricated evidence).
2) That they knew there was no probable cause to believe whatever the accused was accused of had occurred.
3) That they went forward anyway.