WEBVTT - SocGen Executives at Risk in U.S. Libor Probe (Audio)

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<v Speaker 1>This crossing the Bloomberg terminal. Broadcom is said to be

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<v Speaker 1>exploring a deal to acquire chip maker Qualcom. Broadcom jumped

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<v Speaker 1>up three point four percent, Qualcom up six point seven percent,

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<v Speaker 1>now turning to associate A General News, It's rare for

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<v Speaker 1>investigations of global banks to reach the executive suites, but

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<v Speaker 1>that's what's happening at societ A General. According to people

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<v Speaker 1>familiar with the matter, the US Justice Department's investigation into

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<v Speaker 1>interest rate manipulation at global banks is piercing the executive suite,

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<v Speaker 1>with prosecutors scrutinizing the activities of senior officials of the

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<v Speaker 1>French bank. The case is one of three major US

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<v Speaker 1>criminal investigations of sak Gen. The bank said today that

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<v Speaker 1>it is in talks to settle the cases involving allegations

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<v Speaker 1>that bank officials bribe lib Libyans to win investment deals

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<v Speaker 1>and that it manipulated the live or interest rate. Joining

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<v Speaker 1>us as one of our favorite guests, Robert Hockett, professor

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<v Speaker 1>at Cornell Law School, bob the government has collected documents

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<v Speaker 1>suggesting that executives were aware that bankers there were submitting

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<v Speaker 1>fake US dollar library rates. Tell us about those. Yeah,

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<v Speaker 1>so this is actually very important, um, and it's it's

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<v Speaker 1>full significance. I guess there are a couple of interpretations

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<v Speaker 1>we can put on a pluggets that in the moment.

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<v Speaker 1>So the key the key points are the key facts are.

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<v Speaker 1>First of all, of course, the library rate is is

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<v Speaker 1>what I've written about elsewhere as a systemically important price

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<v Speaker 1>or index, right, I call these things cities. These are

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<v Speaker 1>highly important because they serve as benchmarks for many other

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<v Speaker 1>pricing decisions that are made out there. And yet at

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<v Speaker 1>the same time they're controlled by very small numbers of people,

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<v Speaker 1>basically cartels or clubs. That means in turn that those

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<v Speaker 1>things are highly manipulable. And when they're manipulated, they can

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<v Speaker 1>be used of course, and the chief people essentially to

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<v Speaker 1>engage in forms of fraud, insider trading, that kind of thing.

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<v Speaker 1>So the allegation is that lower downs down at at Sockton,

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<v Speaker 1>we're actually doing this. We're manipulating a live board in

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<v Speaker 1>in that kind of classic way. Uh. And that's not

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<v Speaker 1>all that uncommon in there has been a lot of

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<v Speaker 1>lification about this. Lots of banks have been used of

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<v Speaker 1>doing this. The key point here, though, is that we

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<v Speaker 1>now have a kind of smoking gun that suggests that

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<v Speaker 1>people in the executive suite right at the very top

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<v Speaker 1>we're at least aware or should have been aware of

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<v Speaker 1>the fact that this was going on. There is, in

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<v Speaker 1>other words, no longer plausible deniability, because at least one

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<v Speaker 1>person lowered down at Sawgen sort of blew the whistles

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<v Speaker 1>and an email for an executive, and the executive acknowledged

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<v Speaker 1>receipt of that email actually wrote back, and so we

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<v Speaker 1>know then that there is at the very least constructive

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<v Speaker 1>and probably actually you know, actual knowledge among the higher

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<v Speaker 1>ups about what was going down farther below. Well, Bob,

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<v Speaker 1>the government's already indicted two lower level employees in this case,

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<v Speaker 1>haven't Yeah, yeah, sorry, go ahead, go ahead. Yes. So

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<v Speaker 1>we they've already indicted lower employees, and it seems highly

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<v Speaker 1>unlikely that we're actually going to be able to prosecute

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<v Speaker 1>them because France is not actually cooperating with extradition here.

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<v Speaker 1>They have various reasons that they give, and so it

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<v Speaker 1>looks as though it's going to be very difficult for

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<v Speaker 1>US authorities actually to kind of get custody of or

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<v Speaker 1>jurisdiction personal jurisdiction over these people. But it's nevertheless helpful

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<v Speaker 1>for the d o J to file indict it's not

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<v Speaker 1>only against these people, but now against the higher ups

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<v Speaker 1>as well, because the thought is that this will a

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<v Speaker 1>bit more pressure on Softgen to settle with the d

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<v Speaker 1>o J, rather than to continue to say, you know,

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<v Speaker 1>you know, Nana nona and you can't get me. I'm

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<v Speaker 1>over in France. Are they actually saying no non in

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<v Speaker 1>the negotiations because I think there was a normal so um,

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<v Speaker 1>so today we have sucked Gen announcing that it is

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<v Speaker 1>in negotiations. Um after it's set aside more than two

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<v Speaker 1>point five billion dollars in reserves for a settling legal affairs.

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<v Speaker 1>So did it did this do the trick then? Yeah?

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<v Speaker 1>I think this suggests that the pressure strategy might be

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<v Speaker 1>paying law. The thing about Suntion is it's thus far

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<v Speaker 1>managed to avoid having to deal with or to pay

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<v Speaker 1>the piper so to speak, at the o J um

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<v Speaker 1>not with sending the fact that many of its global competitors,

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<v Speaker 1>such as Deutsche Bank and Barkley's have indeed had to

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<v Speaker 1>do this, had they have had to pay the piper

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<v Speaker 1>so to speak. So it's look things as though they're

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<v Speaker 1>that they themselves are feeling the pressure now too, and

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<v Speaker 1>as you know, their share prices taking a significant hit

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<v Speaker 1>ever since yesterday's announcement, and even more I think since

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<v Speaker 1>this morning's uh SO, it might very well be at

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<v Speaker 1>the strategy. The d ok strategy here is paying off, Bob.

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<v Speaker 1>Why is France not really cooperating with the United States

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<v Speaker 1>in these cases? There are a couple of reasons. Of

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<v Speaker 1>one of the reasons is a sort of an innocent

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<v Speaker 1>reason or a really said the form of an innocent reason,

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<v Speaker 1>and the other ones a little bit less so. But

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<v Speaker 1>the innocent reason is that French claim to uh ball

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<v Speaker 1>at some of our procedures, would say that some of

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<v Speaker 1>our judicial procedures would say think are violative a certain

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<v Speaker 1>basic human rights. I don't know that they're actually serious

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<v Speaker 1>about that. That might be textual, it looks as the

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<v Speaker 1>real reason, or at least a less noble sound increcent

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<v Speaker 1>at least as they've definitely been smarting over the fact

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<v Speaker 1>that US prosecutors have been going after other French banks

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<v Speaker 1>that have been accused of violating various legal provisions, and

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<v Speaker 1>the French are are heard saying that this is harming

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<v Speaker 1>our economy, harming our financial institutions and so forth. In

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<v Speaker 1>that case, if that's I if that's the real motivators,

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<v Speaker 1>then it looks like kind of bear economic nationalism. Bob.

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<v Speaker 1>This alleged misconduct happened from May of to October of

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<v Speaker 1>and that is nearly a year after lib or manipulation

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<v Speaker 1>was targeted by authorities at other banks. So is it

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<v Speaker 1>it's true that they didn't deter them at all? I

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<v Speaker 1>think it's oftentimes, Um, you know, one institution might think

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<v Speaker 1>that it's somehow going to avoid scrutiny when other institutions

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<v Speaker 1>are nevertheless attracting it. Uh. This is a sort of

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<v Speaker 1>a common I guess you could think of this as

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<v Speaker 1>a sort of cognitive bias that oftentimes broadsters or manipulators, Um,

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<v Speaker 1>they have maybe an overabundance of self confidence. Let's say

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<v Speaker 1>that the same kind of arrogance that's required uh to

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<v Speaker 1>impel you into engaging in these sorts of behaviors in

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<v Speaker 1>the first place, oftentimes also have you thinking that you're

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<v Speaker 1>above the law, or that you know you can outwit

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<v Speaker 1>your opponents and can't possibly be caught. Well, Bob, do

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<v Speaker 1>you think that, I mean, do you think that the

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<v Speaker 1>way that this is going to play out is that

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<v Speaker 1>um despite French intransigence, and there you know, we may

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<v Speaker 1>see more indictments or at least some kind of settlement

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<v Speaker 1>in all these cases. I think we probably will, because

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<v Speaker 1>if you think about it, ultimately, it really doesn't matter

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<v Speaker 1>that much because we can actually get personal jurisdiction over

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<v Speaker 1>the individual human beings. Keep it's possible actually to indict

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<v Speaker 1>the institutions themselves. Uh, that's very bad pressed for them,

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<v Speaker 1>and then they tend to suffer in the markets, as

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<v Speaker 1>we're seeing of course today and yesterday, and so they

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<v Speaker 1>ultimately come around even if we're not able actually ultimately

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<v Speaker 1>to attach personal jurisdiction to the individual human beings who

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<v Speaker 1>are ultimately responsible. Bob. But what would be the impact

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<v Speaker 1>of the view of the bank suck gen if some

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<v Speaker 1>senior officials were actually indicted. I think it would be

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<v Speaker 1>it would be earth shaking. Maybe it might be a

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<v Speaker 1>splitt exaggeration, but it would be. It would be highly significant,

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<v Speaker 1>because as you know, it's very very rare. I think

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<v Speaker 1>at the people at the top, because there are so

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<v Speaker 1>many layers between them and those below that they usually

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<v Speaker 1>have some kind of plausible deniability or it might not

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<v Speaker 1>be plausible, but it's at least legally classed. Well, even

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<v Speaker 1>I thought sort of, you know, practically that's plausible, but

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<v Speaker 1>now we have, you know, an actual smoking god where

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<v Speaker 1>we can actually say people at the very top you

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<v Speaker 1>definitely knew this, or at least are are are reasonably

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<v Speaker 1>charged with knowledge of it, because you actually got noticed

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<v Speaker 1>that we have it right here in Prince. It's it's

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<v Speaker 1>it sounds like it's going to be an interesting case,

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<v Speaker 1>and we'll be consulting with you as we go along.

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<v Speaker 1>Thanks as always, That's Robert Hockett, professor at Cornell Law School.

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<v Speaker 1>That's it for this edition of Bloomberg Law. We'll be

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<v Speaker 1>Suckerman and our technical director Chris trike Comy. You can

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<v Speaker 1>Have a great weekend. This is Bloomberg