1장
The Spider's Web: Greed, Manipulation, and the Downfall of a Trading Prodigy
Tom Hayes was an unlikely villain. Socially awkward, mathematically brilliant, and obsessively routine-driven, he would become the face of one of the biggest financial scandals in history. David Enrich's "The Spider Network" offers a riveting account of how this uncharismatic trader orchestrated a global conspiracy to manipulate Libor-the benchmark interest rate underpinning trillions of dollars in financial contracts worldwide. The book has become required reading in financial regulation courses and business ethics programs across prestigious universities. Even Warren Buffett reportedly called it "a cautionary tale every Wall Street professional should read." Beyond academic circles, the book resonated with mainstream audiences for its accessible explanation of complex financial mechanisms and its portrayal of a deeply flawed system where morality took a backseat to profit. At its core, this isn't just a story about numbers-it's about human nature, institutional corruption, and the devastating consequences when the two collide.
2장
The Unlikely Mastermind: Tom Hayes's Rise to Trading Stardom
Tom Hayes's journey from social outcast to financial kingpin began in a British primary school, where he was the angry child with few friends following his parents' divorce. While struggling socially, Hayes excelled at mathematics-a talent that would later define his career. His grandfather Raymond, a stockbroker nicknamed "Talkie," nurtured his interest in finance. At university, Hayes showed early entrepreneurial instincts by developing a profitable money-lending scheme before overhearing about lucrative UBS internships.
Despite his parents' objections, Hayes joined Royal Bank of Scotland's training program, earning 35,000 plus bonuses. There, he absorbed the industry's ruthless culture: make money at all costs, find an edge, and treat compliance training as a mere formality. This environment shaped Hayes's understanding of what was acceptable-a perspective that would later prove catastrophic.
Hayes's mathematical brilliance and obsessive work ethic quickly distinguished him from peers. He specialized in Japanese interest rates, a seemingly dull market that most traders avoided. When others saw tedium in flat Japanese rates, Hayes saw opportunity. He compiled extensive market data to identify patterns and made calculated bets that paid off handsomely. His approach wasn't just intuition; it was gambling elevated to science through statistical analysis.
His success attracted UBS, which offered him a $138,000 salary plus a guaranteed bonus of nearly $500,000 and free housing in Tokyo. When Hayes resigned from RBC, his former employer discovered his portfolio was much larger than they'd realized. After his departure, RBC lost about $7 million unwinding his positions and found his pricing models had exaggerated profitability.
Despite warnings from RBC, UBS decided to keep Hayes with only a three-month probation period. This experience taught Hayes a crucial lesson that would inform his future behavior: banks tended to minimize problems rather than address them directly. If his new employer wasn't concerned about potential misconduct, why should he be?
In Tokyo, Hayes struggled personally while thriving professionally. He felt homesick and isolated despite his girlfriend following him to Japan. Money wasn't an issue, but Hayes struggled socially-avoiding going out, disliking Japanese food, and making sausages at home to combat homesickness. His appearance matched his social awkwardness: unkempt, wearing old clothes except for broker-gifted logo shirts, scratching his head when stressed, and avoiding video conferencing.
What truly set Hayes apart was his trading setup-something colleagues compared to scenes from The Matrix. His workstation featured twelve monitors tracking market relationships, interactive spreadsheets, and multiple computer terminals powering his complex models. Like Neo processing the digital rain, Hayes absorbed endless streams of financial data, identifying patterns and opportunities invisible to others. This technological cocoon became his natural habitat, a place where his social limitations didn't matter and his mathematical genius could flourish.
3장
The Libor Machine: How a Critical Financial Benchmark Became Vulnerable
To understand how Hayes manipulated Libor, we must first understand what Libor is and how it came to be so vulnerable. The London Interbank Offered Rate wasn't created through careful regulatory planning-it emerged as a practical solution to a specific problem.
In 1967, Mohammad Reza Pahlavi, Iran's Shah, needed an $80 million loan. Minos Zombanakis, an innovative Cretan-born banker, arranged this through a syndicate of banks. To protect banks from interest rate fluctuations, Zombanakis devised an elegant solution: participating banks would regularly report their borrowing costs, these figures would be averaged, and the loan's interest rate would adjust accordingly. This "very cunning" arrangement, celebrated with champagne and Iranian caviar, would eventually become fundamental to global finance.
By the 1990s, Libor had become embedded in loan agreements worldwide. Unlike stable government rates, Libor moved daily with market conditions-or at least what banks reported those conditions to be. Banks could set rates at "Libor plus" a profit margin, encouraging borrowing while guaranteeing their profits regardless of market fluctuations.
This was part of finance's globalization, where banks operated globally, matching lenders and borrowers worldwide. While this initially made borrowing more affordable, it eventually enabled dangerous debt levels and amplified the interconnectedness that would make future financial crises more severe.
Libor was vulnerable to manipulation from the start. Banks could easily skew submissions by simply phoning in favorable numbers to Thomson Reuters, where low-level employees calculated the averages with minimal oversight. Banks had incentives to manipulate Libor both to appear financially healthier and to benefit their traders' positions.
The British Bankers' Association (BBA), which controlled Libor, assigned responsibility to John Ewan, who lacked financial expertise. Though well-liked for his friendly nature and scientific curiosity, Ewan received no formal training on financial markets and had to figure things out alone. To generate revenue, he expanded Libor varieties beyond the British pound and US dollar to include eight other currencies, each with fifteen time-period subcategories, quadrupling the BBA's Libor income.
Despite overseeing Libor's expansion, Ewan maintained the fiction that responsibility for policing the benchmark belonged to the Foreign Exchange and Money Markets Committee (FXMMC), an assemblage of midlevel bankers who met briefly in the BBA's underground boardroom. This old boys' club rarely took decisive action, with members more concerned about minimizing their time commitments than addressing Libor's growing problems.
When Chicago's Mercantile Exchange sought to incorporate Libor into its derivatives contracts in 1996, some experts warned about manipulation risks. Salomon Brothers lawyer Marcy Engel and trader Richard Robb both cautioned regulators, but the CFTC dismissed these concerns and approved Libor's integration into the derivatives market.
By 2006 and 2007, feedback about Libor had become overwhelmingly positive. Citigroup's Andrew Thursfield advised "It's not broken. Don't try to fix it." Deutsche Bank's David Nicholls expressed "complete satisfaction," French banks praised Libor's increasing reliability, and J.P. Morgan saw no signs of manipulation. Even Barclays, which had previously complained about manipulation, changed its tune, with executive Miles Storey telling Ewan that Libor was at "peak performance" and dismissing manipulation concerns as impossible given the number of banks that would need to be involved in such a conspiracy.
This complacency created the perfect environment for someone like Hayes to exploit the system's vulnerabilities.
4장
Building the Spider Network: Hayes's Manipulation Machine
Hayes quickly discovered that UBS's trading floor was deliberately arranged with Tibor submitters seated beside traders like himself whose wagers depended on benchmark movements. This proximity facilitated cooperation between submitters and traders-a long-established practice at UBS where traders asked colleagues to nudge benchmarks in helpful directions.
On his very first trading day, Hayes casually asked broker Terry Farr to "get Libors right up," revealing how normalized this manipulation had become. With UBS's Libor submitters scattered globally but not in Tokyo, Hayes turned to London broker Darrell Read at ICAP for help. Read and his colleague Colin Goodman had discovered that many banks' Libor submitters simply copied Goodman's daily "run-through" emails rather than calculating their own estimates.
These emails, which Goodman sent each morning after arriving at 6:30 AM, contained "Suggested Libors" that were widely distributed to traders, submitters, and even Bank of England officials. Read and Hayes exploited this influence, with Read relaying Hayes's preferred Libor directions to Goodman, who would adjust his suggestions accordingly-often in exchange for promised curry lunches or meals at upscale restaurants.
In November 2006, Hayes discovered that Roger Darin controlled UBS's yen Libor submissions. Though Darin often complied with Hayes's requests to adjust submissions-viewing it as common practice encouraged by management's instructions to "cooperate" with fellow traders-he occasionally refused requests he considered too extreme, once telling Hayes he wouldn't set Libor "seven basis points away from the truth" as it would "get UBS banned."
This revealed an important dynamic: traders would only move Libor within a "plausible band" to help themselves without risking detection. The relationship between Hayes and Darin eventually soured when Hayes moved into overnight index swaps trading, which had previously been Darin's territory.
Hayes systematically expanded his network of influence, reaching beyond UBS to enlist traders at competing banks and brokers who could help sway submissions in his favor. In February 2007, he approached J.P. Morgan trader Stuart Wiley to influence their Libor submissions but was rebuffed because J.P. Morgan's submitters had "gone all 'we need to be independent.'" Hayes assured Wiley he could still help with his needs, offering to keep six-month yen Libor low when Wiley needed it.
He also reconnected with his former RBS mentor Brent Davies, sending requests to influence RBS's submissions. Hayes enlisted broker Terry Farr from RP Martin to amplify his influence over Libor. Farr, a charismatic broker skilled at fostering goodwill and calling in favors, would contact traders and rate submitters at various banks on Hayes's behalf.
Hayes even attempted to involve his younger stepbrother, Peter O'Leary, who had recently started at HSBC. Hayes asked O'Leary to approach his colleague "Darcy" Porter about setting low yen three-month Libor, explaining that he had "several million-buck fixes" with "trillions of yen" at stake.
The manipulation that seemed harmless to insiders had real consequences for outsiders. Jeffrey Laydon, a Florida-based computer specialist and amateur investor, lost thousands of dollars in futures contracts betting that Tibor would decline because traders like Hayes were pushing Tibor in the opposite direction. Similar impacts hit institutional investors-the Oklahoma Police Pension & Retirement System and CalSTRS (California State Teachers' Retirement System) both suffered losses due to benchmark manipulation.
Hayes never considered these victims, viewing markets as a closed system where he battled only other sophisticated professionals. This narrow perspective, ingrained since his first days on the trading floor, helped explain why the finance industry was heading for trouble.
5장
Perverse Incentives: The Broker-Trader Relationship
The relationship between traders like Hayes and their brokers revealed a system of perverse incentives that enabled and encouraged manipulation. The brokerage industry operated on simple equations: brokers earned commissions on trades, personally pocketing up to 30% in bonuses, and recycled 5-10% back to traders as "entertainment"-effectively kickbacks.
This entertainment escalated from meals to Mediterranean jaunts, private jets, drugs, and prostitutes, with brokers going to extraordinary lengths to please important clients. Though Hayes remained largely uninterested in lavish entertainment, brokers found creative ways to curry favor.
Some arranged for Hayes to take his girlfriend to expensive meals with reimbursement from their firms. Others provided sports tickets for Hayes's family in England. Brokers also offered Hayes "gifts" in the form of favorable trades with unsophisticated "muppet" clients like pension funds who weren't sensitive to small price variations-allowing Hayes to execute deals at advantageous prices that sophisticated institutions would never accept.
The switch trades became enormously profitable for the brokers involved. Over eleven months, UBS and RBS routed seven trades through RP Martin, generating over $400,000 in commissions, while five similar transactions through Tullett produced more than $160,000. Brokers personally pocketed about 30% of these commissions, with Farr's compensation doubling to nearly $350,000, followed by $400,000 the next year. Gilmour, who had been nearly broke, saw his income exceed $224,000.
Each successful trade triggered wild celebrations-Farr running around whooping, performing cartwheels, management congratulating the team, and champagne flowing freely. Though participants knew these arrangements were questionable-Hayes whispered when discussing them and warned "Don't fucking put it on chat"-they justified their actions by noting there were no explicit rules against it.
The case of Colin Goodman, nicknamed "Lord Libor," illustrated the bizarre incentive structures. Goodman received none of Hayes's lucrative commissions despite his daily Libor run-throughs being valuable to Hayes. After Hayes suggested Goodman deserved "a slice of the action," Goodman complained to Wilkinson: "Life is tough enough over here without having to double guess the Libors every morning and get zipper-de-do-da."
Following a sushi lunch, Wilkinson agreed to pay Goodman a regular bonus. ICAP then leveraged Goodman's importance to extract an additional 5,000 monthly from UBS, though Goodman considered this "a scrap" and "a kick in the teeth." Hayes also bought him expensive champagne as thanks.
Hayes remained oblivious to Read's extensive deception. Read frequently lied about his efforts to influence Libor, knowing Hayes had no way to verify his claims. When Read told Hayes that his WestLB buddy was out of town explaining an unfavorable Libor submission, it was a lie-his schoolmate simply couldn't help that day. He fabricated stories about Goodman exhausting goodwill with traders, invented ICAP colleagues convincing RBS traders to move Libor favorably, and sometimes revealed Goodman's "numbers" when Goodman wasn't even at work.
This web of deceit and incentives created a system where manipulation wasn't just possible-it was practically inevitable.
6장
The Reckoning Begins: Warning Signs and Investigations
The first cracks in the Libor system appeared in April 2008 when Wall Street Journal reporter Carrick Mollenkamp published "Libor Fog: Bankers Cast Doubt on Key Rate Amid Crisis." His investigation began after discovering an obscure central bank report and was bolstered by Citigroup researcher Scott Peng's analysis questioning Libor's accuracy.
Peng faced immediate backlash at Citigroup, with colleagues blaming him for costing the bank $10 million as Libor rates jumped following the publicity. Meanwhile, BBA's Angela Knight launched a campaign to defend Libor, writing to bank CEOs asking them to secure "posative comments" from analysts.
A follow-up Journal story on May 29 used credit default swap data to demonstrate that banks' Libor submissions diverged significantly from their actual borrowing costs. The banking industry fought back aggressively, with J.P. Morgan publishing research calling the story "deeply flawed."
Vincent McGonagle of the CFTC discovered the Wall Street Journal's Libor expose and saw potential for a significant case that could establish the agency's credibility. Despite the CFTC's limited resources, antiquated technology, and reputation for pursuing minor cases, McGonagle and his colleagues Gretchen Lowe and Stephen Obie launched a preliminary investigation.
Meanwhile, Treasury Secretary Tim Geithner raised concerns with Bank of England governor Mervyn King, proposing reforms to address Libor's shortcomings. The BBA, receiving investigation requests from the CFTC in September, strategized to stall or derail the inquiry by questioning jurisdiction and routing requests through the seemingly uninterested FSA.
As the financial crisis intensified in 2008, Hayes faced a personal financial challenge: he had invested millions in derivatives betting that yen Libor would decrease, but the crisis suggested borrowing costs would spike. Desperate to protect his position, Hayes called RP Martin looking for Farr and asked Gilmour to push Libor down.
Despite the crisis, Hayes thrived financially, making $70 million for the year within a week of Lehman's bankruptcy by buying discounted assets from desperate sellers and benefiting from Pieri pressuring UBS's Libor submitters to lower their rates. Though financially successful, Hayes was physically exhausted, working until 3 a.m. and appearing zombie-like to his girlfriend's visiting parents, constantly glued to his BlackBerry and financial news.
By 2010, multiple regulators including the SEC and FSA had joined the investigation, with investigators eventually showing up at the BBA's headquarters to question John Ewan and confiscate computers.
7장
The Fall: From Star Trader to Criminal Defendant
Hayes's spectacular fall began with his move to Citigroup in 2009, where he received a $3.2 million payment on his first day. Despite cultural differences from UBS, Hayes quickly established Libor manipulation connections at Citigroup, framing his requests to London submitter Laurence Porter as "market color" rather than explicit demands.
By early April 2010, Hayes had earned about $50 million for Citigroup. At thirty, he was engaged to Sarah Tighe, living in a luxury Roppongi apartment with Citigroup paying the $7,500 monthly rent. His happiness was short-lived when market volatility decimated his portfolio, turning a $40 million profit into a $20 million loss.
As losses mounted, Hayes grew increasingly desperate, redoubling his Libor manipulation efforts. Citigroup executive Cecere instructed Hayes to use cell phones rather than email for Libor requests. When Hayes asked colleague Hoshino to pressure Burak Celtik for a Libor increase, Celtik refused, claiming Barclays traders had been arrested for similar behavior.
This triggered a chain reaction of internal reporting that eventually reached compliance. Despite Hayes's continued attempts to influence rates, Citigroup launched an investigation, bringing in high-priced lawyers who grilled Hayes extensively. On September 6th, Hayes was suddenly fired in a brief meeting with executives who cited his attempts to manipulate Libor and Tibor as grounds for termination.
After his firing, Hayes and Tighe returned to England, where they married in a countryside ceremony at a Four Seasons hotel. Meanwhile, investigations intensified. After Cecere tipped off UBS about Hayes and Pieri's Libor manipulation, UBS hired Gibson Dunn law firm, which uncovered systemic manipulation across multiple locations and management levels.
UBS strategically directed investigators toward Hayes as the primary culprit, steering attention away from executives. Hayes struggled to restart his career after Bank of America and Deutsche Bank withdrew job offers upon learning his history. Accepting his financial career was over, he focused on personal development-getting his driver's license, buying multiple Mercedes vehicles, and enrolling in an MBA program to improve his social skills.
The final blow came on December 11, 2012, when police arrived early at Hayes's newly renovated home to arrest him on Libor manipulation charges. Taken to Bishopsgate Police Station, Hayes spent hours in a cell before facing SFO investigators who presented 112 pages of evidence against him, including chat transcripts, trading records, and phone recordings.
UBS executives publicly distanced themselves from Hayes during parliamentary hearings, with compliance head Andrew Williams declaring "clearly his conduct was reprehensible" and British lawmaker Nigel Lawson branding Hayes "a crook of the first order" while UBS executive Andrea Orcel nodded in agreement.
Desperate to avoid U.S. extradition, Hayes began cooperating with the SFO, admitting his guilt: "I probably deserve to be sitting here because, you know, I made concerted efforts to influence Libor." He acknowledged being a "serial offender" whose trading book "directly benefited" from manipulation.
8장
Justice and Its Discontents: The Trial and Aftermath
Hayes's cooperation with authorities didn't last. Despite his lawyers' warnings that fighting charges could double or triple his sentence, Hayes increasingly wanted his day in court. In a late-night text message, he wrote: "I feel like I am sleepwalking the path of least resistance... I know that I didn't believe what I was doing was dishonest... I never sought to hide anything ever, was never told I should not be doing it, was never trained, was directly instructed."
During SFO interviews, Hayes discovered betrayals and systemic manipulation. He learned his "friend" Read had been lying to him about Libor submissions. More shockingly, he discovered a UBS document explicitly instructing traders how to manipulate Libor submissions based on their derivatives positions. These revelations made him question his guilty plea.
Psychologist Alison Beck diagnosed Hayes with "a relatively mild form" of Asperger's syndrome, explaining that he didn't perceive the world as others do and likely viewed Libor manipulation as acceptable practice since it existed before and after his employment. Beck noted Hayes "needed to believe that his bosses are right because they set the rules"-a feature of Asperger's that made him vulnerable to exploitation.
The signs had been evident all along-his inappropriate questions about earnings or weight at parties, obsession with routines, lucky objects, and absolute convictions. During Easter weekend at the Four Seasons where they had married, Hayes disrupted a romantic moment by announcing his discovery about the unit cost of steak being cheaper in individual portions-a quintessential example of his unique perception.
Judge Jeremy Cooke ruled that Hayes's Asperger's diagnosis couldn't be used to explain why he didn't recognize his actions as wrong. When Hayes finally testified, the courtroom filled with curious spectators from London's legal and financial communities. Hayes firmly denied acting dishonestly but struggled with nervousness, tangential answers, and physical symptoms including numbness in his feet.
The verdict arrived after a week of agonizing deliberations. Hayes stood in the dock as the jury unanimously convicted him on all eight counts. Judge Cooke delivered a crushing fourteen-year sentence-one of Britain's longest for a white-collar criminal-declaring Hayes had jeopardized the reputation of Libor and the banking industry.
The contrast between Hayes's punishment and his peers' fates was stark. While six brokers awaited trial, most of his colleagues remained free and employed. Mirhat Alykulov still worked in Tokyo finance. Naomichi Tamura, who had instructed Hayes to manipulate Libor, continued at UBS until recently. Others like Mike Pieri, Chris Cecere, and various Citigroup colleagues all maintained careers in finance.
Most notably, Carsten Kengeter became CEO of Deutsche Borse, planning major expansions, while Brian Mccappin received a promotion at Citigroup, described as "a valued employee." Even Angela Knight, who oversaw the BBA during the Libor scandal, secured a government advisory position despite parliamentary concerns about her tenure.
Hayes was transferred to Lowdham Grange prison, where other inmates respected him as "the Banker" and "the Lion of Libor," even cheering when TV pundits questioned his harsh sentence. Meanwhile, his six former brokers were acquitted in a separate trial, leaving Hayes alone in prison while his alleged conspirators celebrated their freedom.
9장
The System That Created a Scapegoat
The Libor scandal revealed a financial system where moral compasses were universally skewed. Hayes, with his mathematical brilliance and social limitations, became the perfect scapegoat for an entire industry's reckless behavior.
Behind their confident facades, most traders harbored deep dissatisfaction with their profession. Despite enjoying the money, status, and luxuries their jobs afforded, few found genuine fulfillment in the work itself. The trading lifestyle was unhealthy-bad food, excessive drinking, sleep deprivation, and constant pressure to outperform both rivals and colleagues. The monotonous nature of exploiting tiny price differences for profit left many questioning their purpose, leading to widespread depression and anxiety among financial professionals.
When Hayes was first hired at UBS, he discovered a bank undergoing dramatic transformation from a conservative Swiss institution to a global risk-taking powerhouse. Following its 1997 merger with Swiss Bank Corporation that created the world's largest bank, CEO Marcel Ospel accelerated this risk-taking, steering the formerly staid institution toward becoming a global investment banking powerhouse.
Colin Smith, a British banker without college education who handled UBS's sterling Libor submissions, lacked guidance on determining borrowing costs and took shortcuts-listening to brokers' predictions and taking requests from UBS's interest-rate swaps traders. Following the corporate directive to improve collaboration between departments, Smith generally complied with these requests, seeing no reason not to manipulate the submissions when traders asked.
Throughout the investigation and trial, regulators and prosecutors focused on Hayes while larger systemic issues went unaddressed. UBS managed to narrow the CFTC's subpoenas to exclude emails, chats, and phone calls, claiming Swiss bank secrecy laws protected millions of documents. They strategically directed investigators toward Hayes as the primary culprit, steering attention away from executives.
The Justice Department had become hesitant to indict large companies after the Arthur Andersen case, where criminal charges led to the firm's collapse and 20,000 job losses. This created a "too big to jail" perception that prosecutors were eager to overcome with a winnable case against major banks.
While Hayes sits in prison, the system that enabled and encouraged his behavior remains largely intact. The spider became entangled in his own web, while those who built the web continue to profit from its design.
