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Japanese regulators are mulling sanctions against UBS and Citigroup after finding that the banks had attempted to manipulate interest rates linked to derivative contracts:

Citigroup and UBS could be penalised by the Japanese financial regulator after an investigation found staff at the two investment banks had attempted to influence the country’s main interbank lending rates.

Japan’s Securities and Exchange Surveillance Commission said it found the bankers involved had continuously asked colleagues or participating banks to change the rates they submitted for setting the Tokyo interbank offered rate – Tibor – to gain an advantage on their derivative trades...

The findings come amid investigations in Europe and the US that have continued for more than a year over whether Libor, the London-based reference point for $350tn in contracts, was rigged at height of the financial crisis.

A similar investigation by U.S. authorities is examining a criminal angle:

The US investigation into alleged manipulation of interbank lending rates is focusing on possible violations of a commodities law that has previously been used to send financial executives to prison.

According to people familiar with the probe into the setting of London and Tokyo interbank offered rates, US authorities are modelling their investigation on an earlier prosecution of three energy companies for violations of the Commodity Exchange Act, which resulted in criminal settlements and prison terms of up to 14 years. Under the act, it is illegal to transmit a false report that would affect the price of a commodity...

In its seven-year investigation into US energy trading companies, the DoJ filed criminal charges against nearly two dozen traders from numerous oil companies. Prosecutors alleged that they submitted false trade data to Platts and other publishers – whose indices are used to price and settle physical and financial derivative natural gas transactions – to benefit their positions.

Investment funds have sued the banks for conspiring to fix rates:

In a pair of lawsuits filed in the Federal District Court in San Francisco, the firm accused the banks, including Bank of America, JPMorgan Chase and Citigroup, of colluding to depress the London Interbank Offered Rate. That conspiracy, the suits allege, allowed the banks to artificially deflate the numbers used to calculate the benchmark, thereby throwing off interest rates for Libor-based securities and depriving investors of the returns they would have earned had the numbers been accurate.

In one suit, Charles Schwab alleges that the banks “reaped hundreds of millions, if not billions, of dollars in ill-gotten gains.” The firm also alleges that by falsely depressing their borrowing costs, the banks “provided a false or misleading impression of their financial strength to investors” during the financial crisis of 2008.

Charles Schwab is seeking unspecified compensatory and punitive damages from the banks. Other defendants include foreign banks like Barclays, Credit Suisse, Deutsche Bank, HSBC Holdings, Royal Bank of Scotland, Lloyds, WestLB and UBS.

Asset managers contend that the firms have too great an influence on the $360 trillion derivatives market:

Every workday morning in London, at about 10 o’clock, representatives from 19 banks make a series of decisions that affect financial transactions around the world, from what homeowners pay on their mortgages to the underlying value of credit default swaps and corporate bonds.

The bankers’ power is unsettling, says Tim Price, who helps oversee more than $1.5 billion as director of investment at PFP, an asset management firm.

It’s a kind of Wizard of Oz surrealist nightmare,” he says.

Are cracks forming in the global financial mafia?

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