Tom Hayes emerges from his trial at Southwark Crown Court for Libor manipulation as a very considerable loser, who took some very bad decisions in the course of the SFO investigation and trial (and perhaps deserves his long sentence for the level of stupidity displayed alone, although the Judge specifically stated that he took no account in passing sentence of the way his defence was run). At the same time, the reputation of the SFO has increased enormously. Let no one underestimate how serious and complex the investigation was, and how difficult the case was to bring to court, particularly as a ‘manageable’ trial. All involved at the SFO deserve great credit for their skill and determination, and for holding their nerve. This was just the kind of case that the SFO was set up for, and it has achieved one of its central aims: to show that bad conduct – whether fraud or bribery – will be investigated and punished. The remaining Libor cases will be approached with confidence. David Green CB QC’s tenure as Director may be extended. The SFO’s future looks more assured. The City Slickers’ column in Private Eye could not quite bring itself to say ‘Well done’, and their brief report is buried in the middle of the column, but the SFO will be relieved to have avoided the scornful headlines that not guilty verdicts would have spawned.

The 14 year sentence slapped on Tom Hayes by Mr Justice Cooke on 3 August for a series of conspiracies to defraud will not only have shaken the defendant and pleased the SFO; it will also have sent shock waves through the City. No doubt the learned Judge had this very much in mind when preparing his sentencing remarks. Like Admiral Byng, who was executed in 1757 for failing to stop the French taking over Minorca, Haye’s conduct was deemed worthy of being dealt with by means of a deterrent punishment that would, as Voltaire put it, ‘encourager les autres’.

The bare facts are that Cooke J sentenced Hayes to 9.5 years for each of the 4 counts of conspiracy to defraud that related to his time at UBS, to run concurrently, and 4.5 years for each count for his Citi bank activities, also to run concurrently, but consecutively to the UBS counts. Therefore Hayes faces the prospect of 7 years in jail, most of it in uncomfortable surroundings, and 7 years on licence. In addition he will have to pay a very large regulatory fine imposed by the FCA, prohibition form employment in the financial services sector, and trying to find a new way of earning a salary to support his family.

One may, like Hayes’ father (perhaps understandably) describe the punishment as being ‘cruel and unusual’ and thus flouting Human Rights principles. Another view is that it is about time that it is recognised that serious and serial dishonesty in financial markets deserves to be punished much more severely than has traditionally been the case, and that therefore the Hayes sentence paves the way for a tougher regime that will genuinely encourage other financial professionals to behave better. Take your pick.

Against that background it is interesting to see how the learned Judge reached the conclusion that a 14 year sentence was appropriate, what light it sheds on the case, and what impact it will have on future fraud sentencing (not just in Libor cases). What are the prospects for a successful appeal against sentence?

Paragraph 16 of Cooke J’s sentencing remarks states:

“The maximum sentence is 10 years for a count of conspiracy, which is generally recognised as too low.”

‘Generally recognised’ by who? This is a curiously unjudicial remark. Clearly the legislators, who have had plenty of opportunity, have not ‘recognised’ anything of the sort. Prosecutors might want longer sentences, but their voice is not the only one in this debate.

The Judge went on:

“The starting point for a Category A case of high culpability based on a loss figure of £1m is 7 years. The figures here exceed that by a distance, and the number of counts must drive the sentence up.”

Here the Judge raises the interesting question of ‘loss’. What loss, to any identifiable loser, was caused by Mr Hayes’ manipulation of Libor? In paragraph 7 of the remarks, the Judge admitted: “It is effectively impossible to assess the scale of the losses caused to the counterparties to the trades in which you participated”. He went on to talk about the effect of the movement of the Libor rate by a basis point: it might benefit a Hayes traded fund by between $500,000 and $2.5m, but whether it caused consequential losses was more difficult to calculate. It is perhaps the case that a movement in the Libor rate of 0.001% (a basis point) had no impact, adverse or otherwise, on anyone else. Even if the rate went up, there could be losers (borrowers with loan rates fixed by reference to Libor) as well as winners (savers). And the Judge seemed to imply that while many attempts may have been made to “Do the Math”, most were unsuccessful. For one thing, a high submission would be excluded from the rate fix calculation because only the middle eight of the sixteen submissions were used for the fix.

So the detriment to any identifiable loser is ‘almost impossible’ to calculate. “The number of victims is not clear on the evidence, but you and your employers had many counterparties to trades which were affected by what you did” (paragraph 13(f)). In other words, the Serious Fraud Office did not try (or alternatively, knew it was not possible) to prove any loss suffered by identifiable individuals or entities. In which case, the Judge should not have guessed, and should have excluded from his calculations, any element based on size of loss.

This leaves the size of the gain for Hayes personally. Although one might think that gain and greed formed the basis both of the motivation and disapprobation, the Judge dealt with this in an aside: Hayes skewed the rate “in order to gain an advantage for your bank’s trading profit, with the concomitant benefits which would come to you as the result of trading success, in the shape of status, seniority and remuneration, particularly by way of bonus” (paragraph 6). Curiously, he did not include the concomitant benefits in the sentencing guidelines which he listed in paragraph 13 as forming the basis of his calculation.

Will there be any application for Confiscation or Compensation Orders, and if so, how would this work out in practice? If no applications are made, that perhaps amounts to an admission that ‘no harm was done’, in which case the Hayes trial was all about ethics and reputation, with the sentence reflecting the current climate of hostility towards bankers, and seeking to scare their pants off. Future sentences in complex fraud cases will be more severely sentenced, and prosecutors will be encouraged to believe that they can succeed in getting convictions against the City fraternity.

But wait a minute: all this naughty upward Libor manipulation ended in about 2007, eight years ago. Hayes is therefore being punished for something that happened in a different era, pre-crash. Any message that will be ‘heard’ by bankers will include the thought that they have dealt with that aspect of bad behaviour, and everything is different now (let’s conveniently forget that foreign exchange fixing continued well after Libor manipulation had been outed). There is a large element of truth in this, and Libor and Forex manipulation will not happen again – at least not in the same form, and not until people forget about the bad times, and new forms of misconduct are invented. As appears to have been made clear by the Chancellor, the era of being tough on banks is nearing its end, and the regime of tough financial regulation briefly put in place by Martin Wheatley, whom he recently sacked as CEO of the FCA, will be transformed into a regulation-lite package by his successor. So there might be some shoulder shrugging: good times are just around the corner, UK plc can look forward to relying on its financial sector to underpin the whole economy for a few more years to come, and bankers can dream of new and more-or-less honest ways to make super-profits and big bonuses.