LONDON — Traders with nicknames like the "Three Musketeers" and the "A-Team" plotted over Internet chat rooms to manipulate currency markets for years, profiting at the expense of clients — and then congratulating themselves for their brilliance — regulators said Wednesday, as they fined five banks $3.4 billion.
Using profanity-laced banter, the traders coordinated their financial positions in the multi-trillion dollar currency market, securing profits for those inside their circles. "YESsssssssssss," one of them wrote in a chat message. "Yeah baby" and "nice work gents....I don my hat," wrote others, according to documents of their exchanges.
Citibank, JPMorgan Chase, Royal Bank of Scotland, HSBC Bank and UBS agreed to settlements totaling almost $3.4 billion with the U.S. Commodity Futures Trading Commission, U.K. Financial Conduct Authority and Swiss Financial Market Supervisory Authority. The British regulator said Barclays remains under investigation.
"Today's record fines mark the gravity of the failings we found, and firms need to take responsibility for putting it right," said Martin Wheatley, chief executive of the FCA. "They must make sure their traders do not game the system to boost profits."
Meanwhile, a U.S. Treasury Department agency announced it was fining three of the biggest U.S. banks — JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. — a total $950 million for failing to prevent misconduct in their foreign exchange trading operations.
Some $5.3 trillion changes hands every day on the global foreign exchange market, with 40 percent of trades occurring in London. The market is loosely regulated and dominated by a few elite banks.
Manipulation of the exchange rates has "a profound effect on the economy," CFTC Enforcement Director Aitan Goelman said. That's because a host of financial investments bought and sold by major investors like pension funds are based on benchmark rates for pairs of currencies that are fixed daily by the banks.
With so much money flowing through the currency markets, a rigged procedure of fixing exchange rates can ripple through the financial system, the regulators say, and it also shakes people's confidence in the fairness and integrity of the system.
The alleged manipulation occurred around the market fixes, moments during the day when banks set benchmark prices for currency trades around the world.
The penalty notices for each bank contain specific examples in which traders manipulated the market to the benefit of their firms.
In one example, RBS had net client orders to sell British pounds for dollars. This meant the bank would profit if it were able to push the price of pounds lower. An RBS trader used an online chat room to share information with traders at three other firms, allowing him to increase RBS's net sell orders to 399 million pounds from 202 million pounds and to push the price on the spot market as low as $1.6213 from $1.6276. The fix was eventually set at $1.6218.
As a result, RBS made a profit of $615,000.
In the aftermath, the RBS trader used the chat room to thank his compatriots, saying "1.6218 . nice." One of the other traders replied, "we ... killed it right," using an obscenity.
Louise Cooper, a former Goldman Sachs stock broker who writes the financial blog CooperCity, said that what was extraordinary about the case is the misconduct occurred when the banks were already under investigation for a similar scandal involving the fixing of the London interbank offered rate, or LIBOR. The industry was well aware that a regulatory backlash was coming.
"I thought these were supposed to be the masters of the universe? Brilliantly clever individuals who were worth their multi-million pound bonuses," Cooper wrote. "And yet they continued their behavior despite the clear signs they were likely to be discovered."
The regulators found that between Jan. 1, 2008 and Oct. 15, 2013, the five banks failed to adequately train and supervise currency traders. As a result, traders were able to form groups that shared information about client activity, using nicknames such as "the players" and "1team, 1 dream."
RBS Chairman Philip Hampton said the bank condemned the actions of the employees responsible.
"Today is a stark reminder of the importance of culture and integrity in banking and we will rightly be judged on the strength of our response," Hampton said. RBS has started disciplinary action against six employees, three of whom have been suspended.
The U.S. Justice Department is conducting its own criminal investigation of foreign exchange rate setting. And the Federal Reserve confirmed Wednesday it has a probe underway in coordination with Justice and other agencies. Additional penalties are possible.
The foreign-exchange scandal is the latest black eye for the banking industry. Five banks have been sanctioned for alleged manipulation of LIBOR, in a continuing investigation. The banks together have paid nearly $4 billion in settlements, and several individuals have been criminally charged.
LIBOR is an interest rate that affects trillions of dollars in contracts around the world, including mortgages and consumer loans.
Major Wall Street banks including JPMorgan Chase, Bank of America and Citigroup have each paid billions of dollars in settlements with U.S. agencies over their role in selling the toxic mortgage securities that fueled the worst financial crisis since the 1930s and threw millions of homes into foreclosure.
Gordon reported from Washington.