The Rigging Triangle Exposed: The JPMorgan-British

Petroleum-Bank Of England Cartel Full Frontal

The name Dick Usher is familiar to regular readers: he was the head of spot foreign
exchange for JPMorgan, and the bank's alleged chief FX market manipulator, who
was promptly fired after it was revealed that JPM was the bank coordinating the biggest FX
rigging scheme in history, as initially revealed in "Another JPMorganite Busted For "Bandits'
Club" Market Manipulation." Subsequent revelations - which would have been impossible
without the tremendous reporting of Bloomberg's Liam Vaughan - showed that JPM was not
alone: as recent legal actions confirmed, virtually every single bank was also a keen FX
rigging participant. However, the undisputed ringleader was always America's largest bank,
which would make sense: having a virtually unlimited balance sheet, JPM could outlast
practically any margin call, and make money while its far smaller peers were closed out of
trades... and existence.
But while the past year revealed that FX rigging was a just as pervasive, if not even more
profitable industry for banks than the great Libor-fixing scandal (for details see "How To Rig
FX Like A Pro "Bandit", And Make Millions In The Process"), the conventional wisdom was
that it involved almost exclusively bankers at the largest global banks including JPM,
Goldman, Deutsche, Barclays, RBS, HSBC, and UBS.
Now, courtesy of some more brilliant reporting by Vaughan, we can finally link banks with
the other two facets of what has emerged to be an unprecedented FX-rigging "triangle"
cartel: private sector companies that have no direct banking operations yet who have
intimate prop trading exposure, as well as central banks themselves.
By "banks" we, of course, refer to the ringleader itself: JP Morgan, and its former head of
spot forex trading in London, Dick Usher. As for the company that benefited from its
heretofore secret participation in the biggest FX rigging scandal in history, it is none other
than British Petroleum.
We learn about all this thanks to a story that begins with, of all thing, a story about
freshwater fishing at a lake in Essex called "Wharf Pool."
As Bloomberg reports, "an hour away by train, in Londons financial district, the lakes
owners ply their trade. Wharf Pool was purchased for about 250,000 pounds
($388,000) in 2012 by Richard Usher, the former JPMorgan Chase & Co. trader at
the center of a global investigation into corruption in the foreign-exchange
market, and Andrew White, a currency trader at oil company BP Plc. "
The plot thickens: was there more than a passing connection between the head FX trader at
JPM and White "whos known in the market as Tubby, is one of half a dozen spot currency
traders working for British Petroleum (BP) in London. He and his colleagues, most of them
ex-bankers, decide which firms will carry out their foreign-exchange transactions. That
makes them prized clients for banks seeking a slice of the business and a glimpse into
potentially market-moving trades. Passing on information was a way to curry favor."
In short, a typical Over The Counter relationship between a banker and a buy side client,
one which is largely unregulated and where the bank hopes to be able to front run the

client's orders by providing the client with confidential market moving information, thus
generating more business with the client in the future. In this case, however, the buyside
client was not a typical hedge fund, but the FX trading group at one of the world's largest
energy companies: a group which trades enormous amounts of FX every single day, both
with intent to hedge, and to generate a profit.
The trading units primary role is to manage the firms exposure to financial risks, including
fluctuations in interest rates and foreign exchange, according to the companys
website. Unlike at most corporations, it also is run as a profit center, which means
that in addition to hedging risks, traders can place their own bets on the direction
of markets. The company doesnt break out how much money the treasury unit makes
Basically, BP's energy operations were just a balance sheet funding cover: what its FX
traders did in the front office was trade for a profit pure and simple, just like any prop
trading desk or hedge fund anywhere else in the world. And it did so in collusion with a
small group of market rigging individuals all located at the biggest, market-moving banks
around the globe.
A quick reminder on the "Cartel":
The four banks in the Cartel controlled about 45 percent of the global spotcurrency market, according to a survey by Euromoney Institutional Investor Plc, so
information about their plans was valuable. Some days they worked together to push
around the 4 p.m. fix, settlements with the banks show.

The Cartel chat room was started by Usher as early as 2009, according to a person
with knowledge of the matter. Usher had risen quickly to the top of his profession.
After joining HBOS Plc in 2001, he was hired by Royal Bank of Scotland Group Plc in 2003
and a year later collected an industry award on his employers behalf.... The four members
of the chat room ribbed each other like high school buddies. Usher was referred to as Feston
because he resembled an overweight version of British chef Heston Blumenthal, according
to people who have seen the chats. Matt Gardiner, a UBS trader based in Zurich, was called
Fossil because he was a few years older than the others. Rohan Ramchandani, Citigroups
cricket-loving head of spot trading, was called Ruggy, while Chris Ashton, the last one to
join, was dubbed Robocop.
Now we can add BP too, a BP which doesn't even hide the prop-trading nature of its FX
"hedging" group, which is located two blocks away from, wait for it, JPMorgan!
The two dozen traders in BPs treasury trading unit are housed above a Porsche showroom
on the second and third floors of the companys office in Canary Wharf, an area of reclaimed
docklands three miles east of the City of London, the historic financial district. The
building, two blocks from JPMorgans, was completed in 2003 on the cusp of an oil
boom. Lights in meeting rooms flick from green to white when someone enters, in keeping
with the companys corporate colors.

And while until today the last sentence would be pure conjecture, thanks to Bloomberg's
release of exchanges between JPM and BP revealing the extent to which the "cartel" would
stoop in order to make money for its members on a daily, risk-free basis, it is not a fact.
From Bloomberg:
Copies of messages sent to BP traders over the course of a year were provided to
Bloomberg News by a person with access to the online conversations. The person, who
redacted the names of banks sending the messages and dates of conversations, said they
came from firms whose senior foreign-exchange traders belonged to a chat room
called The Cartel that was set up by Usher and included dealers at JPMorgan,
Citigroup Inc., Barclays Plc and UBS Group AG.

The information offered an insight into currency moves minutes, sometimes hours before
they happened. The messages could drag the U.K.s biggest energy company into a
scandal that has enveloped 11 banks and led to more than 30 traders from London
to Singapore losing or being suspended from their jobs. Last month six banks were
fined $4.3 billion for passing along information about their clients and working together to
rig foreign-exchange markets.
Presenting BP: collusive, insider trading hedge fund extraordinaire. All comparisons and
similarities to Enron are purely coincidental.
With revenue of almost $400 billion last year and operations in about 80 countries, BP
trades large quantities of currency each day. Traders at the company regularly received
valuable information from counterparts at some of the worlds biggest banks -including tips about forthcoming trades, details of confidential client business and
discussions of stop-losses, the trigger points for a flurry of buying or selling -according to four traders with direct knowledge of the practice.
Of course, in any non-banana republic, whose regulatory and enforcement divisions were
not captured by the same megacorp that is in question here, this would have been the basis
for a massive lawsuit, one which would ultimately seek to break apart the company's
"profitable" FX trading division from its core energy business. But not in this republic: after
all, between one of the world's biggest banks and one of the world's biggest corporations,
and a corrupt, crony government it should be clear to everyone by now just who calls the
shots.
BP of course is quick to note that it did nothing illegal: after all the last thing the company
needs is its own Enron-type scandal, where an ancillary business manages to drag down the
entire company. Sure enough it has promptly denied everything:
BP said in a statement that it conducted an internal review after regulators began probing
currency markets. BPs FX desk has relationships as a customer with 26 relationship banks,
including JPMorgan, Citibank and Barclays, the London-based company said. BP has a
robust framework of compliance requirements and internal controls which are

constantly reviewed, and maintains an open dialogue with the appropriate

regulators.

The firm, the third-largest publicly traded company in the U.K., hasnt been
investigated by regulators looking into currency manipulation, according to a person with
knowledge of the matter. Chris Hamilton, a spokesman for the U.K. Financial Conduct
Authority, declined to comment, as did representatives of JPMorgan, Barclays, Citigroup and
UBS.
So how does one explain the joint equity interest in - for example - the little fishing lake ?
BPs Code of Conduct includes mandatory requirements for employees to disclose potential
conflicts of interests internally, the company said in response to a question about the
commercial relationship between Usher and White through the fishing lake. Following
such disclosure, steps are taken to manage and monitor these appropriately. It is
our policy not to comment on individuals.
In other words, one can't. Which is how BP likes it. Which is also why Bloomberg was quite
cautious with how it phrases BP's involvement into something that could promptly turn out
to be Britain's own Enron:
While theres no evidence that any BP traders were members of the Cartel, Usher
participated in at least one chat room with White, according to a person who has
examined conversations that included both men. It couldnt be determined from the
messages reviewed by Bloomberg News who sent the information to BP or
whether BP employees acted on any of the tips.
They did, and this is how we know: "Traders at BP havent been accused of any wrongdoing.
Last year, within hours of regulators announcing probes, the chats between BP and
the banks were shut down, people with knowledge of the matter said. Soon after, a
compliance officer was placed on the desk for the first time, one of them said."
Not exactly something one would do if one was, for lack of a better term, innocent.
And while we hold our breath until UK's justice (don't laugh please) system assigns blame by which we mean a $19.95 one-time settlement with a promise by BP it will never do it
again - here is a glimpse at the full extent of just how this rigging took place:
In the clubby, lightly regulated world of foreign exchange, traders passed around tips to
their circle of trusted contacts like candy. The victims: mutual-fund investors,
pensioners and day traders who took the other side of a transaction at a lower
price than they would have if they had the same information.

...

In an undated message seen by Bloomberg News, a trader at a bank told BP he would be

buying U.S. dollars against Australian dollars at the WM/Reuters fix at 4 p.m. in London, the
one-minute window during which traders around the world exchange billions of dollars of
currency on behalf of pension funds and asset managers. The message was received at
BP about 30 minutes before the fix. By tipping his hand, the sender was telling BP
about a potential fall in the Australian currency

At about 3 p.m. in London on a different afternoon, BP traders were informed that

banks were selling dollars against the yen at 4 p.m. In a third message, this one
arriving as the oil companys traders drank their first coffee of the morning, a trader at a
bank said he had just sold a quantity of an emerging-market currency, to whom and the
price he received.

The settlements the banks reached with regulators reveal that in the minutes before 4 p.m.
the traders would meet on chat rooms to discuss their positions and how they planned to
execute them. Sometimes they also agreed to work together to push exchange rates around
to boost their profits - something they called double-teaming.
All of the above would be, if proven, criminal but in line with expectations: after all when
given a carte blanche to do anything they want, humans will do just that, even if it means
trample every regulation known to man. In fact, the bigger one's balance sheet, the greater
one's percevied (and realized) leeway of sneaking between the legal cracks, facilitated by
the number of politicians and regulators that have been coopted and outright purchased
courtesy of said big balance sheet.
However, the true punchline is this: "[Usher] joined JPMorgan as head of spot foreign
exchange in 2010, where he became a member of the now-defunct Bank of
Englands Chief Dealers Sub Group, a collection of about a dozen currency traders and
central bank officials who met at restaurants and bank offices to discuss industry
developments."
In other words, all of this rigging, all of the FX manipulation, all of the criminal abuse of
naive, innocent market participants took place with the Bank of England's own seal of
approval. Which, of course, is why the BofE itself had to scapegoat its own sacrificial lamb
to avoid any further connection to this criminal cartel - something it did in early November
when it fired its Chief FX dealer, Martin Mallett, who on November 12 "was dismissed by the
Bank of England yesterday for serious misconduct relating to failure to adhere to the
Banks internal policies, according to a statement by the central bank today."
And just like that all loose ends have been cut off, although if we were Mr. Mallett, we would
certainly keep away from loose nail guns, hot tubs or airplanes for the near future.
In the meantime, after the mandatory pause of 3-6 months, all rigging, all manipulation,
and all criminal abuse with blessing from the central bank itself will quietly return, because

until the great (and as increasingly more predict, very violent) reset finally comes, nothing
can possibly change in a system as corrupt as this one.