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Ex-Citigroup trader among 3 held in Libor case

First of British arrests as global inquiries proceed

LONDON — A former Citigroup trader is among three people held in the first British arrests as part of global probes into tampering with the London interbank offered rate, two people familiar with the matter said Tuesday.

Thomas Hayes, a former trader at UBS AG and Citigroup, was arrested by the Serious Fraud Office and City of London Police on Tuesday, said the people, who asked not to be identified because the investigation is continuing.

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The other two men arrested worked at the brokerage firm RP Martin Holdings, said one of the people and a third person familiar with the investigation, who also requested anonymity.

The three men arrested are all British nationals living in Britain and were taken to a London police station for questioning, the Serious Fraud Office said in an e-mail.

Authorities worldwide are investigating claims that more than a dozen banks altered submissions used to set benchmarks such as the Libor to profit from bets on interest rate derivatives or make the lenders’ finances appear healthier.

The Swiss lender UBS is expected to face a fine as early as this week that may surpass the record $466.6 million paid in June by Barclays PLC, Britain’s second-biggest bank, to settle claims it attempted to manipulate the Libor.

The fraud office and police also searched three homes in Surrey and Essex. Arrests in Britain are made early in investigations, allowing people who might not be charged to be questioned under caution.

Libor, a benchmark for more than $300 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association. The rates help determine borrowing costs for everything from mortgages to student loans.

Hayes, a Tokyo-based trader for Citigroup, was previously dismissed for suspected involvement in the rate manipulation, a person familiar with the situation said earlier this year.

Citigroup declined to comment.

Japan’s Financial Services Agency said last year that Citigroup’s local securities unit would be banned from trading tied to the London and Tokyo interbank offered rates for two weeks starting on Jan. 10. Citigroup was forced to write off $50 million as it exited trades made by Tokyo-based employees, a person familiar with the matter said earlier this year.

The Japanese regulator said a director and a trader at Citigroup engaged in ‘‘seriously unjust and malicious’’ conduct by asking bankers to alter data they submitted while setting a benchmark Japanese lending rate.

The regulator took no action against the employees. Japan’s FSA also ordered a Japanese division of UBS to suspend trading in derivatives related to Yen Libor and Euroyen Tibor from Jan. 10 to Jan. 16.

Hayes joined Citigroup in December 2009 and was dismissed after he was reported for inappropriate conduct by a rate setter there in June.

David Green, the director of the fraud office, said last month that the agency was considering conspiracy-to-defraud charges against individuals. Green said the agency is focusing on the most egregious attempts to manipulate Libor and related rates.

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