A senior HSBC Holdings PLC manager has been arrested and charged alongside a former foreign exchange executive with engaging in a scheme to front-run a US$3.5 billion transaction by one of the bank’s clients, US prosecutors said on Wednesday.
Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, and Stuart Scott, its former head of cash trading for Europe, the Middle East and Africa, were charged in a criminal complaint filed in federal court in Brooklyn.
Both men were charged with wire fraud conspiracy, in a case that a person familiar with the matter said was the first against individuals to flow out of a US Department of Justice probe of foreign-exchange rigging at global banks.
Photo: AP
HSBC spokesman Robert Sherman said the bank was cooperating in the Justice Department’s foreign exchange investigation.
Prosecutors said Johnson, 50, and Scott, 43, misused information provided by a client who had hired HSBC to convert US$3.5 billion to British pounds in connection with a planned sale of one of the unnamed company’s subsidiaries.
The two British citizens then used their insider knowledge to engage in a process called front-running in which they made trades ahead of the December 2011 transaction, resulting in a spike in the price of the currency that was detrimental to HSBC’s client, prosecutors said.
“Ohhh, f---ing Christmas,” Johnson told Scott in a recorded call the day the transaction went through, the complaint said.
In total, HSBC earned US$3 million from trades its forex traders placed and earned US$5 million executing the transaction, the complaint said.
“The defendants allegedly betrayed their client’s confidence and corruptly manipulated the foreign exchange market to benefit themselves and their bank,” Assistant Attorney General Leslie Caldwell said in a statement.
Johnson was arrested at John F. Kennedy International Airport on Tuesday night and was released on Wednesday on a US$1 million bond following a court hearing.
The case was, according to a source, related to a years-long Justice Department investigation that has led to four banks last year pleading guilty to conspiring to manipulate currency prices.
The charges came a day after the US Federal Reserve Board said it was banning Matthew Gardiner, a former forex trader at Barclays PLC and at UBS AG, from participating in the banking industry for manipulating pricing benchmarks.
HSBC was not among the four banks that pleaded guilty, but in 2014 agreed to pay US$618 million to resolve related probes by US and British regulators.
The Justice Department has continued to investigate, and HSBC has set aside US$1.2 billion to cover various forex-related probes, according to a regulatory filing.
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