US accuses HSBC currency expert of deliberately driving up sterling to turn a profit at client’s expense

‘Lying and cheating your client is a crime and the evidence shows the defendant broke the law’

PUBLISHED : Tuesday, 26 September, 2017, 1:33am
UPDATED : Tuesday, 26 September, 2017, 9:48pm

A former HSBC Holdings foreign-exchange “expert” used his skills to illegally convert a large customer order into a multimillion-dollar profit for the bank, by driving up the pound at the client’s expense, US prosecutors said.

“Lying and cheating your client is a crime and the evidence shows the defendant broke the law,” Assistant US Attorney Lauren Elbert told a federal jury in Brooklyn, New York on Monday. “He exploited the confidential information he knew about to make money.”

Mark Johnson, 51, was assigned to conduct a US$3.5 billion currency transaction, and used the information to reap US$8 million for the bank, prosecutors said. He is accused of wire fraud and conspiracy for manipulating the pound to take advantage of inside information about client Cairn Energy PLC’s plans to sell part of the stake in an Indian subsidiary and convert the proceeds from dollars into pounds. He no longer works for the bank and denies wrongdoing.

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Frank Wohl, Johnson’s lawyer, said Cairn officials agreed to the terms of how the transaction was going to be handled. HSBC advised the client that the bank would be buying pounds ahead of the transaction and they agreed to it, he said.

“There was no front-running here, there was no misuse of client information,” Wohl said. He called the charges “a governmental mistake.”

The US said the scheme lasted the span of a few months from October 2011 to the day of the transaction on December 7, 2011. The bank selected Johnson to head the team that executed the order from Cairn. The Edinburgh-based oil and gas exploration and development company sought to convert the proceeds from selling a unit to Vedanta Resources PLC from dollars into pounds.

HSBC promised Cairn it would “drip feed” the market with its purchases so as not to drive up the price of sterling, prosecutors said.

Instead, Johnson and Stuart Scott, then HSBC’s head of foreign exchange cash trading in Europe, filled the order using a technique that caused the price of sterling to spike. That benefited the bank’s trading book at the expense of Cairn, which paid a higher price for the UK currency, they said.

Elbert said former HSBC colleagues of Johnson who were part of the scheme have agreed to testify for the government in exchange for leniency.

Scott, 44, who was arrested in June in London and denies wrongdoing, is fighting extradition to New York for trial. US District Judge Nicholas Garaufis told jurors the trial should last about one month.