US court convicts former HSBC trader of fraud in currency case linked to US$3.5billion deal

Former HSBC Holdings Plc currency trader Mark Johnson was found guilty on Monday of fraud for front-running a US$3.5 billion client order, a victory for US prosecutors as they seek to root out misconduct in global financial markets. He was convicted of almost all fraud and conspiracy counts after a month-long trial in New York. “They’ve convicted an innocent man,” defence lawyer John Wing said as he left the courtroom. Johnson, 51, was the first person to be tried since the global currency-rigging scandal that resulted in global banks paying more than US$10 billion in penalties. The charges stemmed from HSBC’s execution of a trading order from Cairn Energy Plc in 2011 to convert the proceeds of a unit sale from dollars into pounds. Johnson looked down as the first guilty counts were announced by the jury foreman. Prosecutor Carol Sipperly asked the court to order Johnson to surrender his passport and remain in New York. The judge ordered that he not seek a new passport from the British consulate. He will be sentenced at a later date. “This sends a signal to traders and banks that this type of behaviour is absolutely inappropriate and will be pursued by the government,” Michael Weinstein, a former Justice Department trial lawyer, said. “That’s a big hammer over the banks – it may force them to monitor and self-regulate their people.” HSBC wasn’t accused of wrongdoing, but the bank has been under investigation over currency trading and is in active settlement talks with the Justice Department and US regulators, according to a July 31 regulatory filing. The verdict comes as prosecutors prepare for other trials targeting manipulation in markets including currencies, commodities and mortgage-backed securities. US accuses HSBC currency expert of deliberately driving up sterling to turn a profit at client’s expense In one, three former employees of JPMorgan Chase&Co, Barclays Plc, and Citigroup are awaiting trial in Manhattan after being accused of using an online chat room they dubbed “the Cartel” to share information and fix currencies. In another, a former trader at UBS Group AG is accused of rigging the price of precious metals. The Johnson trial offered the Justice Department a chance to regain momentum after an appeals court in July tossed out convictions of two ex-Rabobank Groep traders for manipulating the Libor benchmark rate. The court said prosecutors had improperly used testimony they were forced to provide to a UK financial regulator to build the US case. US claims currency conspiracy in HSBC may involve up to 11 bank employees Johnson was arrested by federal agents at New York’s Kennedy Airport in July 2016, just as he was about to board a flight to the UK. Stuart Scott, the bank’s former head of currency trading in Europe, was also charged in the case. He is awaiting a ruling on his bid to avoid extradition to the US. According to prosecutors, Johnson and Scott were among 11 currency traders feverishly buying pounds just before the Cairn transaction. The traders in New York and London jumped ahead, driving up the price of the pound to its highest in two days on December 7, 2011, minutes before the deal, according to a government witness. Prosecutors said they were tipped by Johnson. HSBC’s traders dominated 75 per cent of the currency’s trading on a major platform in the five minutes before the fix, according to a prosecution witness. They collectively made the bank US$8 million in profit, just after Johnson used what prosecutors said were code words – “my watch is off” – according to chat transcripts and recorded telephone calls. The US called officials from Cairn to testify about their talks with Johnson and Scott, who advised them to do the trade earlier because prosecutors said both men knew the earlier time was easier to manipulate. The government also played numerous recorded phone calls including one in which Johnson said, “I think we got away with it.” A key government witness was Frank Cahill, the former HSBC trader who conducted the Cairn transaction. He said he was part of a separate scheme in which he and traders at other banks used instant-chat groups to communicate with each other to influence benchmarks and maximise profits. Cahill said Scott directed him to begin buying pounds about an hour before the transaction. He testified that he employed an “aggressive” manner of buying that caused the pound’s price to go up, just after Scott directed him to “ramp” up the price. During his trades, Cahill also said he realised other HSBC colleagues were also buying pounds and competing with him, resulting in an “aggressive jerking move higher” in price. Citi, Deutsche Bank, HSBC agree to pay US$132 million to settle Libor claims Johnson took the witness box in his own defence, testifying that he was in New York when the trades took place and left Scott “in charge” of the Cairn transaction in London. He said HSBC provided high-quality execution and gave Cairn a “fair” price. Buying of pounds before the transaction was an accepted practise called “pre-hedging,” he said. If the pound’s price rose during the transaction, Johnson attributed it to the massive size of the trade and not manipulation. He insisted neither he nor those he supervised were prohibited from buying pounds. Johnson’s lawyers called Kevin Rodgers, Deutsche Bank AG’s former global foreign-exchange trader who worked with Johnson at the Frankfurt-based bank. Rogers said the rise in the pound was instead caused by the size of the trade and that the transaction was conducted in a manner that was common in the US$5.1 trillion-per-day currency market.