Former global head of HSBC's forex cash-trading guilty of front-running scheme
Staff Writer |
The former head of global foreign exchange cash trading at HSBC Bank, a subsidiary of HSBC Holdings, was found guilty for his role in a scheme to defraud an HSBC client through a multimillion-dollar scheme commonly referred to as "front running."
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Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Bridget M. Rohde of the Eastern District of New York, Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation (FDIC) and Assistant Director in Charge Andrew Vale of the FBI’s Washington Field Office made the announcement.
Mark Johnson, a United Kingdom citizen with residences both in the U.K. and the United States, was found guilty after a four-week jury trial of one count of conspiracy to commit wire fraud and eight counts of wire fraud. Sentencing date has not been scheduled.
U.S. District Judge Nicholas G. Garaufis of the Eastern District of New York presided over the trial. Johnson was arrested on a criminal complaint in July 2016 and indicted in August 2016.
"This verdict makes clear that the defendant corruptly manipulated the foreign exchange market for the benefit of his bank and his bonus pool, to the detriment of the bank’s client," said Acting Assistant Attorney General Blanco.
"This case demonstrates the Criminal Division’s commitment to protecting the financial system from harm, and holding corporate executives, including at the world’s largest and most sophisticated financial institutions, responsible for their crimes."
"The jury found that former HSBC banker Mark Johnson exploited confidential information provided by a client of the bank to execute trades that were intended to generate millions of dollars in profits for him and the bank at the expense of their client," said Acting U.S. Attorney Rohde.
"This Office, together with its law enforcement partners, will continue to vigorously investigate and prosecute those who would so abuse their client relationships and, more generally, undermine public confidence in the operation of the financial markets by engaging in fraudulent schemes."
"This case involved a complex fraud scheme to ‘front run’ a foreign exchange transaction in order to generate millions of dollars in illicit profits for HSBC, which also indirectly benefited individual traders," said Inspector General Lerner.
"Such cases are challenging, but important, to bring against bank insiders who misuse their positions and undermine the integrity of a major international financial institution."
"Mark Johnson misused confidential information to manipulate currency prices and defrauded a client out of more than $7 million," said Assistant Director in Charge Vale.
"The American people need to be assured that we are working vigorously to ensure integrity is upheld in financial services industries. We will continue to work with our law enforcement partners to investigate and prosecute those who engage in illegal business practices."
According to the evidence presented at trial, in November and December 2011, Johnson cheated an HSBC client out of millions of dollars by misusing information provided to him by a client that hired HSBC to execute a foreign exchange transaction related to a planned sale of one of the client’s foreign subsidiaries.
HSBC was selected to execute the foreign exchange transaction – which was going to require converting approximately $3.5 billion in sales proceeds into British Pound Sterling – in October 2011. HSBC’s agreement with the client required the bank to keep the details of the client’s planned transaction confidential.
Instead, Johnson misused confidential information he received about the client’s transaction to cheat the client out of millions of dollars, the evidence showed.
Shortly before the transaction, which occurred in December 2011, Johnson and other traders acting under his direction purchased Pound Sterling for their own benefit in their HSBC "proprietary" accounts.
Johnson then caused the $3.5 billion foreign exchange transaction to be executed in a manner that was designed to "ramp," or drive up, the price of the Pound Sterling, benefiting their proprietary positions and HSBC at the expense of their client.
As part of their scheme, Johnson and his co-conspirators made misrepresentations to the client about the transaction that concealed the self-serving nature of their actions.
In total, Johnson and the traders he supervised generated HSBC profits of roughly $7.5 million from the execution of the FX transaction for the victim company. ■