Two HSBC traders, one of them the bank’s global head of foreign exchange trading, have been charged for using inside information for their own personal gains. Former trading executive Mark Johnson and his colleague Stuart Scott stand accused by the US Department of Justice (DoJ) of fraudulently front-running a $3.5bn currency trade on behalf of a client and generating $8m in profits and fees.
Johnson attended a court hearing in Brooklyn on July 20, though was later released on a $1m bail. Attorney Robert Capers said: “The charges and arrest announced today reflect our steadfast commitment to hold accountable corporate executives and licensed professionals who use their positions to fraudulently enrich themselves.”
The two bought sterling in advance of the transaction and, in doing so, manufactured substantial trading profits for the bank and themselves
According to the DoJ, the two bought sterling in advance of the transaction and, in doing so, manufactured substantial trading profits for the bank and themselves. Citing previously unseen emails and conversations from Bloomberg Chat, the court analysed how the two had worked to conceal their dealings from the client and timed the transaction so it was easier to manipulate the price. “Ohhhh, fucking Christmas”, said Johnson in a call recorded back in 2011.
“It was advantageous to them and HSBC, and disadvantageous to the victim company, to execute the victim company foreign exchange transaction” at the time of their choosing, said the DoJ. Where the case differs from a conventional insider trading scheme is in the fact that the two traded in currencies as opposed to stocks.
The case is also the first time the DoJ has actually brought charges against individuals, and comes as part of a three-year investigation into the rigging of global currency markets. The news will not at all be welcomed by HSBC, which in 2012 paid $2bn over allegations its anti-money laundering deficiencies exposed the US to drug cartels.