Federal agents surprised an HSBC Holdings Plc executive as he prepared to fly out of New York's Kennedy airport around 7:30 p.m. Tuesday, arresting him for an alleged front-running scheme involving a $3.5 billion currency transaction in 2011.
Mark Johnson, HSBC's global head of foreign exchange cash trading in London, was held in a Brooklyn jail overnight and will appear in court Wednesday, according to prosecutors. The U.S. unsealed a complaint against him and Stuart Scott, the bank's former head of currency trading in Europe, making them the first individuals to be charged in the long-running probe.
The arrest and charges are a coup for the Justice Department, which has struggled to build cases against individuals in its investigation into foreign-exchange trading at global banks. U.S. prosecutors once had so much confidence in the quality of evidence they were gathering thanks to undercover cooperators that in September 2014, then-Attorney General Eric Holder said he expected charges against individuals within months. The U.K. Financial Conduct Authority also found it difficult to make cases against currency traders and announced in March that it was dropping its efforts.
"This case demonstrates the criminal division's commitment to hold corporate executives, including at the world's largest and most sophisticated institutions, responsible for their crimes," Assistant Attorney General Leslie Caldwell said in an e-mailed statement.
The two allegedly conspired to take advantage of inside information about an unidentified company's plans to sell part of its stake in an Indian subsidiary. HSBC was hired to trade about $3.5 billion in proceeds of the sale to pounds. Johnson and Scott began buying pounds in the days before the transaction, anticipating that they would cause the price of pounds to spike — a practice known as "ramping" — then execute the client's transaction, making the pounds they'd bought earlier more valuable, according to the complaint.
'Element of Surprise'
Scott and Johnson — his supervisor at the time — told the client the deal should take place at 3 p.m. "so there's an element of surprise" and the company would get a better rate, according to the complaint, which quoted from recorded phone calls and messages between the two and their client.
Instead, they and other traders they directed ramped the price, and when Scott told Johnson the client was still going ahead with the full transaction despite the spiking price, Johnson said "Ohhhh, f***ing Christmas," according to the complaint. In the end, HSBC and the men's internal accounts reaped about $8 million from the deal, according to Brooklyn U.S. Attorney Robert Capers.
"The defendants allegedly betrayed their client's confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank," Caldwell said. Johnson and Scott blamed the pound's rise on an unidentified Russian bank in their conversations with the client afterwards, according to the complaint.
