HSBC Trader Found Guilty in Front Running Scheme

The former head of global foreign exchange cash trading for HSBC Bank plc was convicted of “front running” in the foreign exchange markets by a jury after a four week trial. A key part of the evidence heard by the jury were tapes of the trading transactions. U.S. v. Johnson, No. 16-cr-457 (E.D.N.Y.).

In the fall of 2011 HSBC was approached by Carin Energy Company, a publically traded U.K. oil and gas firm, about a transaction. Specifically, the head of HSBC’s foreign exchange cash trading unit, defendant Mark Johnson, learned that the firm was going to enter into a transaction that would require converting $3.5 billion in sales proceeds into British Pound Sterling. The information was highly confidential. Accordingly, HSBC was required to maintain the confidentiality of the information.

Despite the confidentially obligation, Mr. Johnson, and others acting under his direction, purchased Pound Sterling for the bank’s proprietary accounts shortly before the Carin transaction was to occur. In December 2011 when Carin was ready to proceed Mr. Johnson and others at the bank executed the transactions in a manner designed to “ramp” or drive-up the price of Pound Sterling. That benefited HSBC at the expense of the Carin. The bank made a profit of $7.5 million on the transactions. Following the transaction, misrepresentations were made to Carin to conceal the nature of the transaction.

Mr. Johnson was convicted of one count of conspiracy to commit wire fraud and eight counts of wire fraud. The Government is trying to extradite Stuart Scott, a colleague of Mr. Johnson. Previously, the Fed fined the bank $175 million in connection with the transaction. The date for sentencing has not been set.