By Rebecca Davis O'Brien
A federal jury in Brooklyn on Monday found a former high-ranking
HSBC Holdings PLC executive guilty on charges that he misused
information about a client's $3.5 billion currency trade to make
millions of dollars for the bank.
Mark Johnson, HSBC's former global head of foreign-exchange cash
trading, was the first banker to face criminal charges stemming
from a U.S. Justice Department probe into foreign exchange rate
manipulations. He was convicted on eight counts of wire fraud and
one count of wire-fraud conspiracy; he was acquitted on a ninth
wire-fraud count.
A lawyer for Mr. Johnson said his legal team planned to appeal
the verdict, adding, "Today an innocent man was convicted."
"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," Bridget M. Rohde, the acting U.S. Attorney in
Brooklyn, said in a statement. She said the office would continue
to prosecute those who "undermine public confidence in the
operation of the financial markets by engaging in fraudulent
schemes."
A sentencing date hasn't been set. The wire fraud charges carry
a maximum sentence of 20 years in prison.
A spokesman for HSBC didn't immediately respond to requests for
comment. Mr. Johnson left HSBC earlier this year.
Mr. Johnson, a British citizen, wasn't accused of rigging
exchange rates, the main focus of the broader Justice Department
probe.
Instead, he and a colleague, Stuart Scott -- HSBC's former
European head of currency trading -- were charged in connection
with a practice known as front-running, in which someone with
advance knowledge of a major market order buys for their own
account, then earns a profit when the larger transaction drives up
the price.
Mr. Scott, who left HSBC in 2014, is in the U.K. fighting
extradition and wasn't tried alongside Mr. Johnson. A lawyer for
Mr. Scott couldn't immediately be reached for comment.
In 2011, HSBC won the bidding to handle the conversion of $3.5
billion worth of dollars into British pounds on behalf of Cairn
Energy PLC, an Edinburgh, Scotland-based oil-and-gas company,
according to evidence presented at trial.
Prosecutors alleged that the days and hours leading up to the
transaction, HSBC traders in London and New York stockpiled
millions of pounds in HSBC accounts, at Mr. Johnson's direction. At
trial, jurors heard recordings of phone calls that prosecutors said
showed Mr. Johnson using coded language to fellow currency traders
to set off the buying spree.
When the transaction went through, on Dec. 7, 2011, Messrs.
Johnson and Scott executed it in a way that drove up the price of
the pound, prosecutors alleged, allowing them to sell HSBC's
stockpiled currency at a higher price, while Cairn's proceeds from
the exchange shrunk.
"This is not a coincidence -- this is a conspiracy," Brian
Young, a trial attorney for the Justice Department, said in the
prosecution's closing arguments.
The scheme netted $3 million in trading profits and $5 million
in fees for HSBC, prosecutors said.
Prosecutors used cooperating witnesses and the bank's recordings
of Mr. Johnson's phone calls to argue he and others had conspired
to use the client's confidential information to make money for HSBC
and secure larger bonuses. "This is not how people talk when they
are engaged in honest business transactions," Mr. Young said in
closing arguments.
When Cairn noticed the rising price of the pound that day,
another HSBC employee blamed it on purchases by a "Russian buyer,"
according to evidence presented at trial.
In one phone call recorded by HSBC and played at trial, Mr.
Johnson said to Mr. Scott, "I think we got away with it." Mr.
Johnson's lawyer said the statement reflected concern about the
other employee's "misrepresentation" about the Russian
transaction.
During the trial, lawyers for Mr. Johnson argued that he had
been acting in the client's best interest, that prosecutors were
trying to criminalize normal currency trading activity and had
twisted their client's words to create the illusion of a
conspiracy. In closing arguments, defense lawyer John Wing said
prosecutors hadn't found "evidence of anything remotely close to
criminal conduct."
Mr. Johnson, who was arrested at John F. Kennedy airport in New
York in July 2016, testified in his own defense at trial, at times
seeking to explain comments he made in the recorded calls as jokes
or misunderstandings.
Earlier in October, the U.S. Federal Reserve fined HSBC $175
million for failing to adequately supervise its foreign-exchange
trading business, citing the alleged conduct by Messrs. Johnson and
Scott as examples of the lack of oversight.
In 2012, the bank avoided criminal money-laundering charges by
entering into a $1.9 billion settlement and a five-year deferred
prosecution agreement with the Justice Department. In 2014, the
bank paid $614 million to settle allegations that it rigged
benchmark currency rates.
(END) Dow Jones Newswires
October 23, 2017 17:04 ET (21:04 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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