Mark Johnson, the global head of foreign exchange cash trading at HSBC, was arrested at John F. Kennedy International Airport late on Tuesday.
He will appear in federal court in New York on Wednesday and has been charged with conspiring to defraud a client of the bank.
Johnson joined HSBC in 2010 from a fund manager he had helped set up. He previously worked at Deutsche Bank.
He has been charged, along with former colleague Stuart Scott, with “front-running” a client order. Scott had been head of foreign-exchange cash trading for Europe, the Middle East, and Africa.
Front-running is where market makers trade on client information before the client’s trade is executed. For example, if Trader A knows Client B is about to buy Currency C, then Trader A might buy Currency C before Client B’s trade is processed. If the currency moves as a result of the client transaction, Trader A cashes in.
In this instance, the Department of Justice alleges that Johnson and Scott in November and December 2011 misused information about a client transaction to make trades in HSBC’s proprietary accounts. HSBC allegedly generated profits of $US8 million from the FX transactions.
The FDIC’s office of inspector general and the FBI’s Washington office are conducting the investigation.
“HSBC has been and continues to cooperate with the DOJ’s FX investigation,” a spokesman for the bank said.
Johnson’s arrest follows a multiyear investigation into the rigging of currency benchmarks.
HSBC paid $618 million in November 2014 to resolve allegations that it had manipulated the foreign-exchange market. Five other banks settled civil allegations around currency manipulation at the same time.
Here is the statement from the Department of Justice:
The head of global foreign exchange cash trading at HSBC Bank plc, a subsidiary of HSBC Holdings plc (collectively HSBC), and HSBC’s former head of foreign exchange cash trading for Europe, the Middle East and Africa were charged with conspiring to defraud a client of HSBC through a scheme commonly referred to as “front running.”
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Robert L. Capers of the Eastern District of New York, Acting Inspector General Frederick W. Gibson of the Federal Deposit Insurance Corporation (FDIC) and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office made the announcement.
Mark Johnson, 50, a U.K. citizen and U.K. and U.S. resident, and Stuart Scott, 43, a U.K. citizen and resident, were charged by complaint with conspiracy to commit wire fraud. Johnson was arrested last night at JFK International Airport in Queens, New York, and will be arraigned later today before U.S. Magistrate Judge Lois Bloom of the Eastern District of New York.
“The defendants allegedly betrayed their client’s confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank,” said Assistant Attorney General Caldwell. “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.
“As alleged, the defendants placed personal and company profits ahead of their duties of trust and confidentiality owed to their client, and in doing so, defrauded their client of millions of dollars,” said U.S. Attorney Capers. “When questioned by their client about the higher price paid for their significant transaction, the defendants wove a web of lies designed to conceal the truth and divert attention away from their fraudulent trades. 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 Federal Deposit Insurance Corporation Office of Inspector General is pleased to join the Department of Justice and our law enforcement colleagues in announcing this arrest,” said Acting Inspector General Gibson. “Our collective efforts help ensure public confidence in the financial markets. It is critically important to hold individuals accountable for their actions, particularly those who abuse their positions of public trust. We will continue to pursue justice for those involved as this case moves forward.
“These individuals are accused of defrauding clients by misusing confidential information to manipulate currency prices for the benefit of the bank and themselves,” said Assistant Director in Charge Abbate. “The FBI will continue to work aggressively with our partners to prevent, investigate and prosecute criminal fraud in the financial markets.”
According to the complaint, in November and December 2011, Johnson and Scott misused information provided to them 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 and Scott allegedly misused confidential information they received about the client’s transaction. On multiple occasions, Johnson and Scott allegedly purchased Pound Sterling for HSBC’s “proprietary” accounts, which they held until the client’s planned transaction was executed. The complaint alleges that, as part of the scheme, both Johnson and Scott made misrepresentations to the client about the planned foreign exchange transaction that concealed the self-serving nature of their actions. Specifically, the complaint alleges that Johnson and Scott caused the $3.5 billion foreign exchange transaction to be executed in a manner that was designed to spike the price of the Pound Sterling, to the benefit of HSBC and at the expense of their client. In total, HSBC allegedly generated profits of roughly $8 million from its execution of the FX Transaction for the Victim Company, including profits generated from the front running conduct by Johnson, Scott, and other traders whom they directed.
The investigation is being conducted by the FDIC’s Office of Inspector General and the FBI’s Washington Field Office. Trial Attorney Melissa Aoyagi and Senior Litigation Counsel Carol Sipperly of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jacquelyn Kasulis of the Eastern District of New York’s Business and Securities Fraud Section are prosecuting the case.
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