The senior HSBC FX manager dramatically detained by the FBI at JFK airport on 19th July as he was about to catch the “red-eye” flight back home to London shares, together with the other manager presumably still at large, the dubious honour of being the first individuals to be charged with forex (or FX) rigging since the scandal broke in mid-2013. Their arrest and prosecution by the US Department of Justice (DoJ) comes five months after the Serious Fraud Office announced that it had dropped its FX investigation for lack of evidence. Based on the DoJ’s indictment, the pair’s alleged fraudulent conduct all occurred in London in late 2011 when they accepted instructions to undertake a major FX transaction; to oversee the exchanging of US Dollars for Sterling to enable the bank’s client to acquire £2.25 billion in a single day.

For those knowledgeable about how banks can act improperly and try to take unfair advantage of their clients in an FX transaction, this indictment sets out alleged misconduct amounting to almost every trick in the book. It is thus an ideal fascinating read for those interested in this form of market misbehaviour and should be required reading for those who are responsible for trying to ensure that it never happens at their institution.

According to what the DoJ alleges, in the space of a single day and in a clearly identifiable set of inter-related trades with measurable outcomes in terms of revenue won and lost, there is lying to the client both before and after the trading, front running their order, selecting an FX benchmark around which manipulative trading was most likely to be effective and saving the best until last, horrible emails which expose the pair’s intent to enrich HSBC and themselves at their client’s expense. Allegedly, their scheme resulted in their client being defrauded of $5 million.

The reader however is left unsure about who else within HSBC was also complicit – how far up the tree the contagion spread. There is a reference to a “Supervisor 1” who congratulated the pair on an excellent day’s work, and who must have been a very senior manager bearing in mind that one of the accused, Mark Johnson, was the then bank’s global head of FX trading. Supervisor 1, if he or she is in the UK, may soon be needing advice on how to deal with a DoJ extradition request. Other senior HSBC executives may now be facing an imminent FCA Enforcement probe.

The one feature which is lacking from the DoJ’s indictment – and it is a particularly striking absence bearing in mind that it has been the central allegation made by the FCA and a host of other regulators concerning alleged manipulation in the London FX market since 2014 – is collusion amongst FX traders at different banks. There is nothing in this indictment about either that or an attempt to manipulate by far the most important FX benchmark, the 4pm fix or WMR. All the lurid stories about a small group of senior FX traders dominating the market and colluding via a chatroom they unforgettably named “The Cartel” will not be the subject of this prosecution. So whether those cartelists alleged in the press as being the one-time heads of FX trading at JP Morgan, Citi, Barclays, RBS, UBS and a few other major banks will one day also become accused in another DoJ prosecution remains unclear.

But, if I were any of them, I wouldn’t take my summer vacation in the US.

This article was originally published in Fraud Intelligence and FX-MM and can be found here and here respectively.