Mark Johnson, the former head of global foreign exchange cash trading at HSBC Bank, was found guilty by a jury of fraud for front-running a customer’s large foreign exchange trades in 2011, following a trial in a federal court in Brooklyn, NY.
According to the criminal complaint filed by the US Attorney’s Office in Brooklyn, Mr. Johnson, along with Stuart Scott, former head of FX Cash trading for HSBC for Europe, the Middle East and Africa, conspired to trade on information confidentially provided to HSBC by Carin Energy, a client that planned to sell part of its interest in an Indian subsidiary for US $3.5 billion and then convert the sale proceeds to British Pounds for distribution to its shareholders.
In October 2011, HSBC was awarded the mandate to arrange this conversion after the company conducted a Request for Proposal process involving approximately 10 banks, the Complaint alleged. In response, HSBC allegedly gave both defendants access to information regarding the proposed foreign exchange conversion and officially deemed them “insiders.”
As insiders, said the complaint, the defendants “knew they had an obligation not to misuse the Confidential Information, including by front-running.” Instead, said the complaint, defendants established their own British Pound positions in HSBC proprietary accounts to take advantage of the customer’s impending conversion transaction, and orchestrated the customer’s actual currency conversion in a manner to maximize their profits.
According to the US Attorney’s Office, HSBC profited by approximately US $8 million as a result of its execution of the FX transaction for the company, including from defendants’ allegedly illicit conduct.
Mr. Johnson—a British citizen—is expected to file a motion to a set aside the verdict by no later than December 1.
Legal Weeds: The Commodity Futures Trading Commission has brought and resolved two legal actions against respondents for illicitly trading on non-public information that they purportedly had a duty to maintain confidentially and not misappropriate for their own purposes.
In the first action brought in 2015, the CFTC alleged that Arya Motazedi, a gasoline trader for an unnamed large, publicly traded corporation, misappropriated trading information of his employer for his own benefit. In the second action, CFTC brought and settled charges against Jon Ruggles, a former trader for Delta Airlines, for trading accounts in his wife’s name based on his knowledge of trades he anticipated placing for his employer.
Both actions were grounded in the provision of law enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and a CFTC rule that prohibit use of a manipulative or deceptive device or contrivance in connection with futures or swaps trading. (Click here to access Commodity Exchange Act Section 6(c)(1), US Code § 9(1), and here to access CFTC Rule 180.1. Click here for background on these CFTC enforcement actions in the article “Ex-Airline Employee Sued by CFTC for Insider Trading of Futures Based on Misappropriated Information” in the October 2, 2016 edition of Bridging the Week.)