On October 23, 2017, following a four-week trial in the United States District Court for the Eastern District of New York, Mark Johnson, the former head of a foreign exchange (“forex”) trading desk for a major financial institution, was convicted of eight counts of wire fraud under 18 U.S.C. §1343 and one count of conspiracy under 18 U.S.C. §1349 for manipulating the price of foreign currency for his employer’s profit at the expense of his client. U.S. v. Johnson, No. 1:16-cr-00457 (E.D.N.Y. filed July 19, 2016). This was the first individual conviction to arise out of the government’s multi-year investigation into the forex market.
The conduct at issue arose after Johnson and the rest of the financial institution’s forex team were engaged to execute a foreign exchange swap on behalf of a specific client. The client was seeking to exchange approximately $3.5 billion U.S. dollars for British pounds sterling at a designated date and time, following the sale of its stake in a foreign subsidiary. The government alleged that Johnson and one of his co-workers then used their knowledge of the timing of the client’s upcoming swap in order to manipulate the market for their employer’s benefit. Specifically, they allegedly had various traders purchase pounds sterling for proprietary accounts in the period leading up to the planned transaction, and these purchases had the predictable effect of increasing the market price of pounds sterling. Johnson then structured Cairn’s swap in a manner that the DOJ claimed was intended to cause the price of pounds sterling to increase further, after which point the traders sold the pounds sterling from the proprietary accounts making a profit to the detriment of the client.
The government claimed that the financial institution made $3 million from the fraudulent front-running, as well as $5 million from the forex transaction. Johnson personally benefited, the government claimed, because the profit the financial institution made affected Johnson’s bonus.
Over the course of a four-week trial, the government introduced recordings of multiple phone calls involving Johnson, and the facts of the various transactions were not meaningfully disputed. However, Johnson contended that the alleged front-running transactions would have been entirely expected and understood by the client as standard industry practice, and therefore the transactions could not provide the basis for a fraud charge. Johnson’s lawyer argued at closing that the client not only knew of the alleged front-running, but additionally suffered no harm from Johnson’s conduct.
The conviction, which is the first stemming from the Department of Justice’s (“DOJ”) investigation into forex manipulation, may embolden the DOJ to try additional cases, particularly in instances where the DOJ can identify a specific client that it believes was misled or taken advantage of in any way.
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