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HSBC Forex Chief Found Guilty in $3.5Bn Frontrunning Scheme
[Photo: Mark Johnson, by Mark Kauzlarich / Bloomberg]
On Monday, October 23, a Brooklyn federal jury found former HSBC executive Mark Johnson guilty of defrauding oil and gas company Cairn Energy in a $3.5 billion currency trade in 2011.
Johnson, 51, who formerly headed HSBC’s global forex cash trading desk, was found guilty on 9 of 10 counts of conspiracy and wire fraud by a jury in Brooklyn federal court after a 4-week trial. Each count carries a maximum 20-year prison sentence, although Johnson is likely to receive a shorter sentence.
According to court filings, Cairn hired HSBC in 2011 to convert $3.5 billion into British pounds, which represented the proceeds from the sale of an Indian subsidiary. Johnson and coworker Stuart Scott, who also is facing charges, used that information to drive up the price of pounds by executing a series of trades before carrying out the trade for Cairn – i.e., front-running. It’s alleged that they collectively made around $8 million for themselves and HSBC on the front-running trades.
[Scott, who formerly headed HSBC’s cash trading for Europe, the Middle East and Africa, is fighting extradiction to the United States to face charges.]
GOVERNMENT WITNESS. A key government witness was Frank Cahill, the former HSBC trader who conducted the Cairn transaction. He said he was part of a separate scheme in which he and traders at other banks used instant-chat groups to communicate with each other to influence benchmarks and maximize profits.
Cahill said Scott directed him to begin purchasing pounds about an hour before the 3 p.m. transaction. He testified that he employed an "aggressive" manner of buying that caused the pound’s price to go up, just after Scott directed him to "ramp" up the price. During his trades, Cahill also said he realized other HSBC colleagues were also purchasing pounds and competing with him, resulting in an "aggressive jerking move higher" in price.
TAPE RECORDINGS. Jurors also heard incriminating tape recordings of Johnson. On one tape, Johnson was heard saying, “Ohhhh, f–king Christmas,” after he got news of the forex order. In a second, Johnson was caught on tape bragging that he “got away with” ripping off a giant energy company.
Notwithstanding the evidence, Johnson's lawyer John Wing told reporters as he left the courtroom: “They’ve convicted an innocent man.”