Coverage: HSBC executives facing criminal charges

Two senior executives of global banking giant HSBC have been accused of a currency manipulation scheme that federal prosecutors say generated $8 million in profits and fees.

Alexandra Stevenson of the New York Times has the news:

The global head of HSBC’s foreign exchange cash trading desk, Mark Johnson, a Briton, was arrested by federal agents Tuesday night at Kennedy International Airport as he was boarding a flight to London.

He and Stuart Scott, the former head of the bank’s currency trading desk for Europe, the Middle East and Africa, were charged with conspiracy to commit wire fraud related to a transaction on behalf of a corporate client, exchanging dollars for British pounds.

The charges are a boon to the Justice Department, which until now has not mounted any cases against individuals in its wide-ranging investigations into currency manipulation by the major banks.

“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,” said Leslie R. Caldwell, the head of the Justice Department’s criminal division.

The case against the two men resembles a conventional insider trading scheme, but with a twist because the defendants traded in currencies instead of stocks.

John Marzulli of the New York Daily News reported that the scheme involved information HSBC received from another company:

Knowing the company’s plan would raise the price of silver, Johnson purchased British pounds in exchange for euros until the day of the company’s transaction and then sold the currency for a profit, according to the complaint.

“Ohhhh, f—-ing Christmas,” Johnson remarked as the company’s orders for silver went forward, the complaint notes.

“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 Leslie Caldwell.

Johnson, 50, was released on a $1 million bond. His lawyer declined to comment.

Jeff Cox of CNBC.com reported that legal experts considered the charges to be significant:

“Front running’ is one of the more serious Wall Street crimes. It means the broker does his or her trades first, obtaining the best possible price while the customer waits at the back of the line, and accordingly suffers with an inferior transaction,” Anthony Sabino, professor at St. John’s University’s Peter J. Toobin College of Business. “This kind of violation is always relentlessly prosecuted, and given the current market turmoil, expect yet another wave of government crackdowns. Mark this as the first case among many.”

The investigation into currency rigging has been ongoing for three years but has resulted in no individual arrests until this week. Johnson is expected to appear in court Wednesday on a conspiracy to commit wire fraud charge.

“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,” Capers said.

Banks have paid billions in fines resulting from investigations, with Citigroup, HSBC, JPMorgan Chase, RBS and UBS forced to pay $3.1 billion in fines from Britain’s Financial Conduct Authority and the U.S. Commodity Futures Trading Commission. JPMorgan, Citi and Bank of America also had to pay separately $950 million for unsafe practices, while UBS shelled out an additional $138 million to the Swiss Financial Market Supervisory Authority for improper business conduct.