FOREX Probe taps top HSBC Manager

A top HSBC executive, Mark Johnson was arrested on Tuesday night. Stuart Scott, a former HSBC executive of his has also been charged.

Mr Johnson, alongside Mr. Scott was on Wednesday charged with wire fraud, after a criminal complaint filed at a US Federal Court in New York alleged that they had participated in a plot to front-run a $3.5 billion transaction made by a client of HSBC.

The US Department of Justice accused Mr Johnson and Mr Scott of cheating Cairn Energy by deliberately purchasing sterling for HSBC’s accounts ahead of the $3.5 billion purchase and reselling it to Cairn at a much higher price.

Cairn who had challenged HSBC during the times leading to the transaction, inquiring about the convenient rise in the value of the sterling just moments before the trade, an anonymous supervisor, who worked with the bankers, was alleged to have lied to the client naming a Russian in the market as the reason for the sudden change in price.

The Department of Justice has made allegations of insider trading against both traders, citing the use of inside information to gain from a $3.5 billion (£2.6bn) currency deal.

HSBC has made it clear that they would not make any statements about individual employees or ongoing litigations. Mr. Johnson was later released on $1 million bail after a court hearing on Wednesday while Mr. Scott has firmly denied the allegations

The US Department of Justice is accusing the traders of misusing confidential information provided by a client who planned to convert $3.5 billion into British Pounds, a system described by the DoJ as “front-running”. Claiming that the two traders had bought Pound Sterling themselves before processing the exchange, knowing that a transaction of this magnitude would lead to appreciation in the Pound Sterling, enabling them to bank huge profits

The US authorities also accused the traders of employing a technique known as “ramping” to raise the price of the pound, a strategy that benefited the bank’s trading book at the detriment of the client who in turn paid more for the GBP.

"The charges and arrest announced today reflect our steadfast commitment to hold accountable corporate executives and licensed professionals who use their positions to fraudulently enrich themselves," said the US Attorney Robert Capers.

The DoJ said that the currency trades carried out for the clients led to an estimated $8 million profit for HSBC.

The Department of Justice also claims that they processed the exchange in a manner that would lead to a maximal effect on the value of the GBP.

Sampling emails and conversations between both traders retrieved from Bloomberg chats, US prosecutors showed evidence which indicated that the two men had schemed up a way they could lift the dollar to pound exchange rate before the clients would ‘squeal’.

After a deferred US criminal settlement in a case of money laundering for Mexican and Colombian drug cartels that involved HSBC, the ongoing litigation possesses a fairly huge potential to put a dent in the image of HSBC.