HSBC Executive Pleads Not Guilty to Rigging FX Markets

  • Mark Johnson enters plea in first U.S. case of its kind
  • Scott, also charged in scheme, is in U.K., not in U.S. custody

An HSBC Holdings Plc executive pleaded not guilty Monday to rigging foreign-exchange markets in the first U.S. case of its kind.

Mark Johnson, HSBC’s global head of foreign-exchange cash trading in London, was arrested in July at New York’s Kennedy airport as he was about to board a plane for the U.K. The U.S. says he and Stuart Scott, the bank’s former head of currency trading in Europe, manipulated the pound in a front-running scheme to take advantage of inside information about a client’s $3.5 billion currency transaction, reaping $8 million for the bank.

The two are the first to be charged in the U.S. in a long-running probe into misconduct in the foreign-exchange markets. The Justice Department’s Fraud Section and Brooklyn U.S. Attorney Robert Capers filed a formal 11-count indictment against the two men on Aug. 16 that includes one count of conspiracy and 10 counts of wire fraud. 

Scott, who reported to Johnson and left the bank in 2014, remains in the U.K., and the U.S. is likely to seek his extradition, according to two people with knowledge of the matter.

At the time of his arrest, Johnson was in the midst of moving to the U.S. for work. He was freed on $1 million bail and ordered to remain in in New York, living at his Manhattan apartment while he awaits trial. 

Delay Case

At his arraignment Monday, Melissa Aoyagi, a Justice Department lawyer, asked U.S. Magistrate Judge Cheryl Pollak in Brooklyn, New York, for a 70-day delay in the case, saying the government has been in "discussions" with Johnson’s lawyer. She didn’t elaborate. Aoyagi also said the government had collected a "voluminous" amount of evidence against both men.

"He’s pleaded not guilty because he’s not guilty and has done nothing wrong," said Johnson’s lawyer, Frank Wohl.

The two men allegedly took advantage of inside information about one company’s sale of a stake in another. The government didn’t identify the companies involved but according to two people with knowledge of the deal, Cairn Energy Plc was selling a unit to Vedanta Resources Plc. 

Cairn Energy raised about $3.5 billion from the sale and hired HSBC to exchange the dollars to pounds. Johnson and Scott began buying pounds in the days before the transaction, anticipating that they would cause the price of the currency to spike -- a practice known as “ramping” -- then executed the transaction, making the pounds they’d bought earlier more valuable, according to the complaint.

HSBC Settlement

Scott left the bank after it agreed to pay $618 million to settle currency-rigging investigations by the U.K. Financial Conduct Authority and the U.S. Commodity Futures Trading Commission. Johnson remains employed by the bank.

U.S. District Judge Nicholas Garaufis scheduled the next hearing for Sept. 14.

“We are continuing to monitor developments and are liaising closely with the U.S.
authorities in their ongoing investigation," HSBC said Monday in a statement.

The case is U.S. v. Johnson, 16-cr-457, U.S. District Court, Eastern District of New York (Brooklyn).

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