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Home / News / World News / HSBC Global Forex Head arrested in New York
  • World

    HSBC Global Forex Head arrested in New York

    Ramya Patelkhana
    Written by
    Ramya Patelkhana
    Mail
    Last updated on Jul 21, 2016, 07:24 pm
    HSBC Global Forex Head arrested in New York
    Credits:
  • HSBC's Global Head of Foreign Exchange, Mark Johnson, has been arrested at New York's John F Kennedy Airport for allegedly using a client's confidential information for making $8 million profit from a $3.5-billion deal.

    The US Department of Justice accused Johnson and his former colleague, Stuart Scott, of fraudulent forex transactions.

    Robert Sherman, HSBC Spokesman, stated they were cooperating with the Justice Department's investigation.

  • In this article
    Cairn Energy seeks a bank for currency conversion HSBC picked to manage the trade Johnson and Scott bought Sterling prior to forex transaction HSBC currency traders' purchases were front-running Sterling/USD prices spiked during the transaction Cairn questions about spiked price HSBC fined for forex rate manipulation HSBC Global Forex Head arrested in New York Convinced client to place an inefficient order. Steadfast commitment
  • 2010

    Cairn Energy seeks a bank for currency conversion

    Cairn Energy seeks a bank for currency conversion
    Credits:
  • UK-based Cairn Energy entered into an agreement with a company to sell a part of its Indian subsidiary's ownership interest, subject to regulatory approvals, approximately for $3.5 billion.

    Cairn planned to convert the $3.5 billion sale proceeds into Pound Sterling and distribute it to the shareholders once the deal was approved.

    Eventually, Cairn sent a proposal to ten banks seeking the currency conversion.

  • HSBC Selected

    HSBC picked to manage the trade

    HSBC picked to manage the trade
  • In Oct'11, Cairn Energy picked HSBC to execute the $3.5 billion foreign exchange transaction.

    The bank had agreed to the company's condition for keeping the information confidential and not to trade on the same.

    Subsequently, Mark Johnson, Head of Global Foreign Exchange Trading at HSBC, and Stuart Scott, Head of Foreign Exchange Cash Trading (Europe, Mid-east, and Africa) at HSBC, were brought in.

  • Cairn's Transaction

    Johnson and Scott bought Sterling prior to forex transaction

    Johnson and Scott bought Sterling prior to forex transaction
  • On 28 Nov'11, HSBC traders received information that Cairn Energy's transaction might occur in the next few days.

    Subsequently, Johnson bought some Pound Sterling in exchange for Euros that were booked in his proprietary trading book.

    On 5 Dec'11, the sale of Cairn's Indian subsidiary was approved.

    During 5-6 Dec'11, Johnson and Scott bought more pounds while Cairn actually transacted on 7 Dec'11.

  • The Fix

    HSBC currency traders' purchases were front-running

    HSBC currency traders' purchases were front-running
    Credits:
  • The Sterling purchases by Johnson and Scott were allegedly front-running schemes to profit HSBC and themselves in turn.

    On 7 Dec'11, Cairn intended to transact at the "4 pm fix" (hourly benchmark forex price), to buy pounds in exchange for USD.

    However, HSBC told Cairn Energy and its adviser to trade at the "3 pm fix" and received the order for £2.25 billion.

  • Front-Running

    Sterling/USD prices spiked during the transaction

    Sterling/USD prices spiked during the transaction
  • Johnson and Scott had a live order for '3pm fix', which wasn't that liquid.

    They were in contact before and during the transaction and allegedly planned that if they transact half-hour prior to the fix, the forex price will go up.

    The price of the Sterling/USD before the 'fix' was lower; during the transaction 'fix' the price had increased (highest of the day).

  • Information

    Cairn questions about spiked price

  • Cairn questioned about the spiked Sterling/USD price during the fix, Johnson and Scott blamed a Russian bank for the price movement. Cairn was assured that the transaction "went okay", following which the transaction was settled; charges for processing and others was paid to HSBC.

  • 2013-14

    HSBC fined for forex rate manipulation

    HSBC fined for forex rate manipulation
  • In 2013, British markets supervisor, The Financial Conduct Authority, had opened a probe into manipulation of forex prices.

    One of the largest European money managers had filed a complaint with the FCA about possible manipulations within a year.

    In 2014, HSBC, along with five other banks, was fined by the FCA over manipulation of the foreign exchange prices by its currency traders.

  • 21 Jul 2016

    HSBC Global Forex Head arrested in New York

    HSBC Global Forex Head arrested in New York
    Credits:
  • HSBC's Global Head of Foreign Exchange, Mark Johnson, has been arrested at New York's John F Kennedy Airport for allegedly using a client's confidential information for making $8 million profit from a $3.5-billion deal.

    The US Department of Justice accused Johnson and his former colleague, Stuart Scott, of fraudulent forex transactions.

    Robert Sherman, HSBC Spokesman, stated they were cooperating with the Justice Department's investigation.

  • Accusations

    Convinced client to place an inefficient order.

    Convinced client to place an inefficient order.
  • Mark Johnson, accused of front-running by DoJ, was released on a $1 million bail later.

    Johnson supervised Scott during 2010-14; they allegedly convinced a client to place an inefficient order, fraudulently executed and concealed it.

    They encouraged the victim to make a foreign exchange transaction at a 'specific' time that was advantageous to HSBC and in turn themselves in 2011.

  • Quote

    Steadfast commitment

  • US Attorney Robert Capers stated: "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."

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