Securities News: Ex- HSBC Executive Found Guilty of Fraud Involving $3.5B Currency Trading & Hedge Fund Sues Barclays For Copper Market Rigging

A federal jury in New York has found Mark Johnson guilty on criminal charges accusing him of front-running involving a $3.5B currency trade. HSBC’s ex-foreign-exchange cash trading global head is the first banker that the US Justice Department charged over forex rate rigging.

Johnson was convicted on eight counts of wire fraud and one count of wire fraud conspiracy, and he reportedly will appeal the verdict. Johnson maintains that he was acting in the best interest of the client involved and he did not do anything wrong or irregular.

According to acting US Attorney in Brooklyn Bridget M. Rohde, Johnson used confidential information given to him by an HSBC client to make trades in an attempt to earn millions of dollars for the bank and himself while costing the client money. He and ex-HSBC European currency trading head Stuart Scott allegedly engaged in front running, which involves making trades based on advanced information about a big market order, with the advanced trades rendering huge profits once the bigger transaction has upped the price. Scott is currently in the UK battling extradition efforts to bring him back to the US.

The charges against Johnson involve HSBC’s winning bid to convert $3.5B of British pounds for Cairn Energy LLC in 2011. US prosecutors contend that prior to the transaction, Johnson instructed HSBC traders to make sure that there were millions of pounds in HSBC accounts.

He and Scott are accused of executing the Cairn transaction so that it would spike the price of the pound. This let them sell the pounds that they had accrued in the HSBC accounts at a higher price. As a result, claims the DOJ, HSBC made $3M from trading and earned $5M in fees. Meantime, Cairn made less money than it should have garnered.

It was just last month that the US Federal Reserve ordered HSBC to pay $175M for not doing an adequate enough job of overseeing its forex trading business. In 2014, HSBC agreed to pay $614M to settle claims alleging that it manipulated benchmark currency rates.

Barclays Sued by Hedge Fund Over Alleged Copper Market Rigging
In other market rigging news, this one involving the copper market, hedge fund Red Kite is suing Barclays Bank (BARC) claiming that the defendant engaged in market abuse. Red Kite contends that it suffered at least $850M in losses.

The $2B hedge fund claims that Barclays let bank staff share confidential information regarding Red Kite’s positions with proprietary traders on the London Metal Exchange (LME) floor. The traders then allegedly used this information to make opposing trades.

Red Kite contends that Barclays tried to rig the LME’s closing price by “repeatedly bidding” huge amounts of money for copper positions right before the end of ‘kerb’ trading. This “effectively forced” Red Kite to close out positions in such a way that Barclays made money.

Barclays denies the allegations.

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Former HSBC Executive Mark Johnson Found Guilty of Fraud in $3.5 Billion Currency Trade, Fortune, October 24, 2017

Hedge fund Red Kite sues Barclays for $850 million over copper trading losses, Reuters, October 23, 2017

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