In the US, HSBC Holdings Plc. will pay approximately $100M in penalties to settle a Department of Justice’s criminal probe into currency rate rigging—that’s a $63.1M fine and $38.4M in restitution. The bank’s deal is a three-year deferred prosecution agreement, which means that no criminal charges will be brought as long as HSBC fulfills the terms. As part of the settlement, HSBC will help the government with its criminal probe of individuals who may have played a part in the rate manipulation and enhance its internal controls.
The currency rate rigging allegations involved at least two ex-HBSC employees, including Mark Johnson, the ex-worldwide head of its foreign exchange trading and Stuart Scott, the ex-head of its European currency trading. Johnson has already been convicted in the front-running case involving a $3.5B trade by client Cairn Energy Plc. He is scheduled for sentencing next month. Scott is currently fighting a court order in the UK so as to avoid extradition back to the US to face the criminal charges against hm.
Both men are accused of buying British pounds leading up to the Cairn Energy trade, with the expectation that their purchases, and the one by Cairn Energy, would cause the pound’s price to go up. After the Cairn Energy order went through and the value of their pounds rose, the two men sold their currency at a profit.
While the facts involving Cairn Energy’s trade were public, court records in this case now indicate that another client was also affected by front-running at HBSC. The bank reportedly made $38.4M from trading head of a multi-billion-dollar deal involving UK-based insurance company Prudential, which was seeking to acquire American International Group’s AIA Group for $35.5M. That deal ended up not going through.
However, prior to that Prudential had hired HSBC to make the financial transactions for the acquisition in 2010. When the head of HSBC’s London spot forex desk found out that the bank had been retained to sell tons of British pounds, he went on to trade prior to Prudential’s order, causing the price of the pound to go down. This made HSBC a huge profit for the transaction, with the trader also making approximately $3.6M for the bank.
Last year, the US Federal Reserve ordered HSBC to pay a $175M over its “unsafe and unsound” practices in its forex trading. This order was once again connected to the criminal case against Scott and Johnson, as well as the $275M penalty that the Commodity Futures Trading Commission ordered the bank to pay previously for improperly coordinating trades with other banks through online chatrooms.
It was just last month that HSBC was released from a five-year deferred prosecution deal related to anti-money laundering violations that involved handling transactions for international drug cartels and customers from countries under US sanctions. The bank was fined $1.92B and accepted responsibility in that investigation.
HSBC Holdings Plc Agrees to Pay More Than $100 Million to Resolve Fraud Charges, Justice.gov, January 18, 2018
U.K.’s Prudential Was Mystery Victim of HSBC’s Front-Running, Bloomberg, January 22, 2018
More Blog Posts:
Investors Continue to Go After Goldman Sachs in the Wake of Abacus CDO-Related Losses, Institutional Investor Securities Blog, January 18, 2018
Barclays Capital Trader is Indicted in Massive Front Running Scam, Institutional Investor Securities Blog, January 17, 2018
Multi-Million Dollar Investment Adviser Fraud Cases Target Widows, Older Investors, and Other Retail Investors, Stockbroker Fraud Blog, December 28, 2017