US charges two HSBC executives over forex-related scheme

New York: A senior HSBC Holdings Plc manager has been arrested and charged alongside a former foreign exchange executive with engaging in a scheme to front-run a $3.5 billion transaction by one of the bank`s clients, US prosecutors said on Wednesday.

Mark Johnson, HSBC`s global head of foreign exchange cash trading in London, and Stuart Scott, its ex-head of cash trading for Europe, the Middle East and Africa, were charged in a criminal complaint filed in federal court in Brooklyn.

Both men were charged with wire fraud conspiracy, in a case that a person familiar with the matter said was the first against individuals to flow out of a U.S. Justice Department probe of foreign-exchange rigging at global banks.

A lawyer for Johnson declined comment, while an attorney for Scott could not be identified. Robert Sherman, an HSBC spokesman, said the bank is cooperating in the Justice Department`s foreign exchange investigation.

Prosecutors said Johnson, 50, and Scott, 43, misused information provided by a client who had hired HSBC to convert $3.5 billion to British pounds in connection with a planned sale of one of the unnamed company`s subsidiaries.

The two British citizens then used their insider knowledge to engage in a process called front-running in which they made trades ahead of the December 2011 transaction, resulting in a spike in the price of the currency that was detrimental to HSBC`s client, prosecutors said.

"Ohhh, f---ing Christmas," Johnson told Scott in a recorded call the day the transaction went through, the complaint said.

In total, HSBC earned $3 million from trades its FX traders placed and earned $5 million executing the transaction, the complaint said.

"The defendants allegedly betrayed their client`s confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank," Assistant Attorney General Leslie Caldwell said in a statement.

Johnson was arrested at John F. Kennedy International Airport on Tuesday night and was released on Wednesday on a $1 million bond following a court hearing.

Frank Wohl, Johnson`s lawyer, in court told a judge that Johnson had been in the process of moving to the United States with his wife and six children after being transferred by HSBC.

The case was, according to a source, related to a years-long Justice Department probe that has led to four banks last year pleading guilty to conspiring to manipulate currency prices.

The charges came a day after the Federal Reserve Board said it was banning Matthew Gardiner, a former FX trader at Barclays Plc and at UBS AG [UBSAG.UL], from participating in the banking industry for manipulating pricing benchmarks.

HSBC was not among the four banks that pleaded guilty, but in 2014 agreed to pay $618 million to resolve related probes by U.S. and British regulators.

The Justice Department has continued to investigate, and HSBC has set aside $1.2 billion to cover various forex-related probes, according to a regulatory filing.

The case is U.S. v. Johnson et al, U.S. District Court, Eastern District of New York, No. 16-mj-0674.