Monday, May 7, 2018

Former HSBC Executive Sentenced to Two Years Following ‘Front-Running’ Conviction

So the trader gets the blame.  High frequency trading in effect does the same and yet that is legal.  That seems to me like hypocrisy.  Aivars

Mark Johnson was convicted of misusing confidential information about a client’s $3.5 billion currency trade to make millions for the bank

A former high-ranking HSBC Holdings PLC executive was sentenced Thursday to two years in federal prison, following his conviction last fall on charges that he misused confidential information about a client’s $3.5 billion currency trade to make millions of dollars for the bank.
Mark Johnson, HSBC’s former global head of foreign-exchange cash trading, was the first banker to face criminal charges stemming from a U.S. Justice Department probe into foreign exchange rate manipulations.
In October, a Brooklyn jury found Mr. Johnson guilty on one count of wire-fraud conspiracy and eight counts of wire fraud, He was acquitted on a ninth wire fraud count. The wire fraud counts each carried a maximum sentence of 20 years in prison.
Prosecutors had sought a seven-year prison term, saying the scheme led to financial loss for the client—an energy company—and undermined the integrity of foreign exchange markets.
Mr. Johnson’s lawyers had asked for no prison time, citing his “long and unblemished record of honest, law-abiding conduct,” in a court filing.
A lawyer for Mr. Johnson, who left HSBC in 2017, said they plan to appeal the verdict.
Mr. Johnson wasn’t accused of rigging exchange rates, the main focus of the broader Justice Department probe. Instead, he and a colleague were charged in connection with a practice known as front-running, in which someone with advance knowledge of a major market order buys for their own account and then earns a profit when the larger transaction drives up the price.
Mr. Johnson’s colleague, Stuart Scott, left HSBC in 2014. He is in the U.K. fighting extradition, and wasn’t tried alongside Mr. Johnson. A lawyer for Mr. Scott couldn’t immediately be reached for comment.
The charges stemmed from a 2011 deal to handle the conversion of $3.5 billion worth of dollars into British pounds on behalf of Cairn Energy PLC, a Scotland-based oil-and-gas company. In the days and hours leading up to the transaction, prosecutors said at trial, HSBC traders in London and New York—working at Mr. Johnson’s direction—stockpiled millions of pounds in HSBC accounts.
When the transaction went through, on Dec. 7, 2011, Messrs. Johnson and Scott executed it in a way that drove up the price of the pound, prosecutors alleged, allowing them to sell HSBC’s stockpiled currency at a higher price, while Cairn’s proceeds from the exchange shrunk. The scheme netted $3 million in trading profits and $5 million in fees for HSBC, prosecutors said.
During the four-week trial last fall, lawyers for Mr. Johnson argued that he had acted in the client’s best interest, saying prosecutors were trying to criminalize normal currency trading activity and had twisted Mr. Johnson’s words to suggest a conspiracy.
By Rebecca Davis O’Brien - Wall Street Journal

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