HSBC chief ‘used codeword to tip off forex traders’

Staff on trial ac­cused of tak­ing un­law­ful ad­van­tage of client Cairn En­ergy’s or­der, writes Pa­tri­cia Hur­tado

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

WITH just four words, Mark John­son al­legedly passed a se­cre­tive sig­nal to fel­low HSBC cur­rency traders to launch a buy­ing spree of pounds: “My watch is off.”

The bank’s for­mer global head of for­eign ex­change alerted the traders around the globe via a phone call in De­cem­ber 2011 that was recorded, a prose­cu­tor said. The gam­bit was de­signed to take ad­van­tage of a $3.5bn client or­der to buy ster­ling, the US says.

US District Judge Nicholas Ga­rau­fis ruled on Fri­day that the jury can lis­ten to the record­ings, in which John­son al­legedly tipped off a trader in Hong Kong. That sig­nal even­tu­ally reached oth­ers on both sides of the At­lantic, pros­e­cu­tors say. John­son was in New York that day, speak­ing to Stu­art Scott, the bank’s for­mer head of cur­rency trad­ing in Europe, who was in Lon­don, just be­fore the trans­ac­tion for its client, Cairn En­ergy.

“We ac­tu­ally have Mark John­son telling Stu­art Scott ‘tell Ed my watch will be off ’,” said prose­cu­tor Carol Sip­perly. “We have com­mu­ni­ca­tions where the word ‘watch’ is used, and then within sec­onds, 20 sec­onds of ‘my watch is off,’ we have all that trad­ing that’s been de­scribed. The word is in­stru­men­tal in get­ting the in­for­ma­tion to the traders when it comes to their early front-run­ning trades.”

John­son’s lawyer John Wing ar­gued the tapes shouldn’t be aired at the trial be­cause his client used the term “watch” to mean some­thing en­tirely dif­fer­ent. “‘My watch is off ’ is a code de­signed to tell peo­ple keep this con­fi­den­tial, don’t let the sales­men know about it,” Wing said.

Pros­e­cu­tors say John­son and Scott, along with other traders, bought pounds be­fore the trans­ac­tion. John­son is on trial in fed­eral court ac­cused of a scheme that pro­duced a $8m profit for his bank. HSBC was hired by Cairn to con­vert the pro­ceeds of a unit sale from dol­lars into pounds.

While the bank promised it would be a “drip feed” trans­ac­tion, pros­e­cu­tors say in­stead that about 90 min­utes be­fore the trade that was to oc­cur, John­son and Stu­art Scott bought pounds and tipped off other cur­rency traders at the bank.

The de­fence sug­gested in ques­tion­ing that the spate of buy­ing by these other men at the bank was an at­tempt to help Frank Cahill, the for­mer HSBC cur­rency trader who was ful­fill­ing Cairn’s or­der.

Pros­e­cu­tors showed ju­rors charts of trad­ing by John­son, Scott, four traders in New York and five traders in Lon­don that day, show­ing they made about $3m in profit. A spokesman for HSBC in New York didn’t have an im­me­di­ate com­ment. Bloomberg

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