‘HSBC TRADERS TIPPED OFF WITH CODE WORDS’

Bank made US$8m in illicit profit, prosecutor tells court

NEW YORK

AGROUP of HSBC Holdings Plc currency traders here and in London feverishly jumped ahead of a US$3.5 billion (RM14.82 billion) client order after they were tipped off using the code words “my watch is off”, a United States prosecutor told a federal judge.

The buying frenzy was launched after Mark Johnson, HSBC’s former global head of foreign exchange who the bank chose to lead the transaction, alerted the traders via a phone call that was recorded, said the prosecutor on Thursday. Johnson is on trial for fraud. After the trial recessed for the day, prosecutor Carol Sipperly told US District judge Nicholas Garaufis the government wanted the jury to hear the recordings, in which Johnson could be heard tipping off a trader in Hong Kong, a signal that she said eventually reached others on both sides of the Atlantic.

Prosecutors said Johnson and Stuart Scott, the bank’s former head of currency trading in Europe, along with these other traders, bought pounds before the transaction, making the bank US$8 million in illicit profit.

Sipperly said the call involved Johnson, speaking to Scott who was in London, just before the December 7, 2011, transaction for its client, Cairn Energy Plc.

“We actually have Mark Johnson telling Stuart Scott ‘Tell Ed my watch will be off ’,” she said.

“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.”

Earlier in court, prosecutors showed jurors charts of the trading by Johnson, Scott, four traders in New York and five traders in London that day, showing they made about US$3 million in profit.

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 differently.

“‘My watch is off’ is a code designed to tell people keep this confidential, don’t let the salesmen know about it,” said Wing.

Garaufis, who hasn’t ruled on the government’s request, told lawyers he would listen to the recordings and issue a ruling soon.

HSBC was hired by Cairn to convert the proceeds of a unit sale from US dollars into pounds. Bloomberg

BLOOMBERG PIC Mark Johnson, former head of global foreign exchange for HSBC Holdings Plc, is accused of defrauding Cairn Energy Plc in what prosecutors say is a clear case of front-running.