HSBC trader’s conviction will echo through the $5-trillion FX market
GLOBAL CURRENCY traders and compliance officers who monitor them were put on high alert after a New York jury convicted a former HSBC Holdings Plc executive of fraud for front-running a large client order.
The verdict is a victory for US prosecutors in their first attempt to hold individuals accountable since a global currency-rigging probe that led to banks paying more than $10 billion in penalties. Mark Johnson faces a maximum sentence of 20 years in prison, although he’s likely to get much less.
Traders will almost certainly come under pressure to avoid conduct that could be seen as harming their clients and profiting unfairly at their expense, said Mayra Rodriguez Valladares, a former foreign-exchange analyst for the Federal Reserve Bank of New York.
“Front-running is a crime,” she said. “This should be a lesson to senior executives that they should invest in more training of ethics for traders and more in systems to detect irregularities.”
The verdict is likely to echo worldwide. Although Johnson, HSBC’s global head of foreign exchange in 2011, was in New York at the time of the transaction, the trade was executed primarily in London, where Johnson’s co-defendant, Stuart Scott, was overseeing it. Scott, the bank’s former head of currency trading in Europe, remains in the UK as he fights extradition to the US.
“This conviction will embolden the US in other cases,” said Peter Henning, a law professor at Wayne State University in Detroit. “The US authorities have shown they’re able to police global markets.”
“At its very essence,” he added, “this was a theft case.”
Johnson, the first banker to go on trial following the investigation over foreignexchange trading, was convicted of defrauding Cairn Energy Plc in what prosecutors said was a clear case of front- running the company’s $3.5-billion order. London-based