Fraud trial hears former HSBC forex banker engaged in fix

“Ramp it,” a former head of foreign exchange at HSBC told one of his traders, Frank Cahill, just before he executed a US$3.5 billion currency transaction that the US says was gamed from the start.

Jurors at the fraud trial of Mark Johnson listened to a recorded phone call that prosecutors say is real-time talk from a front-running scheme run by Mr Johnson and Stuart Scott, then HSBC’s head of foreign exchange cash trading in Europe.

Mr Johnson, who pleaded not guilty, faces charges of fraud and conspiracy. “Ideally, you don’t ramp it above 30,” Mr Scott told Mr Cahill just before he began executing the trade on December 7, 2011.

Mr Scott was sitting with him on the currency-trading desk in London while talking to Mr Johnson by phone from New York, Mr Cahill testified on Wednesday in federal court in Brooklyn, New York. Asked what Mr Scott was telling him to do, Mr Cahill said: “He wanted me to push it aggressively.”

Under questioning by Mr Johnson’s lawyer, Mr Cahill said Mr Johnson never directed him to manipulate the trade. Mr Scott is in the UK fighting extradition.

Mr Cahill, who was dismissed by Goldman Sachs in 2014 based on events at HSBC, testified under a non-prosecution agreement with the US. HSBC had been hired by Cairn Energy to convert the proceeds of a unit sale from dollars into pounds.

Prosecutors say Mr Johnson and Mr Scott bought pounds ahead of the trade and also directed Mr Cahill and other traders at the bank to make purchases, artificially driving the pound’s price up and resulting in an US$8 million profit for the bank.

Cairn officials said HSBC had promised to “drip feed” or do incremental purchasing of UK currency to avoid any market disruption, with Mr Johnson and Mr Scott eventually convincing Cairn to trade at the 3pm fix.

That meant Cairn would pay the price set at the fix, or the set period in which currency transactions are used to determine benchmark rates. Shortly after 2pm Mr Cahill said he was ordered to start buying, eventually hundreds of millions of pounds, just after the call between Mr Johnson and Mr Scott.

Mr Cahill said as he began to fill Cairn’s order, he saw the price of the pound rise. “The bids and offers were increasing in value, moving up and moving up,” he said.

“There was an aggressive jerking in the market at the price,” he said, causing him to conclude, “there would have been other people buying pounds”.

After the trade, Mr Cahill said a bank colleague confirmed his concerns, telling him that he and others at HSBC had also been aggressively buying up pounds ahead of the trade. Prosecutor Brian Young asked Mr Cahill if his trading caused the pound to rally that day. “During that time frame, yes,” Mr Cahill said.

Mr Young asked if his trades were in the best interests of Cairn. “No, in the sense that the dynamic of the fix caused the market to go higher,” Mr Cahill said.

Ross Waller, a former trader at Bridgewater Associates who testified as government witness, said he analysed Mr Cahill’s trading that day. Mr Waller said he concluded his purchase of hundreds of millions of pounds drove its price to its highest that day, to Cairn’s detriment.

During his time on the stand, Mr Cahill told jurors he came under scrutiny by regulators for a different scheme, in which he and traders at other banks colluded and shared non-public information and manipulated benchmark currency rates using chat rooms.

Bloomberg