Two senior bankers at HSBC have been arrested in connection with a case involving currency benchmark rigging, according to reports.
Mark Johnson, the bank's global head of foreign-exchange cash trading, was arrested Tuesday at JFK International Airport, according to multiple reports. He faces charges following a three-year investigation into currency trading practices at multiple global banks, according to the reports.
In addition, Stuart Scott, former head of cash trading for Europe, the Middle East and Africa, also faces wire fraud conspiracy charges, though he has not been arrested yet. Johnson and Scott committed the alleged violation on a $3.5 million (S$4.7 million) trade, which allegedly occurred in October 2011 involved an unnamed oil and gas company that wanted to exchange US dollars with British pounds. Authorities said HSBC made $8 million from the transaction.
The Department of Justice charged that "Johnson and Scott caused the $3.5 billion foreign exchange transaction to be executed in a manner that was designed to spike the price of the pound sterling, to the benefit of HSBC and at the expense of their client."
"When questioned by their client about the higher price paid for their significant transaction, the defendants wove a web of lies designed to conceal the truth and divert attention away from their fraudulent trades," US Attorney Robert L. Capers in New York said in a statement. HSBC declined comment. Legal experts considered the arrests signifcant.
"Front running' is one of the more serious Wall Street crimes. It means the broker does his or her trades first, obtaining the best possible price while the customer waits at the back of the line, and accordingly suffers with an inferior transaction," Anthony Sabino, professor at St. John's University's Peter J. Toobin College of Business. "This kind of violation is always relentlessly prosecuted, and given the current market turmoil, expect yet another wave of government crackdowns. Mark this as the first case among many."
The investigation into currency rigging has been ongoing for three years but has resulted in no individual arrests until this week. Johnson is expected to appear in court Wednesday on a conspiracy to commit wire fraud charge.
"As alleged, the defendants placed personal and company profits ahead of their duties of trust and confidentiality owed to their client, and in doing so, defrauded their client of millions of dollars," Capers said.
Banks have paid billions in fines resulting from investigations, with Citigroup, HSBC, JPMorgan Chase, RBS and UBS forced to pay $3.1 billion in fines from Britain's Financial Conduct Authority and the US Commodity Futures Trading Commission. JPMorgan, Citi and Bank of America also had to pay separately $950 million for unsafe practices, while UBS shelled out an additional $138 million to the Swiss Financial Market Supervisory Authority for improper business conduct.