A former HSBC banker facing charges of fraudulently “front-running” a $3.5bn (£2.7bn) currency trade has denied the allegations in a New York court.
While Johnson is out on $1m bail in New York after spending Tuesday night in prison, Scott has not been arrested and his lawyer, Gerallt Owen, a partner at the law firm Withers, said: “Our client strongly denies the allegations. Given there are ongoing proceedings, it would be inappropriate to comment further at this time.”
According to documents filed in the eastern district court of New York, the Britons are alleged to have bought pounds before doing so for a client which wanted to convert $3.5bn into sterling. The client was not named in the US courts but it is thought to be the London-listed exploration company Cairn Energy which was selling its Indian operation, Vedanta, in 2011.
According to the US Department of Justice, HSBC generated profits of $8m from the transaction: $3m from front-running and a $5m fee from the client. “The complaint alleges that Johnson and Scott caused the $3.5bn 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,” the DoJ said.
It said Johnson exclaimed “Ohhhh fucking Christmas” when told the deal was going through in December 2011. The prosecutors claim the pair had discussed how far they could “ramp” the price of sterling against the dollar before their client would “squeal”.
The bank is understood to have reviewed the Cairn transaction as part of an internal investigation that took place when regulators and prosecutors were scrutinising the foreign exchange market. HSBC found no wrongdoing. However, the regulators’ investigation resulted in huge fines for a number of major banks, including HSBC which was fined £389m by US and UK regulators.
Scott was fired by HSBC in 2014, shortly after the fine was levied. He had been head of foreign exchange trading for Europe, the Middle East and Africa. His lawyer would not comment when asked about his current employment.
Scott reported to Johnson, who remains on HSBC’s payroll. The bank refused to say whether it was supporting Johnson or providing legal assistance.
According to remarks reportedly made by his lawyer during a court appearance on Wednesday, Johnson is in the process of moving to the US. Bloomberg reported his lawyer telling the court: “The irony of this case, your honour, was that he was in the process of being transferred by his employers from London to the US.” The lawyer, Frank Wohl, said: “He has spent the last few weeks preparing to move his wife and six children to the US.”
Johnson, 50, who was to become head of foreign exchange and commodities of HSBC’s US operations, has surrendered his passport. He is staying in an apartment near New York’s Central Park, which has a 24-hour concierge, children’s playroom, pet spa and health club. He did not answer the door on the second-storey of the building to reporters.
He has not entered a plea and his bail includes $300,000 in cash being lodged with the courts.
HSBC has been trying to repair its reputation after a string of hits caused by a variety of controversies, including leaks to the Guardian about tax evasion activities in its Swiss arm. The US authorities still have an official monitor at the bank as part of the terms of a £1.2bn fine in 2012 for a money-laundering scandal.
According to a US Congressional report published earlier this month, British officials urged the US not to prosecute HSBC at the time for fear of a “global financial disaster”.
The DoJ would not say whether it intended to seek the extradition of Scott.
Catalogue of HSBC scandals
HSBC has incurred almost £10bn in legal bills and fines in the past five years, according to research published earlier this week. While this is not the biggest tally for a UK-based bank, HSBC has been embroiled in a series of scandals that have dented its reputation:
- A £1.2bn fine in 2012 after the US regulators found it had allowed terrorists to move money around the financial system. A monitor was imposed on the bank to ensure systems changes were made to stop this happening again. This month, a US Congressional report found the UK had intervened to stop the bank being prosecuted for fear of it sparking a “global financial disaster”.
- Last year, the Guardian and other media outlets disclosed that HSBC’s Swiss banking arm helped wealthy customers dodge taxes and conceal millions of dollars of assets, doling out bundles of untraceable cash and advising clients on how to circumvent domestic tax authorities.
- Earlier this year, HSBC was found to have created 2,300 companies through the Panama-based law firm Mossack Fonseca, although the bank said that only 5% of these companies were still in existence.
guardian.co.uk © Guardian News and Media Limited 2010