Business World

Wednesday 18 October 2017

HSBC chief 'used codeword to tip off forex traders'

Staff on trial accused of taking unlawful advantage of client Cairn Energy's order, writes Patricia Hurtado

US District Judge Nicholas Garaufis ruled on Friday that the jury can listen to the recordings, in which Johnson allegedly tipped off a trader in Hong Kong. Stock photo
US District Judge Nicholas Garaufis ruled on Friday that the jury can listen to the recordings, in which Johnson allegedly tipped off a trader in Hong Kong. Stock photo

Patricia Hurtado

With just four words, Mark Johnson allegedly passed a secretive signal to fellow HSBC currency traders to launch a buying spree of pounds: "My watch is off."

The bank's former global head of foreign exchange alerted the traders around the globe via a phone call in December 2011 that was recorded, a prosecutor said. The gambit was designed to take advantage of a $3.5bn client order to buy sterling, the US says.

US District Judge Nicholas Garaufis ruled on Friday that the jury can listen to the recordings, in which Johnson allegedly tipped off a trader in Hong Kong. That signal eventually reached others on both sides of the Atlantic, prosecutors say. Johnson was in New York that day, speaking to Stuart Scott, the bank's former head of currency trading in Europe, who was in London, just before the transaction for its client, Cairn Energy.

"We actually have Mark Johnson telling Stuart Scott 'tell Ed my watch will be off'," said prosecutor Carol Sipperly. "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."

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 different. "'My watch is off' is a code designed to tell people keep this confidential, don't let the salesmen know about it," Wing said.

Prosecutors say Johnson and Scott, along with other traders, bought pounds before the transaction. Johnson is on trial in federal court accused of a scheme that produced a $8m profit for his bank. HSBC was hired by Cairn to convert the proceeds of a unit sale from dollars into pounds.

While the bank promised it would be a "drip feed" transaction, prosecutors say instead that about 90 minutes before the trade that was to occur, Johnson and Stuart Scott bought pounds and tipped off other currency traders at the bank.

The defence suggested in questioning that the spate of buying by these other men at the bank was an attempt to help Frank Cahill, the former HSBC currency trader who was fulfilling Cairn's order.

Prosecutors showed jurors charts of trading by Johnson, Scott, four traders in New York and five traders in London that day, showing they made about $3m in profit. A spokesman for HSBC in New York didn't have an immediate comment.

Bloomberg

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