A senior HSBC executive has been released on US$1 million bail after being charged with fraud linked to a giant US$3.5 billion currency trade after he was arrested by FBI agents at JFK airport.
Mark Johnson, HSBC's head of FX and commodities for the Americas, was arrested by Federal agents at the New York airport on Tuesday evening, in what marks a major escalation of the US Department of Justice long-running investigation into foreign exchange trading at global banks.
Johnson, 50, and 43-year old Stuart Scott, who left the lender in December 2014, face charges of conspiring to defraud a client five years ago by "front-running" a currency deal.
The allegations relate to the conversion of US$3.5b into sterling for a client company in December 2011, a transaction that allegedly netted US$8m for HSBC, including Johnson and Scott.
It is thought that HSBC was carrying out the currency exchange for London-listed oil company Cairn Energy, which had sold a stake in its Indian subsidiary to commodities giant Vedanta.
Johnson appeared in court in New York yesterday to be formally charged, while it is thought Mr Scott has not been arrested and is reportedly in the UK.
The pair are the first to faces charges as part of the Justice Department probe. He was in the process of moving to the US, on behalf of HSBC, with his wife and six children when he was arrested.
He was due to spend two or three years living in the States, his lawyer Frank Wohl explained, and had rented an apartment.
The address, an Art Deco building on New York's Upper West Side - a stone's throw from Central Park - comes complete with roof garden, health centre and pet spa.
Johnson appeared before Judge Lois Bloom to be granted US$1m bail.
Wohl confirmed that $300,000 would be paid in cash and the rest tied up in the mortgage of his house in the UK. His wife and one other person were to be the sureties.
Wearing jeans, an olive green polo shirt and brown loafers, he was not handcuffed and spoke only to confirm his name and acknowledge that he understood the charges.
"The risk is not that he won't have access to funds," said Judge Bloom. "The risk is not that he is a danger to the community."
She ordered him to surrender his passport and not contact either his co-defendant or the victims.
"You're under a microscope," she told him, shortly before he left the courthouse to be confronted by around a dozen waiting photographers and cameramen.
According to Justice Department documents, Johnson, who at the time was HSBC's head of global foreign exchange cash trading, and Scott allegedly bought sterling "in advance of the transaction, knowing that the transaction would cause the price of sterling to increase, thereby generating substantial trading profits for HSBC and the defendants". This is a practice known as "front-running".
They then executed the $3.5b purchase "in a manner to cause the price of sterling to spike" - called "ramping" - which benefited the bank and the pair and was "at the expense of the victim company", according to the documents.
The risk is not that he is a danger to the community.
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When the full order for $3.5b was authorised, Johnson was recorded on a telephone call as saying to Scott "Ohhhh, f***king Christmas," the documents allege.
When the spike in the price of sterling was picked up by the company and its adviser, an unnamed supervisor is alleged to have told the client that the market movement was caused by "a Russian" bank, which was false.
Robert Capers, US Attorney for the Eastern District of New York, said: "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."
He added: "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."
It is yet another a blow to HSBC, which in 2012 paid almost $2b to settle allegations its anti-money laundering failures left the US exposed to drug cartels. Scott left HSBC after the bank was fined $618m to settle an investigation into FX rigging.
HSBC and Cairn Energy declined to comment.