Former HSBC Trader Denies Forex Rigging Charges in Brooklyn Court

Mark Johnson, former head of global of foreign exchange cash trading at HSBC, has entered a not guilty plea in Brooklyn federal court yesterday. Johnson was charged with wire fraud and conspiracy by the U.S. Justice Department for his alleged involvement in a $3.5 billion front-running Forex scheme.

Johnson’s prosecution is part of the ongoing Justice Department probe of foreign exchange rigging at various financial institutions across Europe and the United States.

Last year, six major banks (Citigroup, Barclays, JP Morgan, UBS, RBS, Bank of America) doled out $5.6 billion in Forex-related fines and admitted to criminal charges, with Citigroup paying the largest portion: a $925 million criminal fine and an additional Fed penalty of $342 million.

However, Mark Johnson and Stuart Scott - former head of cash trading at HSBC, who was also charged along with Johnson in the scheme - are the first individuals to face criminal prosecution for currency exchange rate rigging.

According to prosecutors, Johnson and Scott used insider information to profit illegally from a large Forex transaction by a client of HSBC, who was looking to exchange $3.5 billion British pounds.

Having foreknowledge of the large order, the defendants executed their own trades first, which affected the currency market and thus resulted in a worse currency exchange rate for the HSBC client.

While the affected party has not been named in court documents, a confidential source told Reuters that Cairn Energy, one of Europe's leading independent oil and gas firms, was the defrauded HSBC client.

Prosecutors revealed the illegal Forex transaction netted HSBC about $3 million in front running profits, and $5 million from executing the trade at the manipulated price.

Johnson has been free on $1 million bail, while Stuart Scott remains in the UK and has denied the allegations.