1 00:00:00,200 --> 00:00:02,679 Speaker 1: Jurors in the first trial of a banker on charges 2 00:00:02,720 --> 00:00:06,040 Speaker 1: stemming from a US crackdown into currency market rigging will 3 00:00:06,040 --> 00:00:09,200 Speaker 1: have plenty to keep them interested. A code name Project 4 00:00:09,280 --> 00:00:12,560 Speaker 1: Shine for a three point five billion dollar currency trade 5 00:00:13,000 --> 00:00:16,360 Speaker 1: traders sworn to secrecy the alleged defrauding of a client 6 00:00:16,440 --> 00:00:19,520 Speaker 1: by front running in millions of dollars in profit. The 7 00:00:19,560 --> 00:00:22,280 Speaker 1: trial of Mark Johnson, a British citizen who was then 8 00:00:22,360 --> 00:00:26,560 Speaker 1: head of global foreign exchange trading for HSBC, began with 9 00:00:26,640 --> 00:00:30,000 Speaker 1: jury selection yesterday in Brooklyn Federal Court. Was he front 10 00:00:30,080 --> 00:00:34,160 Speaker 1: running hedging? My guests or Patricia Hurtado, Bloomberg News Legal 11 00:00:34,159 --> 00:00:38,880 Speaker 1: reporter and Lenan new In Bloomberg News FX reporter. Pat 12 00:00:38,920 --> 00:00:43,239 Speaker 1: you're watching the trial, tell us what prosecutors say. Johnson 13 00:00:43,320 --> 00:00:47,680 Speaker 1: is accused of. Well, um, that transaction that HSBC agreed 14 00:00:47,720 --> 00:00:50,880 Speaker 1: to do or was hired to do. Uh, the government says, 15 00:00:50,920 --> 00:00:56,760 Speaker 1: with constructeds in such a way that the Care and Energy, 16 00:00:56,840 --> 00:01:00,840 Speaker 1: which is the alleged victim company UH had to pay 17 00:01:00,960 --> 00:01:04,080 Speaker 1: more money in that there was a spike in sterling 18 00:01:04,280 --> 00:01:08,440 Speaker 1: the pound. So UH. Their allegation is that these traders 19 00:01:08,520 --> 00:01:11,399 Speaker 1: knew that the trade was going to be structured in 20 00:01:11,440 --> 00:01:13,320 Speaker 1: such a way and that they structured in such a 21 00:01:13,360 --> 00:01:15,880 Speaker 1: way to cause the price of sterling to spike, and 22 00:01:15,920 --> 00:01:19,080 Speaker 1: then knowing that they bought sterling ahead of the transaction, 23 00:01:19,600 --> 00:01:21,880 Speaker 1: and we're able to make money off the fact that 24 00:01:21,920 --> 00:01:24,679 Speaker 1: it spiked and that uh and they were able to 25 00:01:25,240 --> 00:01:29,560 Speaker 1: you know, make a tidy little profit at eight million dollars. Uh. 26 00:01:29,760 --> 00:01:33,840 Speaker 1: Lennon f X is a largely unregulated industry. So what 27 00:01:33,959 --> 00:01:37,440 Speaker 1: are the market practices that are an issue in this case? Well, 28 00:01:37,480 --> 00:01:41,920 Speaker 1: as Patricia said, it's clearly a case of whether the 29 00:01:42,080 --> 00:01:45,440 Speaker 1: jury believes that what Mark Johnson did was front running, um, 30 00:01:45,480 --> 00:01:48,400 Speaker 1: you know, trading before the client to the detriment of 31 00:01:48,440 --> 00:01:52,200 Speaker 1: the client, or whether it is a common practice in 32 00:01:52,240 --> 00:01:54,440 Speaker 1: for an exchange of hedging UM where you know, if 33 00:01:54,600 --> 00:01:57,800 Speaker 1: a company, a bank for instance, is dealing with a 34 00:01:57,880 --> 00:02:01,360 Speaker 1: large order, they have to sort of manage that risk 35 00:02:01,360 --> 00:02:04,600 Speaker 1: in advance and take positions in advance in order to 36 00:02:05,360 --> 00:02:08,440 Speaker 1: you know, really deal with that size of an order. UM. 37 00:02:08,520 --> 00:02:11,799 Speaker 1: So this is a fairly common practice and foreign exchange. 38 00:02:12,320 --> 00:02:15,399 Speaker 1: And after the rigging scandal that occurred, UM, it has 39 00:02:15,520 --> 00:02:17,440 Speaker 1: gotten a lot more attention and people have had to 40 00:02:17,520 --> 00:02:20,560 Speaker 1: sort of tidy up their practices when it comes to hedging, 41 00:02:21,440 --> 00:02:26,440 Speaker 1: So Pat explained the defense. The defense is saying there's 42 00:02:26,440 --> 00:02:28,960 Speaker 1: no crime here, you can walk away, nothing to see. 43 00:02:29,040 --> 00:02:32,239 Speaker 1: They say that Karen was actually that HSBC did the 44 00:02:32,280 --> 00:02:34,960 Speaker 1: best for its client for its client, and that it 45 00:02:35,040 --> 00:02:40,640 Speaker 1: was an armslane transaction, and that actually that uh HSBC 46 00:02:40,800 --> 00:02:44,760 Speaker 1: did the best under the circumstances, and that he has 47 00:02:44,840 --> 00:02:47,960 Speaker 1: their client. There was no intent of Johnson or anyone 48 00:02:48,000 --> 00:02:51,440 Speaker 1: at HSBC to to do any front running. It was 49 00:02:52,200 --> 00:02:57,560 Speaker 1: just a transaction. And Lennon, what are the ethics What 50 00:02:57,600 --> 00:03:01,799 Speaker 1: are the traders specifically watching for in this trial? I mean, 51 00:03:02,000 --> 00:03:04,680 Speaker 1: will they change the way they do business? If if 52 00:03:04,680 --> 00:03:08,160 Speaker 1: there's a guilty verdict, definitely they'll change what they're doing. 53 00:03:08,200 --> 00:03:11,359 Speaker 1: They might have already changed that. In advance of this trial, 54 00:03:11,680 --> 00:03:14,240 Speaker 1: Effix traders have been taking a long hard look at 55 00:03:14,320 --> 00:03:16,920 Speaker 1: what they are doing, especially after the fixing scandal in 56 00:03:16,919 --> 00:03:19,880 Speaker 1: this industry, and trying to figure out which practices are 57 00:03:19,960 --> 00:03:22,040 Speaker 1: sort of you know, over the line these days, and 58 00:03:22,320 --> 00:03:25,200 Speaker 1: those definitions are changing. So I think first thing they're 59 00:03:25,240 --> 00:03:27,760 Speaker 1: going to watch out for is if they're doing anything nefarious, 60 00:03:27,760 --> 00:03:30,320 Speaker 1: are they going to get caught? And what is you know, 61 00:03:30,360 --> 00:03:34,079 Speaker 1: what's the definition of nefarious these days. That's a that's 62 00:03:34,080 --> 00:03:38,080 Speaker 1: a question that we ask every day. So pat is 63 00:03:38,080 --> 00:03:41,440 Speaker 1: the Justice Department looking at this as a chance to 64 00:03:42,440 --> 00:03:46,360 Speaker 1: regain its momentum after the appeals court tossed out the 65 00:03:46,400 --> 00:03:50,960 Speaker 1: conviction of the two ex Rabbi Bank traders. Yeah, it 66 00:03:50,960 --> 00:03:53,800 Speaker 1: looks like the government is really trying to their their 67 00:03:53,880 --> 00:03:56,480 Speaker 1: best too after that Rabbi Bank case, and that was 68 00:03:56,560 --> 00:04:00,080 Speaker 1: librorary ragging. This is an ex manipulation case. And this 69 00:04:00,200 --> 00:04:01,800 Speaker 1: is the first of its time for the United States 70 00:04:01,920 --> 00:04:06,360 Speaker 1: or any other any countries prosecution to try any regulated 71 00:04:06,720 --> 00:04:10,800 Speaker 1: tory agency to try to prosecute And they're saying that 72 00:04:10,920 --> 00:04:14,960 Speaker 1: basically Johnson misappropriated the Karen and for innimation for his 73 00:04:15,040 --> 00:04:18,320 Speaker 1: own ends, basically the idea of almost like feeling the 74 00:04:18,360 --> 00:04:21,360 Speaker 1: information for his own use. He was an inside there, 75 00:04:21,400 --> 00:04:25,280 Speaker 1: owed a duty to Karen not to disclose this information 76 00:04:25,440 --> 00:04:28,840 Speaker 1: and then used it for his own benefit. And they're 77 00:04:28,960 --> 00:04:32,159 Speaker 1: they're gonna they're argument is actually a big argument now 78 00:04:32,200 --> 00:04:34,680 Speaker 1: going before the judge. He has to decide what kind 79 00:04:34,680 --> 00:04:37,359 Speaker 1: of evidence the jury can or can't see. Is this 80 00:04:37,560 --> 00:04:42,160 Speaker 1: really well? They show like marketing materials that HSBC gave 81 00:04:42,279 --> 00:04:44,880 Speaker 1: Karn to prove to them that they had the right 82 00:04:44,920 --> 00:04:49,599 Speaker 1: to have this, uh you know, tire them for the transaction. Lennon, 83 00:04:50,440 --> 00:04:53,159 Speaker 1: tell me about we've heard about the you know, the 84 00:04:53,279 --> 00:04:56,560 Speaker 1: US investigation and the rate ragging scandal. Tell me about 85 00:04:57,200 --> 00:05:00,919 Speaker 1: the fines for the banks involved. And HSPC is not 86 00:05:01,000 --> 00:05:04,360 Speaker 1: a defendant in this case, but well, the fines have 87 00:05:04,560 --> 00:05:08,599 Speaker 1: totaled about ten billion dollars across many global banks, you know, 88 00:05:08,640 --> 00:05:10,360 Speaker 1: all the big ones you would have heard of, main 89 00:05:10,400 --> 00:05:13,840 Speaker 1: Wall Street banks. Um. So it has been a pretty 90 00:05:14,320 --> 00:05:16,560 Speaker 1: big deal in this industry. It's had a lot of 91 00:05:16,560 --> 00:05:20,440 Speaker 1: repercussions and there have been senior industry members as well 92 00:05:20,480 --> 00:05:23,520 Speaker 1: as central bankers looking very closely at what happened. And 93 00:05:23,880 --> 00:05:26,480 Speaker 1: the industry is actually going through this huge cleanup effort 94 00:05:26,520 --> 00:05:29,159 Speaker 1: to try and you know, right the wrongs of the 95 00:05:29,200 --> 00:05:31,919 Speaker 1: past and change standards of behavior so that people behave 96 00:05:32,000 --> 00:05:35,320 Speaker 1: in you know, they're less likely to commit misconduct that 97 00:05:35,640 --> 00:05:39,839 Speaker 1: occurred on such a large scale. And pat is this 98 00:05:40,000 --> 00:05:42,599 Speaker 1: is the is the courtroom full? Is it? Is it 99 00:05:42,640 --> 00:05:47,640 Speaker 1: a packed room or just a few observers? Well, it's not. 100 00:05:47,680 --> 00:05:52,000 Speaker 1: Martin strays try well nothing kind of case. Um. But 101 00:05:52,080 --> 00:05:54,239 Speaker 1: what is interesting is there are a lot of banking 102 00:05:54,320 --> 00:05:59,240 Speaker 1: individuals in the courtroom. UM, we understand HSBC disclosed in 103 00:05:59,240 --> 00:06:02,839 Speaker 1: a regulatory filing that they're in active discussions with US 104 00:06:02,920 --> 00:06:06,320 Speaker 1: regulators and the d o J regarding a potential resolution 105 00:06:06,360 --> 00:06:10,320 Speaker 1: of this investigation UH into the foreign exchange conducts. So 106 00:06:10,640 --> 00:06:13,080 Speaker 1: I think the bank is closely watching it, and of 107 00:06:13,120 --> 00:06:15,720 Speaker 1: course anyone else who might think they have any kind 108 00:06:15,720 --> 00:06:20,000 Speaker 1: of exposure for similar kind of behavior from other um. 109 00:06:20,120 --> 00:06:23,920 Speaker 1: Uh other banks are also I've seen lawyers come into 110 00:06:23,960 --> 00:06:26,360 Speaker 1: the courtroom kind of taking the temperature of the room 111 00:06:26,360 --> 00:06:28,400 Speaker 1: and wanting to know what this what's going to be 112 00:06:28,440 --> 00:06:31,000 Speaker 1: part of the case. How long is the case expected 113 00:06:31,040 --> 00:06:33,160 Speaker 1: to be? UM, it's probably going to be a month 114 00:06:33,200 --> 00:06:37,279 Speaker 1: long trial. And they're in the midst of questioning protect 115 00:06:37,480 --> 00:06:40,720 Speaker 1: potential jurors. UM. They seem to have a panel of 116 00:06:40,839 --> 00:06:43,360 Speaker 1: twelve right now, and they're looking for alternates and also 117 00:06:44,080 --> 00:06:48,240 Speaker 1: uh other you know, in case the backup jurors, in 118 00:06:48,240 --> 00:06:52,920 Speaker 1: case someone gets excused or gets ill. Let what can 119 00:06:52,960 --> 00:06:58,440 Speaker 1: you explain why this particular FX market is so UM 120 00:06:58,560 --> 00:07:02,560 Speaker 1: has been able to be sort of the will West 121 00:07:02,880 --> 00:07:06,640 Speaker 1: of of markets. Well, it's tricky because foreign exchange is 122 00:07:06,680 --> 00:07:10,560 Speaker 1: actually the trade of two governments currencies, and so it 123 00:07:10,720 --> 00:07:15,240 Speaker 1: gets very difficult for one government to regulate how its 124 00:07:15,240 --> 00:07:18,040 Speaker 1: currency is traded elsewhere. This is a kind of you know, 125 00:07:18,120 --> 00:07:22,000 Speaker 1: the instrument that you're trading goes across borders just by 126 00:07:22,000 --> 00:07:25,080 Speaker 1: the virtue of it being a currency, so um, it 127 00:07:25,120 --> 00:07:28,280 Speaker 1: doesn't sit under any one country, it doesn't sit under 128 00:07:28,320 --> 00:07:31,200 Speaker 1: anyone regulator. Um. So it makes it really really tricky, 129 00:07:31,240 --> 00:07:35,480 Speaker 1: and it's you know, arguably led to someone savoryconduct. We 130 00:07:35,520 --> 00:07:37,880 Speaker 1: will find out more. Thank you both for being on 131 00:07:37,920 --> 00:07:41,440 Speaker 1: Bloomberg Law. That's Lenan new In, she's a Bloomberg News 132 00:07:41,520 --> 00:07:44,680 Speaker 1: FX reporter, and Patricia Hertado, Bloomberg News legal reporter who 133 00:07:44,680 --> 00:07:47,920 Speaker 1: will be following this trial every day. That's it for 134 00:07:47,920 --> 00:07:50,320 Speaker 1: this edition of Bloomberg Law. Will be back tomorrow at 135 00:07:50,360 --> 00:07:52,880 Speaker 1: one pm, and hope that you will be as well. 136 00:07:52,920 --> 00:07:55,960 Speaker 1: Thanks to our producer David Sutrament and our technical director 137 00:07:56,000 --> 00:07:56,720 Speaker 1: Reginald Bazil.