Speaker 1: Jurors in the first trial of a banker on charges
Speaker 1: stemming from a US crackdown into currency market rigging will
Speaker 1: have plenty to keep them interested. A code name Project
Speaker 1: Shine for a three point five billion dollar currency trade
Speaker 1: traders sworn to secrecy the alleged defrauding of a client
Speaker 1: by front running in millions of dollars in profit. The
Speaker 1: trial of Mark Johnson, a British citizen who was then
Speaker 1: head of global foreign exchange trading for HSBC, began with
Speaker 1: jury selection yesterday in Brooklyn Federal Court. Was he front
Speaker 1: running hedging? My guests or Patricia Hurtado, Bloomberg News Legal
Speaker 1: reporter and Lenan new In Bloomberg News FX reporter. Pat
Speaker 1: you're watching the trial, tell us what prosecutors say. Johnson
Speaker 1: is accused of. Well, um, that transaction that HSBC agreed
Speaker 1: to do or was hired to do. Uh, the government says,
Speaker 1: with constructeds in such a way that the Care and Energy,
Speaker 1: which is the alleged victim company UH had to pay
Speaker 1: more money in that there was a spike in sterling
Speaker 1: the pound. So UH. Their allegation is that these traders
Speaker 1: knew that the trade was going to be structured in
Speaker 1: such a way and that they structured in such a
Speaker 1: way to cause the price of sterling to spike, and
Speaker 1: then knowing that they bought sterling ahead of the transaction,
Speaker 1: and we're able to make money off the fact that
Speaker 1: it spiked and that uh and they were able to
Speaker 1: you know, make a tidy little profit at eight million dollars. Uh.
Speaker 1: Lennon f X is a largely unregulated industry. So what
Speaker 1: are the market practices that are an issue in this case? Well,
Speaker 1: as Patricia said, it's clearly a case of whether the
Speaker 1: jury believes that what Mark Johnson did was front running, um,
Speaker 1: you know, trading before the client to the detriment of
Speaker 1: the client, or whether it is a common practice in
Speaker 1: for an exchange of hedging UM where you know, if
Speaker 1: a company, a bank for instance, is dealing with a
Speaker 1: large order, they have to sort of manage that risk
Speaker 1: in advance and take positions in advance in order to
Speaker 1: you know, really deal with that size of an order. UM.
Speaker 1: So this is a fairly common practice and foreign exchange.
Speaker 1: And after the rigging scandal that occurred, UM, it has
Speaker 1: gotten a lot more attention and people have had to
Speaker 1: sort of tidy up their practices when it comes to hedging,
Speaker 1: So Pat explained the defense. The defense is saying there's
Speaker 1: no crime here, you can walk away, nothing to see.
Speaker 1: They say that Karen was actually that HSBC did the
Speaker 1: best for its client for its client, and that it
Speaker 1: was an armslane transaction, and that actually that uh HSBC
Speaker 1: did the best under the circumstances, and that he has
Speaker 1: their client. There was no intent of Johnson or anyone
Speaker 1: at HSBC to to do any front running. It was
Speaker 1: just a transaction. And Lennon, what are the ethics What
Speaker 1: are the traders specifically watching for in this trial? I mean,
Speaker 1: will they change the way they do business? If if
Speaker 1: there's a guilty verdict, definitely they'll change what they're doing.
Speaker 1: They might have already changed that. In advance of this trial,
Speaker 1: Effix traders have been taking a long hard look at
Speaker 1: what they are doing, especially after the fixing scandal in
Speaker 1: this industry, and trying to figure out which practices are
Speaker 1: sort of you know, over the line these days, and
Speaker 1: those definitions are changing. So I think first thing they're
Speaker 1: going to watch out for is if they're doing anything nefarious,
Speaker 1: are they going to get caught? And what is you know,
Speaker 1: what's the definition of nefarious these days. That's a that's
Speaker 1: a question that we ask every day. So pat is
Speaker 1: the Justice Department looking at this as a chance to
Speaker 1: regain its momentum after the appeals court tossed out the
Speaker 1: conviction of the two ex Rabbi Bank traders. Yeah, it
Speaker 1: looks like the government is really trying to their their
Speaker 1: best too after that Rabbi Bank case, and that was
Speaker 1: librorary ragging. This is an ex manipulation case. And this
Speaker 1: is the first of its time for the United States
Speaker 1: or any other any countries prosecution to try any regulated
Speaker 1: tory agency to try to prosecute And they're saying that
Speaker 1: basically Johnson misappropriated the Karen and for innimation for his
Speaker 1: own ends, basically the idea of almost like feeling the
Speaker 1: information for his own use. He was an inside there,
Speaker 1: owed a duty to Karen not to disclose this information
Speaker 1: and then used it for his own benefit. And they're
Speaker 1: they're gonna they're argument is actually a big argument now
Speaker 1: going before the judge. He has to decide what kind
Speaker 1: of evidence the jury can or can't see. Is this
Speaker 1: really well? They show like marketing materials that HSBC gave
Speaker 1: Karn to prove to them that they had the right
Speaker 1: to have this, uh you know, tire them for the transaction. Lennon,
Speaker 1: tell me about we've heard about the you know, the
Speaker 1: US investigation and the rate ragging scandal. Tell me about
Speaker 1: the fines for the banks involved. And HSPC is not
Speaker 1: a defendant in this case, but well, the fines have
Speaker 1: totaled about ten billion dollars across many global banks, you know,
Speaker 1: all the big ones you would have heard of, main
Speaker 1: Wall Street banks. Um. So it has been a pretty
Speaker 1: big deal in this industry. It's had a lot of
Speaker 1: repercussions and there have been senior industry members as well
Speaker 1: as central bankers looking very closely at what happened. And
Speaker 1: the industry is actually going through this huge cleanup effort
Speaker 1: to try and you know, right the wrongs of the
Speaker 1: past and change standards of behavior so that people behave
Speaker 1: in you know, they're less likely to commit misconduct that
Speaker 1: occurred on such a large scale. And pat is this
Speaker 1: is the is the courtroom full? Is it? Is it
Speaker 1: a packed room or just a few observers? Well, it's not.
Speaker 1: Martin strays try well nothing kind of case. Um. But
Speaker 1: what is interesting is there are a lot of banking
Speaker 1: individuals in the courtroom. UM, we understand HSBC disclosed in
Speaker 1: a regulatory filing that they're in active discussions with US
Speaker 1: regulators and the d o J regarding a potential resolution
Speaker 1: of this investigation UH into the foreign exchange conducts. So
Speaker 1: I think the bank is closely watching it, and of
Speaker 1: course anyone else who might think they have any kind
Speaker 1: of exposure for similar kind of behavior from other um.
Speaker 1: Uh other banks are also I've seen lawyers come into
Speaker 1: the courtroom kind of taking the temperature of the room
Speaker 1: and wanting to know what this what's going to be
Speaker 1: part of the case. How long is the case expected
Speaker 1: to be? UM, it's probably going to be a month
Speaker 1: long trial. And they're in the midst of questioning protect
Speaker 1: potential jurors. UM. They seem to have a panel of
Speaker 1: twelve right now, and they're looking for alternates and also
Speaker 1: uh other you know, in case the backup jurors, in
Speaker 1: case someone gets excused or gets ill. Let what can
Speaker 1: you explain why this particular FX market is so UM
Speaker 1: has been able to be sort of the will West
Speaker 1: of of markets. Well, it's tricky because foreign exchange is
Speaker 1: actually the trade of two governments currencies, and so it
Speaker 1: gets very difficult for one government to regulate how its
Speaker 1: currency is traded elsewhere. This is a kind of you know,
Speaker 1: the instrument that you're trading goes across borders just by
Speaker 1: the virtue of it being a currency, so um, it
Speaker 1: doesn't sit under any one country, it doesn't sit under
Speaker 1: anyone regulator. Um. So it makes it really really tricky,
Speaker 1: and it's you know, arguably led to someone savoryconduct. We
Speaker 1: will find out more. Thank you both for being on
Speaker 1: Bloomberg Law. That's Lenan new In, she's a Bloomberg News
Speaker 1: FX reporter, and Patricia Hertado, Bloomberg News legal reporter who
Speaker 1: will be following this trial every day. That's it for
Speaker 1: this edition of Bloomberg Law. Will be back tomorrow at
Speaker 1: one pm, and hope that you will be as well.
Speaker 1: Thanks to our producer David Sutrament and our technical director
Speaker 1: Reginald Bazil.