WEBVTT - HSBC `Project Shine' Goes on Trial (Audio)

0:00:00.200 --> 0:00:02.679
<v Speaker 1>Jurors in the first trial of a banker on charges

0:00:02.720 --> 0:00:06.040
<v Speaker 1>stemming from a US crackdown into currency market rigging will

0:00:06.040 --> 0:00:09.200
<v Speaker 1>have plenty to keep them interested. A code name Project

0:00:09.280 --> 0:00:12.560
<v Speaker 1>Shine for a three point five billion dollar currency trade

0:00:13.000 --> 0:00:16.360
<v Speaker 1>traders sworn to secrecy the alleged defrauding of a client

0:00:16.440 --> 0:00:19.520
<v Speaker 1>by front running in millions of dollars in profit. The

0:00:19.560 --> 0:00:22.280
<v Speaker 1>trial of Mark Johnson, a British citizen who was then

0:00:22.360 --> 0:00:26.560
<v Speaker 1>head of global foreign exchange trading for HSBC, began with

0:00:26.640 --> 0:00:30.000
<v Speaker 1>jury selection yesterday in Brooklyn Federal Court. Was he front

0:00:30.080 --> 0:00:34.160
<v Speaker 1>running hedging? My guests or Patricia Hurtado, Bloomberg News Legal

0:00:34.159 --> 0:00:38.880
<v Speaker 1>reporter and Lenan new In Bloomberg News FX reporter. Pat

0:00:38.920 --> 0:00:43.239
<v Speaker 1>you're watching the trial, tell us what prosecutors say. Johnson

0:00:43.320 --> 0:00:47.680
<v Speaker 1>is accused of. Well, um, that transaction that HSBC agreed

0:00:47.720 --> 0:00:50.880
<v Speaker 1>to do or was hired to do. Uh, the government says,

0:00:50.920 --> 0:00:56.760
<v Speaker 1>with constructeds in such a way that the Care and Energy,

0:00:56.840 --> 0:01:00.840
<v Speaker 1>which is the alleged victim company UH had to pay

0:01:00.960 --> 0:01:04.080
<v Speaker 1>more money in that there was a spike in sterling

0:01:04.280 --> 0:01:08.440
<v Speaker 1>the pound. So UH. Their allegation is that these traders

0:01:08.520 --> 0:01:11.399
<v Speaker 1>knew that the trade was going to be structured in

0:01:11.440 --> 0:01:13.320
<v Speaker 1>such a way and that they structured in such a

0:01:13.360 --> 0:01:15.880
<v Speaker 1>way to cause the price of sterling to spike, and

0:01:15.920 --> 0:01:19.080
<v Speaker 1>then knowing that they bought sterling ahead of the transaction,

0:01:19.600 --> 0:01:21.880
<v Speaker 1>and we're able to make money off the fact that

0:01:21.920 --> 0:01:24.679
<v Speaker 1>it spiked and that uh and they were able to

0:01:25.240 --> 0:01:29.560
<v Speaker 1>you know, make a tidy little profit at eight million dollars. Uh.

0:01:29.760 --> 0:01:33.840
<v Speaker 1>Lennon f X is a largely unregulated industry. So what

0:01:33.959 --> 0:01:37.440
<v Speaker 1>are the market practices that are an issue in this case? Well,

0:01:37.480 --> 0:01:41.920
<v Speaker 1>as Patricia said, it's clearly a case of whether the

0:01:42.080 --> 0:01:45.440
<v Speaker 1>jury believes that what Mark Johnson did was front running, um,

0:01:45.480 --> 0:01:48.400
<v Speaker 1>you know, trading before the client to the detriment of

0:01:48.440 --> 0:01:52.200
<v Speaker 1>the client, or whether it is a common practice in

0:01:52.240 --> 0:01:54.440
<v Speaker 1>for an exchange of hedging UM where you know, if

0:01:54.600 --> 0:01:57.800
<v Speaker 1>a company, a bank for instance, is dealing with a

0:01:57.880 --> 0:02:01.360
<v Speaker 1>large order, they have to sort of manage that risk

0:02:01.360 --> 0:02:04.600
<v Speaker 1>in advance and take positions in advance in order to

0:02:05.360 --> 0:02:08.440
<v Speaker 1>you know, really deal with that size of an order. UM.

0:02:08.520 --> 0:02:11.799
<v Speaker 1>So this is a fairly common practice and foreign exchange.

0:02:12.320 --> 0:02:15.399
<v Speaker 1>And after the rigging scandal that occurred, UM, it has

0:02:15.520 --> 0:02:17.440
<v Speaker 1>gotten a lot more attention and people have had to

0:02:17.520 --> 0:02:20.560
<v Speaker 1>sort of tidy up their practices when it comes to hedging,

0:02:21.440 --> 0:02:26.440
<v Speaker 1>So Pat explained the defense. The defense is saying there's

0:02:26.440 --> 0:02:28.960
<v Speaker 1>no crime here, you can walk away, nothing to see.

0:02:29.040 --> 0:02:32.239
<v Speaker 1>They say that Karen was actually that HSBC did the

0:02:32.280 --> 0:02:34.960
<v Speaker 1>best for its client for its client, and that it

0:02:35.040 --> 0:02:40.640
<v Speaker 1>was an armslane transaction, and that actually that uh HSBC

0:02:40.800 --> 0:02:44.760
<v Speaker 1>did the best under the circumstances, and that he has

0:02:44.840 --> 0:02:47.960
<v Speaker 1>their client. There was no intent of Johnson or anyone

0:02:48.000 --> 0:02:51.440
<v Speaker 1>at HSBC to to do any front running. It was

0:02:52.200 --> 0:02:57.560
<v Speaker 1>just a transaction. And Lennon, what are the ethics What

0:02:57.600 --> 0:03:01.799
<v Speaker 1>are the traders specifically watching for in this trial? I mean,

0:03:02.000 --> 0:03:04.680
<v Speaker 1>will they change the way they do business? If if

0:03:04.680 --> 0:03:08.160
<v Speaker 1>there's a guilty verdict, definitely they'll change what they're doing.

0:03:08.200 --> 0:03:11.359
<v Speaker 1>They might have already changed that. In advance of this trial,

0:03:11.680 --> 0:03:14.240
<v Speaker 1>Effix traders have been taking a long hard look at

0:03:14.320 --> 0:03:16.920
<v Speaker 1>what they are doing, especially after the fixing scandal in

0:03:16.919 --> 0:03:19.880
<v Speaker 1>this industry, and trying to figure out which practices are

0:03:19.960 --> 0:03:22.040
<v Speaker 1>sort of you know, over the line these days, and

0:03:22.320 --> 0:03:25.200
<v Speaker 1>those definitions are changing. So I think first thing they're

0:03:25.240 --> 0:03:27.760
<v Speaker 1>going to watch out for is if they're doing anything nefarious,

0:03:27.760 --> 0:03:30.320
<v Speaker 1>are they going to get caught? And what is you know,

0:03:30.360 --> 0:03:34.079
<v Speaker 1>what's the definition of nefarious these days. That's a that's

0:03:34.080 --> 0:03:38.080
<v Speaker 1>a question that we ask every day. So pat is

0:03:38.080 --> 0:03:41.440
<v Speaker 1>the Justice Department looking at this as a chance to

0:03:42.440 --> 0:03:46.360
<v Speaker 1>regain its momentum after the appeals court tossed out the

0:03:46.400 --> 0:03:50.960
<v Speaker 1>conviction of the two ex Rabbi Bank traders. Yeah, it

0:03:50.960 --> 0:03:53.800
<v Speaker 1>looks like the government is really trying to their their

0:03:53.880 --> 0:03:56.480
<v Speaker 1>best too after that Rabbi Bank case, and that was

0:03:56.560 --> 0:04:00.080
<v Speaker 1>librorary ragging. This is an ex manipulation case. And this

0:04:00.200 --> 0:04:01.800
<v Speaker 1>is the first of its time for the United States

0:04:01.920 --> 0:04:06.360
<v Speaker 1>or any other any countries prosecution to try any regulated

0:04:06.720 --> 0:04:10.800
<v Speaker 1>tory agency to try to prosecute And they're saying that

0:04:10.920 --> 0:04:14.960
<v Speaker 1>basically Johnson misappropriated the Karen and for innimation for his

0:04:15.040 --> 0:04:18.320
<v Speaker 1>own ends, basically the idea of almost like feeling the

0:04:18.360 --> 0:04:21.360
<v Speaker 1>information for his own use. He was an inside there,

0:04:21.400 --> 0:04:25.280
<v Speaker 1>owed a duty to Karen not to disclose this information

0:04:25.440 --> 0:04:28.840
<v Speaker 1>and then used it for his own benefit. And they're

0:04:28.960 --> 0:04:32.159
<v Speaker 1>they're gonna they're argument is actually a big argument now

0:04:32.200 --> 0:04:34.680
<v Speaker 1>going before the judge. He has to decide what kind

0:04:34.680 --> 0:04:37.359
<v Speaker 1>of evidence the jury can or can't see. Is this

0:04:37.560 --> 0:04:42.160
<v Speaker 1>really well? They show like marketing materials that HSBC gave

0:04:42.279 --> 0:04:44.880
<v Speaker 1>Karn to prove to them that they had the right

0:04:44.920 --> 0:04:49.599
<v Speaker 1>to have this, uh you know, tire them for the transaction. Lennon,

0:04:50.440 --> 0:04:53.159
<v Speaker 1>tell me about we've heard about the you know, the

0:04:53.279 --> 0:04:56.560
<v Speaker 1>US investigation and the rate ragging scandal. Tell me about

0:04:57.200 --> 0:05:00.919
<v Speaker 1>the fines for the banks involved. And HSPC is not

0:05:01.000 --> 0:05:04.360
<v Speaker 1>a defendant in this case, but well, the fines have

0:05:04.560 --> 0:05:08.599
<v Speaker 1>totaled about ten billion dollars across many global banks, you know,

0:05:08.640 --> 0:05:10.360
<v Speaker 1>all the big ones you would have heard of, main

0:05:10.400 --> 0:05:13.840
<v Speaker 1>Wall Street banks. Um. So it has been a pretty

0:05:14.320 --> 0:05:16.560
<v Speaker 1>big deal in this industry. It's had a lot of

0:05:16.560 --> 0:05:20.440
<v Speaker 1>repercussions and there have been senior industry members as well

0:05:20.480 --> 0:05:23.520
<v Speaker 1>as central bankers looking very closely at what happened. And

0:05:23.880 --> 0:05:26.480
<v Speaker 1>the industry is actually going through this huge cleanup effort

0:05:26.520 --> 0:05:29.159
<v Speaker 1>to try and you know, right the wrongs of the

0:05:29.200 --> 0:05:31.919
<v Speaker 1>past and change standards of behavior so that people behave

0:05:32.000 --> 0:05:35.320
<v Speaker 1>in you know, they're less likely to commit misconduct that

0:05:35.640 --> 0:05:39.839
<v Speaker 1>occurred on such a large scale. And pat is this

0:05:40.000 --> 0:05:42.599
<v Speaker 1>is the is the courtroom full? Is it? Is it

0:05:42.640 --> 0:05:47.640
<v Speaker 1>a packed room or just a few observers? Well, it's not.

0:05:47.680 --> 0:05:52.000
<v Speaker 1>Martin strays try well nothing kind of case. Um. But

0:05:52.080 --> 0:05:54.239
<v Speaker 1>what is interesting is there are a lot of banking

0:05:54.320 --> 0:05:59.240
<v Speaker 1>individuals in the courtroom. UM, we understand HSBC disclosed in

0:05:59.240 --> 0:06:02.839
<v Speaker 1>a regulatory filing that they're in active discussions with US

0:06:02.920 --> 0:06:06.320
<v Speaker 1>regulators and the d o J regarding a potential resolution

0:06:06.360 --> 0:06:10.320
<v Speaker 1>of this investigation UH into the foreign exchange conducts. So

0:06:10.640 --> 0:06:13.080
<v Speaker 1>I think the bank is closely watching it, and of

0:06:13.120 --> 0:06:15.720
<v Speaker 1>course anyone else who might think they have any kind

0:06:15.720 --> 0:06:20.000
<v Speaker 1>of exposure for similar kind of behavior from other um.

0:06:20.120 --> 0:06:23.920
<v Speaker 1>Uh other banks are also I've seen lawyers come into

0:06:23.960 --> 0:06:26.360
<v Speaker 1>the courtroom kind of taking the temperature of the room

0:06:26.360 --> 0:06:28.400
<v Speaker 1>and wanting to know what this what's going to be

0:06:28.440 --> 0:06:31.000
<v Speaker 1>part of the case. How long is the case expected

0:06:31.040 --> 0:06:33.160
<v Speaker 1>to be? UM, it's probably going to be a month

0:06:33.200 --> 0:06:37.279
<v Speaker 1>long trial. And they're in the midst of questioning protect

0:06:37.480 --> 0:06:40.720
<v Speaker 1>potential jurors. UM. They seem to have a panel of

0:06:40.839 --> 0:06:43.360
<v Speaker 1>twelve right now, and they're looking for alternates and also

0:06:44.080 --> 0:06:48.240
<v Speaker 1>uh other you know, in case the backup jurors, in

0:06:48.240 --> 0:06:52.920
<v Speaker 1>case someone gets excused or gets ill. Let what can

0:06:52.960 --> 0:06:58.440
<v Speaker 1>you explain why this particular FX market is so UM

0:06:58.560 --> 0:07:02.560
<v Speaker 1>has been able to be sort of the will West

0:07:02.880 --> 0:07:06.640
<v Speaker 1>of of markets. Well, it's tricky because foreign exchange is

0:07:06.680 --> 0:07:10.560
<v Speaker 1>actually the trade of two governments currencies, and so it

0:07:10.720 --> 0:07:15.240
<v Speaker 1>gets very difficult for one government to regulate how its

0:07:15.240 --> 0:07:18.040
<v Speaker 1>currency is traded elsewhere. This is a kind of you know,

0:07:18.120 --> 0:07:22.000
<v Speaker 1>the instrument that you're trading goes across borders just by

0:07:22.000 --> 0:07:25.080
<v Speaker 1>the virtue of it being a currency, so um, it

0:07:25.120 --> 0:07:28.280
<v Speaker 1>doesn't sit under any one country, it doesn't sit under

0:07:28.320 --> 0:07:31.200
<v Speaker 1>anyone regulator. Um. So it makes it really really tricky,

0:07:31.240 --> 0:07:35.480
<v Speaker 1>and it's you know, arguably led to someone savoryconduct. We

0:07:35.520 --> 0:07:37.880
<v Speaker 1>will find out more. Thank you both for being on

0:07:37.920 --> 0:07:41.440
<v Speaker 1>Bloomberg Law. That's Lenan new In, she's a Bloomberg News

0:07:41.520 --> 0:07:44.680
<v Speaker 1>FX reporter, and Patricia Hertado, Bloomberg News legal reporter who

0:07:44.680 --> 0:07:47.920
<v Speaker 1>will be following this trial every day. That's it for

0:07:47.920 --> 0:07:50.320
<v Speaker 1>this edition of Bloomberg Law. Will be back tomorrow at

0:07:50.360 --> 0:07:52.880
<v Speaker 1>one pm, and hope that you will be as well.

0:07:52.920 --> 0:07:55.960
<v Speaker 1>Thanks to our producer David Sutrament and our technical director

0:07:56.000 --> 0:07:56.720
<v Speaker 1>Reginald Bazil.