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Speaker 1: Well, now is time for our daily Bloomberg Law Brief,

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Speaker 1: exploring legal issues in the news, and it's brought to

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Speaker 1: you by American Arbitration Association. Business disputes are inevitable, resolve

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Speaker 1: faster with the American Arbitration Association, the global leader in

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Speaker 1: alternative dispute resolution for over ninety years. More at a

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Speaker 1: dr dot org. Today, Bloomberg Law host dom Grasso discusses

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Speaker 1: prosecutors in Brooklyn resting their case against former HSBC currency

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Speaker 1: trader Mark Johnson for alleged currency rigging. She speaks with

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Speaker 1: Robert Hawkeett, a professor at Cornell University Law School, and

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Speaker 1: Bloomberg for an exchange reporter Leanne Newon, Will you start

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Speaker 1: with the description of the charges and front running? Sure,

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Speaker 1: so that that challenge is that is that Mr Johnson had,

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Speaker 1: of course the inside information about the pending currency purchase,

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Speaker 1: because of course he received the order, and so he

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Speaker 1: claim is that sort of an anticipation of that purchases

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Speaker 1: actual actually happening, He bought a lot of town sterling

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Speaker 1: on the chief with a view right essentially to capitalizing

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Speaker 1: on the price rise that would occur if he structured

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Speaker 1: the order itself. What sort of properly right and amount

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Speaker 1: it sort of drove off the price. So the claim

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Speaker 1: is that this is essentially a fraudulent act because he

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Speaker 1: essentially endeavored to manipulate the price of the currency in

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Speaker 1: a way that rendered it more expensive toward his clients. Uh.

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Speaker 1: And of course at same time he paid very little

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Speaker 1: for it or much less for it himself, and so

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Speaker 1: he was essentially pocketing the spread between those two of

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Speaker 1: those prices. Lennon, The jury has heard tapes of a

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Speaker 1: phone call. Prosecutors say, is the real time talk of

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Speaker 1: the front running scheme. It's hard to be. Tapes as

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Speaker 1: evidence tell us about the call. Well, what the there's

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Speaker 1: a lot of trader jargon in the phone call June,

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Speaker 1: But what essentially is occurring is, uh, the traders are

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Speaker 1: talking about a process called ramping the price, which means um,

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Speaker 1: you know, artificially inflating the price by buying a lot

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Speaker 1: of pounds. So the prosecutor they are alleging that they

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Speaker 1: did this, um, you know, to disadvantage their client and

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Speaker 1: to make the client end up paying um an inflated

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Speaker 1: price for the pounds. Bob, one of the prosecution's expert witnesses,

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Speaker 1: was asked by the defense about pre hedging. What is

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Speaker 1: that and how does it complicate the prosecution's case. Yeah,

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Speaker 1: there's a lot of argument about this. But so the

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Speaker 1: idea behind pre hedging is that, well, if you're anticipating

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Speaker 1: a large order being placed by a client and you're

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Speaker 1: going to biolog currency in the market in order to

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Speaker 1: make that sale to that client, you might purchase some

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Speaker 1: for your own account in advance, just in case the

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Speaker 1: price starts rising so quickly that you're und up having

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Speaker 1: to pay a lot more yourself. The ideas you're sort

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Speaker 1: of in effect stocking up your inventory of it in

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Speaker 1: advance of the actual purchase and sale for your client.

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Speaker 1: Um and and again you can imagine a legitimate reason

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Speaker 1: to do that, but of course it's also there's a

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Speaker 1: significant gray area between that legitimate form of hedging on

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Speaker 1: the one hand, and just out and out front running

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Speaker 1: on the other hand. And that's Robert Hawkeett, a professor

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Speaker 1: at Cornell University Law School and Bloomberg foreign exchanger porter

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Speaker 1: Lenin Noonan speaking at the Bloomberg Law host JOm Grosso.

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Speaker 1: You can listen to Bloomberg Law weekdays at one p m.

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Speaker 1: this morning's Bloomberg Labrary if you can find more legal

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Speaker 1: news at Bloomberg Law dot com and Bloomberg BNA dot com.

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