HSBC Traders Accused of Profiting From Confidential FX Bets

ThreeHSBC Holdings Plc traders were accused of profiting from confidential information on a currency bet as a U.K. lawsuit refocused attention on a front-running scandal at the bank’s foreign exchange desk.

The traders, two of whom are only identified by acronyms, took positions in the bank’s proprietary accounts “in parallel to” rigged FX hedges, a former client, currency investment firmECU Group Plc, said in a London lawsuit. The company alleged that HSBC engaged in a “very substantial sustained fraud” over a three-year period.

In one case two traders sold 41 million euros ($45 million) of their own proprietary positions at the same questionable rate as the bank’s own position, ECU said in a court filing dated Jan. 24.

ECU says HSBC’s currency desk manipulated rates between 2004 and 2006 that affected billions of dollars of orders. The accusations come after the bank’s former global head of foreign exchange, Mark Johnson, was jailed for using his advance knowledge of a big client order to trade ahead of it.

The suit reopens allegations that some HSBC employees engaged in front running much earlier than the period in which it has previously admitted to misconduct. The lender acknowledged it defrauded two clients by front running in 2010 and 2011 and it agreed to pay about $100 million to resolve an investigation by the U.S. Justice Department.

An HSBC spokesman declined to comment.

HSBC said in its own court filing that while the transactions did take place, there was no wrongdoing by the bank. When traders bought currency ahead of the orders, it wasn’t intended to affect the market price. The practice was standard “pre-hedging” that benefitted its loan customers, HSBC said. In addition the claim was time-barred, it said.

The claims came to light at a court hearing Monday where ECU sought a judge’s permission to obtain further emails, audio files and instant messages as part of the lawsuit. HSBC said that it had already agreed to an extended search of its systems.

The bank “has already moved a great deal because it doesn’t have anything to hide,” Sonia Tolaney, HSBC’s attorney said.

The lawsuit was filed last year after ECU won a court order allowing it to obtain trading records to help back up its suspicions it was a victim of front-running. The firm is seeking an unspecified amount after saying that the lender’s traders acted to drive up the price and trigger orders that ECU had in place to hedge its currency risk.

Johnson was charged in July 2016, along with his subordinate Stuart Scott with front-running a $3.5 billion currency order fromCairn Energy Plc in 2011 that made the bank $8 million. While Johnson was convicted and jailed for two years, Scott successfully fought extradition to America after British judges ruled that much of the alleged misconduct took place in the U.K.

While the other traders were only identified by acronyms, Scott was named in the lawsuit by ECU.

The claims date back to January 2006. In ECU’s telling, Scott’s heavy trading caused the euro dollar spot price to spike and trigger ECU’s hedging order. Scott and another trader sold the 41 million euros at the same rate. ECU said the transaction showed that the bank’s traders were “misusing their knowledge of ECU’s confidential” positions. On another occasion a third trader got ECU’s confidential information to trade on his personal account.

A lawyer for Scott didn’t comment.

HSBC was a dealer in multiple currency trades “and therefore may have been executing other trades in those currency pairs at and around the same time,” the bank said in court filings.

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