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HSBC pays $101 million in U.S. criminal penalties for front-running clients

HSBC Holdings Plc agreed Thursday to pay $101.5 million to resolve a DOJ criminal investigation into rigged currency transactions that hurt two of its institutional clients.

The UK-based bank entered into a three-year deferred prosecution agreement (pdf) with the DOJ and agreed to pay a $63.1 million criminal fine and $38.4 million in disgorgement and restitution.

The DPA resolves charges of HSBC’s “front-running” schemes against Cairn Energy in 2011 and another client in 2010. The bank made about $46 million from the illegal trades.

Cairn Energy Plc hired HSBC in 2011 to trade into pounds about $3.5 billion in proceeds from the sale of an Indian subsidiary.

Two HSBC currency traders bought British pounds before they executed the Cairn transaction, driving up Cairn’s cost while making a trading profit for the bank.

The DOJ’s John Cronan said HSBC “misused confidential client information for its own profit.”

Last year, Mark Johnson, the former head of HSBC’s global foreign exchange cash trading desk, was convicted in a jury trial in Brooklyn of making front-running trades ahead of Cairn’s currency transaction. He hasn’t been sentenced.

The DOJ charged another HSBC trader, Stuart Scott, who headed cash trading for Europe, the Middle East, and Africa. He’s still fighting extradition.

In a statement Thursday, HSBC said it has taken several steps to improve compliance, including hiring “outside firms to audit its internal controls and to enhance its trade, voice, and audio surveillance.”


Richard L. Cassin is the publisher and editor of the FCPA Blog.

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1 Comment

  1. Would appreciate a follow-up here on how DOJ was able to piece this case together. HSBC traders probably felt safe behind the curtain.

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