Barclays FX Trader Bogucki Cleared

Robert Bogucki, who was facing six counts of wire fraud and one count of conspiracy, was acquitted by a federal judge in Northern California today. Bogucki, the former head of Barclays’ New York FX operation was charged last year in an indictment for his alleged role in a scheme to front run client orders.

Bogucki was alleged to have misused information provided to him by Hewlett Packard (HP), which had hired Barclays to execute an FX transaction – which required the sale of £6 billion of options– related to the planned acquisition of a UK-based company in 2011. Bogucki previously lost a bid to dismiss the case.

In the court order US District Judge Charles Breyer says, “Here, there are two pieces of evidence that are crucial to understand the context in which the allegedly materially false statements that Defendant provided to HP occurred: an International Swaps Dealers Association agreement between HP and Barclays, also known as an “ISDA,” and the generally-understood industry practice of ‘pre-positioning.’

“The ISDA between HP and Barclays expressly stated that both HP and Barclays entered into “each Transaction as principal (and not as agent or in another capacity, fiduciary or otherwise),” he adds. “Put simply, the ISDA establishes that the backdrop of the unwind was that HP and Barclays were engaged as principals at opposite sides of an arms-length transaction.”

Citing crucial testimony from HP’s then head of foreign exchange Zac Nesper who testified that the ISDA reflected his own thinking about the relationship around the trade, Judge Breyer also notes Nesper’s admission that he “bluffed” Barclays during the parties interactions and that he was not “entirely truthful” about the prices he was receiving from other banks.

The latter evidence is likely to have been very important as it highlights that HP was asking other banks for prices at the time it was dealing with Barclays therefore it was not an exclusive relationship. A senior foreign exchange manager at a major bank reveals Profit & Lossthat their institution was interacting with HP at the time of the trade and suggests, “There cannot be a fiduciary responsibility when the customer is sharing details of the trade with more than one bank.”

Interestingly given the case brought against former HSBC FX trading head Mark Johnson in New York (from which he was convicted and is now appealing), Judge Breyer notes Barclays’ internal procedures and the understanding of both sides that some pre-hedging was appropriate and states, “there are undisputedly some types of pre-positioning that are permitted”, further observing that the Government’s expert witness “did not testify to the contrary”.

Referring to the Johnson case, Judge Breyer observes that in that instance there were non-disclosure agreements and a request for proposal involved, whereas in the Barclays-HP trade there was only the standard ISDA agreement.

In concluding the judgement, Judge Breyer states, “None of the five pieces of evidence the Government has produced in its case in chief can sustain a finding that a reasonable jury could conclude beyond a reasonable doubt that Defendant made false statements or material omissions that were capable of influencing a person in Nesper or HP’s position to part with money or property. None of these facts, thus, can satisfy the materiality requirement for the charges of wire fraud and conspiracy to commit wire fraud. 

“Nor does any of the other evidence on which the Government bases its case satisfy the materiality requirement of wire fraud,” he continues. “The Government has introduced evidence of phone calls between Defendant and Nesper on the morning of September 28 and October 3, and a chat between Bogucki and Nesper on October 4, which, the Government argues, contained material half-truths because Defendant attributed the drop in volatility to the external forces rather than to any action by Barclays. 

“The Government further argues that these exhibits contained misleading statements about what actions Barclays was taking in the market between the first and second tranche,” he adds. “But any half-truths in these statements were not material. Again, Nesper expected Barclays to be engaged in some trading, and took no actions to expressly limit what trading Barclays could take. Indeed, Nesper never even asked Barclays what its position was or attempted to impose any limits on how Barclays could position itself during this period. Nor was there any expectation of full disclosure between the parties, as evidenced by Nesper’s own lies to Barclays, his disbelief as to portions of what Barclays was telling him, and the terms of the ISDA that governed this transaction. Indeed, all of the chat transcripts between Bogucki and Nesper on which the Government relies contained a form disclaimer that Barclays was ‘a market participant acting in several capacities which may adversely affect any product’s performance.’ No reasonable jury could conclude beyond a reasonable doubt that, in this context, these half-truths could, objectively, have induced a person in Nesper’s or HP’s position to part with money or property.”

The judge also finds that the Government’s “holistic analysis” also fails for precisely the same reason as its piecemeal analysis does.  “Viewing the evidence in the light most favourable to the Government, there is simply no evidence in the record that, in the context of an arms-length transaction in which the parties bluffed and “BS-[ed]” each other, operated as principals, looked out for their own interests, and understood the other party to be “posturing,” rather than providing strictly true information, someone in HP’s position could, objectively, be induced by the statements in this case to part with money or property,” he states in the Order dismissing the case. 

Rather than demonstrating an attempt at fraud, the Judge also finds that the two parties “dishonesty” with each other “shows what expectations the parties had for one another, and thus whether even false statements had the capability of influencing HP’s decision-making”.

In a cutting finale, Judge Breyer states, “A touchstone of our criminal law is that no person ‘shall be held criminally responsible for conduct which he could not reasonably [have] understand to be proscribed.’ Here, the Government has pursued a criminal prosecution on the basis of conduct that violated no clear rule or regulation, was not prohibited by the agreements between the parties, and indeed was consistent with the parties’ understanding of the arms-length relationship in which they operated. The Court cannot permit this case to go to the jury on such a basis. 

Bogucki joined Barclays in 2008 as a managing director and co-head of the bank’s global macro-division, which encompassed rates, FX, commodities and offshore emerging markets.

Prior to that, je had a brief stint as a managing director and head of FX trading for the Americas at Lehman Brothers and spent over six years as managing director, head of FX sales and trading, Americas, at Merrill Lynch. Both of these positions were based in New York.

Before arriving at Merrill Lynch in 2002, Bogucki was vice president, co-head of European FX options trading, at Morgan Stanley in London for four years and worked as an associate for Goldman Sachs in Tokyo and Hong Kong for three years, where he was responsible for G10 FX options trading in Asia. 

Colin_Lambert@profit-loss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss

Julie Ros

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