The US Department of Justice is investigating whether an HSBC employee may have leaked confidential information to a hedge fund.
According to a report in the Wall Street Journal, the alleged leak occurred while the bank was advising Prudential “on a huge acquisition and was working on a related multibillion-dollar currency transaction".
According to the report, HSBC was helping UK insurer Prudential sell billions of pounds and buy billions of dollars to finance the insurer’s planned $35 billion acquisition of the Asian life-insurance unit of American International Group.
A source working at HSBC at the time confirms the bank had the order, but tells Profit & Loss they have no knowledge of the new allegations, “Traders in the bank were speaking to hedge funds at the time, however,” the source adds. “Several funds prefer talking to the trading desk rather the sales team when discussing market colour.”
A senior HSBC trader allegedly alerted a trader at Moore Capital Management about the impending transaction. The HSBC trader also allegedly sold large quantities of pounds ahead of Prudential’s order, gaining a likely profit. HSBC self-reported the alleged incident to US and British authorities, the WSJ report says.
“The focus of the latest HSBC investigation suggests that the US is eyeing a new front in the FX investigation: market-sensitive information that banks may have shared with favoured clients, not just fellow banks”, the report says. Both HSBC and the US DoJ declined to comment.
The US prosecutors are interviewing HSBC traders about the alleged event, which is believed to have taken place in March 2010, as part of their broader criminal investigation into misconduct in the FX markets.
Earlier this month, regulators in the UK, the US and Switzerland imposed $4.3 billion in fines on six banks for failure to control business practices in their G10 spot trading operations, including HSBC. Senior traders at the banks disclosed to each other confidential customer order information and trading positions, often ahead of the popular 4pm London “Fix” benchmark, and altered their positions accordingly to benefit the interests of their collective group.
The DoJ is aiming to finalise its FX investigation early next year. It has entered into preliminary negotiations with some banks, which have until mid-December to submit a full accounting of their FX misconduct.