US Seeks HSBC FX Dealer’s Extradition

The US is to file for the extradition of HSBC’s former senior
FX trader Stuart Scott from the UK to face charges of wire fraud.

According to a report first published by Reuters the US Department of Justice has
filed a letter in a in Federal
court in New York, stating the US’ intention to initiate formal proceedings to
seek Scott’s extradition after learning he did not wish to come to the United
States voluntarily to face the charges.

Along with
HSBC’s head of FX spot trading Mark Johnson, Scott is accused of conspiring
to defraud HSBC clients
by front running orders. Johnson was arrested at
New York’s JFK airport in July and later released on bail after denying the
charges.

The Federal
Reserve Bank of New York has also signaled
its intention in a court filing to ban both men
from future participation
in financial markets.

The charges
against the two men relate to allegation they misled a client – Cairn Energy –
and front ran a large transaction on behalf of the firm. Johnson and Scott are
accused of defrauding clients by using information provided in confidence to
HSBC to purchase sterling in advance of the transaction, knowing that the
transaction would cause the price of sterling to increase, generating
“substantial” trading profits for HSBC and the defendants. 

The original
DoJ court filing identifies this as front running and notes that it is in
breach of HSBC’s duty of trust and confidence to its clients.

HSBC was
selected to execute the foreign exchange transaction – which was going to
require converting approximately $3.5 billion in sales proceeds into GBP – in
October 2011. HSBC’s agreement with the client required the bank to keep
the details of the client’s planned transaction confidential. 

Instead,
Johnson and Scott allegedly misused confidential information they received
about the client’s transaction. On multiple occasions, Johnson and Scott
allegedly purchased sterling for HSBC’s “proprietary” accounts, which they held
until the client’s planned transaction was executed.

The court
filing alleges that the pair then caused the $3.5 billion purchase of sterling
to be executed in a way that made the currency spike in order to benefit HSBC
and defendants, in contrast to the bank’s commitment to its clients to execute
in their best interests and avoid unnecessary market impact when trading their
orders. 

Colin_lambert@profit-loss.com

Twitter
@lamboPnL

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@Profit_and_Loss

Colin Lambert

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