HSBC Traders Used Code Word to Trigger Front-Running, U.S. Says

With just four words, Tag Johnson allegedly passed a deceptive signal to fellow HSBC Holdings Plc currency traders to launch the buying spree of pounds: " My watch is off. "

The bank’ s i9000 former global head of forex alerted the traders around the globe through phone calls and chat messages, prosecutors at Johnson’ s fraud demo say. The gambit in December last year was designed to take advantage of a $3. 5 billion client order to purchase sterling, they claim.

Jurors on Friday listened to songs of the calls, which prosecutors state show Johnson tipped off an investor in Hong Kong. That signal ultimately reached others on both sides from the Atlantic and sparked a flurry of trading, they say. Johnson is at New York that day, speaking to Stuart Scott,   the bank’ h former head of currency trading within Europe, who was in London, on the day from the transaction for the bank’ s customer, Cairn Energy Plc .  

The next day, Johnson discussed the particular events with a colleague on a contact recorded by the bank.

" New York managed a bit plus London just had a bonanza onto it, " Johnson said. " I needed quite a big day anyway, because I actually made it on other stuff, then we all just ramped it on that will. "

What A single Trader’ s Trial Means for Marketplace: QuickTake Q& A

Johnson’ ersus lawyer,   John Wing, experienced tried to keep the recordings out of the situation, telling U. S. District Determine Nicholas Garaufis that they shouldn’ to be aired because his customer used the term " watch" in order to mean something entirely different. " ‘ My watch is off’ is a code designed to tell individuals keep this confidential, don’ t allow the salesmen know about it, " Side said.

Johnson will be on trial in federal courtroom in Brooklyn, New York, accused of the scheme that produced an $8 million profit for his financial institution. Prosecutors rested their case upon Friday after presenting evidence more than two weeks, and the defense will begin the case when the trial resumes upon Oct. 10.

Jurors spent much of Fri listening to recorded calls. In a different one, Johnson is heard discussing the result of the deal on bankers’ settlement.

" It makes all of us look good if we have a good Dec, " Johnson said. " Ideally, you can only hope to influence factors when numbers are rounded arrive the end of the year, so o, yeah! It’ s good for well-being. "

HSBC had been hired by Cairn to transform the proceeds of a unit purchase from dollars into pounds. Jurors also heard a phone call through October 2011 in which Johnson confident a Cairn adviser that performing the currency transaction as a repair trade was the preferred method " because there is transparency. " The repair is or the set period by which currency transactions are used to determine standard rates.

He additional that he had seen transactions which have " ramped the fix, " or been manipulated to advantage a bank. " I’ mirielle horrified when I see people do this sort of thing because it’ t just obvious, " Johnson informed the Cairn adviser.

Despite those assurances, prosecutors state Johnson and Scott had recently been buying pounds, and about 90 mins before the Cairn trade they likely off other currency traders in the bank. In a call, the two are usually heard discussing how they should avoid pushing the price of the pound way too high, which would make Cairn officials " squeal. "

Ex-HSBC Trader Says Boss Ordered Your pet to ‘ Ramp’ Pound Cost

Later throughout the call, Johnson can be heard providing direction to Scott and going on about the trader who was executing the particular Cairn transaction.   “ I actually do all the work, and he gets all the fame, ” Johnson said of the investor.  

On Thurs, prosecutors showed jurors charts associated with trading by Johnson, Scott, 4 traders in New York and 5 traders in London that day, displaying they made about $3 mil in profit. Rob Sherman, the spokesman for HSBC in Nyc, declined to comment.

The defense suggested in wondering that the spate of buying by these types of other men at the bank had been an attempt to help Frank Cahill, after that an HSBC currency trader who had been fulfilling Cairn’ s order.

But Ross Waller, an ex trader at Bridgewater Associates who testified as an expert witness for the govt, said Thursday that Cahill’ s i9000 feverish demand for pounds, exponentially boosted with the frenzied buying by the additional traders,   ended up dominating regarding 75 percent of trading within the five minutes before the Cairn trade had been executed, and caused the pound’ s price to jump. Investing records also indicate the others weren’ t selling to Cahill to help your pet fill the order, Waller mentioned.

U. S i9000. government exhibit

The case is U. T. v. Johnson, 16-cr-457, U. T. District Court, Eastern District of recent York (Brooklyn).