HSBC blamed Russians in forex fraud, court told

Foreign exchange traders at HSBC hid the fact that they had been making profits at a British client’s expense by blaming a Russian bank’s bulk purchase of $1.3 billion worth of sterling, a court has heard.

HSBC’s former global head of foreign exchange, Briton Mark Johnson, is on trial in the US for fraud and conspiracy.

The charges relate to the alleged practice of “front-running”, where bankers buy into a currency, stock or commodity before placing a big order on behalf of a client that is likely to drive up the market price.

The alleged practice allows the traders to profit from the rise in the price instead of the client.

In this case, HSBC had been hired by FTSE 250 oil giant Cairn Energy to convert the proceeds from the dollar sale of one of its Indian assets into sterling.

The currency conversion was for $3.5 billion, and Cairn had asked for HSBC to do the conversion “without volatility”.

But prosecutors claim that Johnson and a colleague, Stuart Scott, bought pounds in the days before the transaction, making the bank $8 million in illicit profit.

Johnson denies the charges, while Scott is in the UK fighting extradition.

In the trial in New York, the HSBC banker who originally persuaded Cairn to use his bank declared that when the pound started to jump, the traders said: “It’s a Russian name buying.”

Dipak Khot, who is testifying under a non-prosecution deal with the US, went on to say he was “sceptical” of that explanation.

Khot said that he told Johnson and Scott: “I don’t think our client is going to be happy.”

Prosecutors say while the Cairn transaction was to occur at 3pm on December 7, 2011, the trader who filled the order started buying pounds at 1.48pm.

Scott bought sterling 20 times the day before the transaction, and Johnson made pound purchases on November 30 and December 6. The case continues.