Former HSBC Holdings trader Mark Johnson, the first person to be convicted in a global crackdown on currency rigging, was sentenced to two years in prison and immediately taken into custody.
Johnson bowed his head and his lawyers appeared stunned as US District Judge Nicholas Garaufis in Brooklyn, New York, rejected his request to surrender at a later date. Johnson then handed his wallet to the lawyers and removed his tie before being escorted out of the courtroom by a deputy US marshal. His lawyers asked that he be sent to the low-security federal prison in Allenwood, Pennsylvania.
A federal jury found the bank’s former global head of foreign exchange guilty of nine counts of wire fraud and conspiracy for front-running a $3.5bn client order in December 2011. He was convicted in October after a month-long trial.
Garaufis said US sentencing guidelines indicated Johnson could face a term of nine years in prison while prosecutors argued he deserved seven years. The judge said he imposed a shorter term, citing Johnson’s family ties, his community work and noted that, as a UK national, Johnson would be separated from his family.
"A brief prison sentence is necessary, but anything greater is punitive," Garaufis said. "I’m assured no financial institution will ever again trust him in handling multibillion-dollar transactions."
Since his arrest in July 2016, Garaufis has allowed Johnson to travel back and forth from his home in England. But on Thursday, Garaufis said Johnson posed a flight risk and rejected his request to remain free while he appeals. He also fined Johnson $300 000.
The case was victory for US prosecutors, as Johnson was the first person tried since the global currency-rigging scandal that resulted in the world’s largest banks paying more than $10 billion in penalties. In January, HSBC paid $100m to resolve a US Justice Department probe into the rigging of currency rates tied to the case.
In October, a trio of former British currency traders are scheduled to go on trial in federal court in Manhattan. The three are accused of rigging the foreign-exchange market by colluding over chat rooms known as "the Cartel." The men worked at JPMorgan Chase, Barclays and Citigroup.
In an industry with “a culture of cheating,” US prosecutors said sending Johnson to prison would serve as a deterrent for other traders in his position.
"Mr. Johnson should have taken that reputation and that gravitas and used it to discourage or stop these types of schemes," prosecutor Brian Young said. ‘"By virtue of his lofty position, he should have been one of the adults in the room, but instead he used his expertise to defraud his client."
HSBC was hired by Cairn Energy to convert the proceeds of the sale of a subsidiary from dollars into pounds. Johnson and his colleagues promised to "drip feed" the transaction to avoid an unexpected rise in the rate. Cairn was instead defrauded because it paid a higher price for the UK currency after Johnson and his traders "ramped" up the pound, according to a government expert’s testimony.
Confronted by Cairn officials about the rise in the pound, the US said Johnson’s co-conspirator Stuart Scott falsely blamed it on an order by a Russian Central Bank, according to the government. Scott, the former head of the bank’s currency trading in Europe, is in the UK fighting extradition.
Johnson took the stand at his trial, insisting Cairn got a "fair" price. He also sought to distance himself from the transaction, saying he’d left Scott, who was in London, in charge of the trading desk while he was in New York on the day of the trade.
Requests for leniency
Johnson, a UK citizen with a home in Hampshire, asked to serve a term of house arrest in the UK doing community service. Almost 130 relatives, friends and former bank colleagues wrote to Garaufis seeking leniency for him. Johnson’s wife, Diane Minihane, and his lawyers argued he was punished enough by being prosecuted and that further separation from his six children would be unnecessarily harsh.
Daniel Mantini, a former currency trader at Salomon Smith Barney and Bear Stearns who left the industry in 2012, said sending Johnson to prison would be a "travesty of justice."
"If they were going to arrest every foreign-exchange dealer for front-running big orders and/or talking smack over the phone there would be many thousands in jail," Mantini said. "This guy was in the wrong place at the wrong time."
Prosecutors used HSBC’s recorded calls which they said showed real-time talk of the front-running, including one in which Johnson and Scott discuss how high the price of the pound could rise before the client would "squeal." In another, in Johnson tells Scott, “I think we got away with it."
The government also had emails and instant messages by Johnson and his colleagues. They said Johnson sent out a message using the code words "My watch is off." That alerted at least 10 other traders on both sides of the Atlantic to began a buying spree of pounds that dominated the market minutes before the 3 pm deal.
"This sentence should serve as a warning to those who engage in crooked financial schemes: the Justice Department’s Criminal Division and our Law enforcement partners are watching," said John Cronan, acting Assistant Attorney General.
Johnson’s lawyers said Thursday there are substantial issues to challenge his conviction. "We’re certainly appealing," lawyer Frank Wohl said as he left court.* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER