Ex-HSBC Currency Trader Sentenced To Two Years In Prison

Mark Johnson, the former global head of foreign exchange at HSBC, was sentenced on Thursday to two years in a US prison, becoming the first banker to be jailed in the DOJ-led global crackdown on front-running and collusion in the foreign exchange market.

His conviction comes after four of the world’s largest banks paid more than $10 billion in fines as part of the “foreign exchange cartel” case. While most of the fines were adjudicated back in 2015, HSBC paid $100 million in January to resolve a DOJ probe into the rigging of currency rates.


While Johnson’s legal team had been pushing for house arrest and community service in the UK, where Johnson owns a home in Hampshire, the judge ultimately handed down a two-year sentence, despite Johnson submitting almost 130 letters of support from his family, friends and colleagues who vouched for his good character. Johnson also pleaded that the separation made necessary by the trial had been “a hideous punishment” for Johnson’s wife, Diane Minihane, and six children.

“My fear is that he comes to represent an industry that is vilified,” said Minihane, who met Johnson when they worked together as senior foreign-exchange traders at Deutsche Bank AG in London. In a six-page letter, she describes parenting with an “innately decent and honest man,” and cites examples of his kindness to coworkers and community members.

US District Judge Nicholas Garaufis said he decided on two years because, while he felt a prison sentence would be “necessary”, anything greater would be “punitive”.

Johnson was also fined $300,000.

Recordings of conversations between Johnson and his co-workers that had been obtained by authorities purportedly revealed instances where Johnson appeared to front-run orders placed by the bank’s clients. The charges were rooted in a deal involving Cairn Energy Plc, which had hired the bank to convert the proceeds from a sale of one of its subsidiaries into pounds. Late last year, Johnson was found guilty of nine counts of wire fraud for executing the $3.5 billion transaction in a way that maximized the bank’s take.

Johnson and a co-conspirator, former HSBC Head of Currency Trading Stuart Scott, allegedly devised a scheme whereby the bank slowly added pounds to its balance sheet in the weeks before the transaction. Then, on the day the trade was executed, Scott and Johnson conspired to fill the order at the 3 pm London fix instead of the 4 pm London fix. There’s typically less liquidity around the 3 pm fix, making it easier to move the price of the fix by pushing the exchange rate in the bank’s favor by executing a string of transactions just before the fix closes.

When confronted by Cairn about the execution price, which was higher than what the bank had initially quoted Cairn, Scott told them that the change in price was due to an unforeseen order by a Russian Central Bank. Scott is currently still in the UK fighting extradition to the US.

When Johnson took the stand at his trial, he testified that his desk had executed the trade at a “fair” price for Cairn, and that HSBC was merely “pre-hedging” the trade (traders, after all, has a responsibility to insulate itself from losses should exchange rates move against it, turning the deal into a money-loser). 

Prosecutors, meanwhile, accused Johnson of engaging in a tactic known as “ramping.”

But the most damning evidence presented during the trial was undoubtedly the recordings of conversations taking place between Johnson and his colleagues while the trade was being executed. On the tapes, the jury heard Johnson discuss how high the exchange rate could rise before the client would “squeal”. In another conversation, Johnson can be heard telling Scott, “I think we got away with it.”

Those words will likely haunt Johnson for the rest of his natural life.

As one former FX trader who spoke with BBG put it:

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.”

And now he’s going to spend the next two years in a US prison.

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