HSBC traders in both London and New York managed to tip each other off during a $3.5 billion client order for Cairn Energy using secret code words. The collaboration was instigated by Mark Johnson, HSBC’s former Global Head of FX, who alerted the other traders that the call was being recorded, per a Bloomberg report.
US prosecutors were able to discern the code words, ‘my watch is off’, ultimately triggering the frenetic buying action from the traders. Johnson’s role in tipping off the other traders has resulted in him being on trial for fraud, given that he was the chosen by the bank to lead the transaction for Cairn Energy.
From New York, Mr. Johnson succeeded in tipping off traders in Hong Kong and London, including Stuart Scott, the bank’s former head of currency trading in Europe. The traders used the tips to buy pounds before the actual banking transaction, ultimately netting the bank $8.0 million in illegal profit.
The trail follows last month’s developing legal quandaries for Johnson, who came under fire after being accused of mishandling and exploiting confidential information. The fallout has been of particular relevance given that Johnson, a UK national, was seized at JFK airport. His case may serve as a litmus test for future currency manipulation scandals.
Defense team tries to deflect allegations
Cairn Energy had previously hired HSBC to convert the proceeds from an asset sale in India from USD into GBP. Johnson had been in hot water after US prosecutors obtained a statement regarding the Cairn trade – that was like “f***ing Christmas”. Prosecutors also claimed that he discussed how high the currency prices could go before Cairn would later “squeal”.
In its latest development however, US prosecutor Carol Sipperly noted: “We actually have Mark Johnson telling Stuart Scott ‘Tell Ed my watch will be off. We have communications where the word ‘watch’ is used, and then within seconds, 20 seconds of ‘my watch is off,’ we have all that trading that’s been described. The word is instrumental in getting the information to the traders when it comes to their early front-running trades.”
Johnson’s legal team is pushing back on the lingo, asserting that the term ‘watch’ was unrelated to his actions. According to Johnson’s lawyer John Wing, “‘My watch is off’ is a code designed to tell people keep this confidential, don’t let the salesmen know about it.”
A ruling is expected as early as today, Finance Magnates will update the story as it develops.