Jurors in the first trial of a banker on charges stemming from a US crackdown into currency market rigging will have plenty to keep them interested. A code name Project Shine for a three point five billion dollar currency trade traders sworn to secrecy the alleged defrauding of a client by front running in millions of dollars in profit. The trial of Mark Johnson, a British citizen who was then head of global foreign exchange trading for HSBC, began with
jury selection yesterday in Brooklyn Federal Court. Was he front running hedging? My guests or Patricia Hurtado, Bloomberg News Legal reporter and Lenan new In Bloomberg News FX reporter. Pat you're watching the trial, tell us what prosecutors say. Johnson is accused of. Well, um, that transaction that HSBC agreed
to do or was hired to do. Uh, the government says, with constructeds in such a way that the Care and Energy, which is the alleged victim company UH had to pay more money in that there was a spike in sterling
the pound. So UH. Their allegation is that these traders knew that the trade was going to be structured in such a way and that they structured in such a way to cause the price of sterling to spike, and then knowing that they bought sterling ahead of the transaction, and we're able to make money off the fact that it spiked and that uh and they were able to you know, make a tidy little profit at eight million dollars. Uh. Lennon f X is a largely unregulated industry. So what
are the market practices that are an issue in this case? Well, as Patricia said, it's clearly a case of whether the jury believes that what Mark Johnson did was front running, um, you know, trading before the client to the detriment of the client, or whether it is a common practice in for an exchange of hedging UM where you know, if a company, a bank for instance, is dealing with a large order, they have to sort of manage that risk in advance and take positions in advance in order to
you know, really deal with that size of an order. UM. So this is a fairly common practice and foreign exchange. And after the rigging scandal that occurred, UM, it has gotten a lot more attention and people have had to sort of tidy up their practices when it comes to hedging, So Pat explained the defense. The defense is saying there's no crime here, you can walk away, nothing to see.
They say that Karen was actually that HSBC did the best for its client for its client, and that it was an armslane transaction, and that actually that uh HSBC did the best under the circumstances, and that he has their client. There was no intent of Johnson or anyone at HSBC to to do any front running. It was just a transaction. And Lennon, what are the ethics What are the traders specifically watching for in this trial? I mean,
will they change the way they do business? If if there's a guilty verdict, definitely they'll change what they're doing. They might have already changed that. In advance of this trial, Effix traders have been taking a long hard look at what they are doing, especially after the fixing scandal in this industry, and trying to figure out which practices are sort of you know, over the line these days, and
those definitions are changing. So I think first thing they're going to watch out for is if they're doing anything nefarious, are they going to get caught? And what is you know, what's the definition of nefarious these days. That's a that's a question that we ask every day. So pat is the Justice Department looking at this as a chance to regain its momentum after the appeals court tossed out the
conviction of the two ex Rabbi Bank traders. Yeah, it looks like the government is really trying to their their best too after that Rabbi Bank case, and that was
librorary ragging. This is an ex manipulation case. And this is the first of its time for the United States or any other any countries prosecution to try any regulated tory agency to try to prosecute And they're saying that basically Johnson misappropriated the Karen and for innimation for his own ends, basically the idea of almost like feeling the information for his own use. He was an inside there, owed a duty to Karen not to disclose this information
and then used it for his own benefit. And they're they're gonna they're argument is actually a big argument now going before the judge. He has to decide what kind of evidence the jury can or can't see. Is this really well? They show like marketing materials that HSBC gave Karn to prove to them that they had the right to have this, uh you know, tire them for the transaction. Lennon, tell me about we've heard about the you know, the US investigation and the rate ragging scandal. Tell me about
the fines for the banks involved. And HSPC is not a defendant in this case, but well, the fines have totaled about ten billion dollars across many global banks, you know, all the big ones you would have heard of, main Wall Street banks. Um. So it has been a pretty big deal in this industry. It's had a lot of repercussions and there have been senior industry members as well
as central bankers looking very closely at what happened. And the industry is actually going through this huge cleanup effort to try and you know, right the wrongs of the past and change standards of behavior so that people behave in you know, they're less likely to commit misconduct that occurred on such a large scale. And pat is this is the is the courtroom full? Is it? Is it a packed room or just a few observers? Well, it's not.
Martin strays try well nothing kind of case. Um. But what is interesting is there are a lot of banking individuals in the courtroom. UM, we understand HSBC disclosed in a regulatory filing that they're in active discussions with US regulators and the d o J regarding a potential resolution
of this investigation UH into the foreign exchange conducts. So I think the bank is closely watching it, and of course anyone else who might think they have any kind of exposure for similar kind of behavior from other um. Uh other banks are also I've seen lawyers come into the courtroom kind of taking the temperature of the room and wanting to know what this what's going to be part of the case. How long is the case expected to be? UM, it's probably going to be a month
long trial. And they're in the midst of questioning protect potential jurors. UM. They seem to have a panel of twelve right now, and they're looking for alternates and also uh other you know, in case the backup jurors, in case someone gets excused or gets ill. Let what can you explain why this particular FX market is so UM has been able to be sort of the will West
of of markets. Well, it's tricky because foreign exchange is actually the trade of two governments currencies, and so it gets very difficult for one government to regulate how its currency is traded elsewhere. This is a kind of you know, the instrument that you're trading goes across borders just by the virtue of it being a currency, so um, it doesn't sit under any one country, it doesn't sit under anyone regulator. Um. So it makes it really really tricky,
and it's you know, arguably led to someone savoryconduct. We will find out more. Thank you both for being on Bloomberg Law. That's Lenan new In, she's a Bloomberg News FX reporter, and Patricia Hertado, Bloomberg News legal reporter who will be following this trial every day. That's it for this edition of Bloomberg Law. Will be back tomorrow at one pm, and hope that you will be as well. Thanks to our producer David Sutrament and our technical director Reginald Bazil.