London-based currency traders at HSBC would routinely front run client orders in a bid to make extra profits as part of a “blatant and indefensible” fraud, lawyers for currency manager ECU Group claimed at London’s High Court.
Investment manager ECU made its closing submissions on Tuesday at the end of a seven-week trial in which it is suing HSBC over currency trades made more than 15 years ago. The trial is the latest instalment in the global currency trading scandal that started nearly 10 years ago and has cost the London-listed bank more than $600mn in regulatory fines.
ECU Group alleges that FX traders at HSBC misused confidential information about its trades and used them for their own profit between 2004 and 2006, pinpointing 52 transactions in that period. ECU was a client of HSBC at the time of the trades. HSBC has denied all wrongdoing.
Richard Lissack QC, counsel for ECU, said his client had “smoking gun evidence” that currency traders at HSBC “widely and routinely” tried to profit from client orders, pointing to a chat hosted on the Bloomberg terminal between Stuart Scott, HSBC’s head of cash FX in Europe, and Paul Mischenko, head of FX for the Americas, from January 2010. In the exchange, Scott told his counterpart that his team always makes money from so-called stop loss orders, the type of trades ECU claims HSBC were front running.
“It’s a straightforward boast, that HSBC’s London trading desk could and would front run any client’s order regardless of the client’s level of sophistication and the care with which the client monitored those orders,” Lissack told the court.
Lissack also noted that in January 2018 HSBC admitted to US authorities that Scott and Mark Johnson, another senior ex-staffer at the bank, fraudulently traded ahead of their client in 2011 and subsequently attempted to conceal their actions. Johnson was found guilty by a US jury of fraud in 2017, while his co-accused Scott successfully fought an extradition request from the US.
Lissack added that none of the traders involved testified at the trial, depriving ECU of the opportunity to ask questions. “It is a blatant and indefensible admission of fraud by one of the most senior foreign exchange traders at HSBC at the time,” Lissack added.
Lawyers for HSBC have argued ECU should have made these claims sooner. In his written closing arguments, Kenneth MacLean QC, representing HSBC, claimed that the entire ECU lawsuit was not made in a reasonable timeframe and is based on “a contrived and misconceived legal framework”.
“The HSBC Parties did not commit the wrongdoing alleged,” MacLean wrote. “The case opened by ECU of widespread and systematic wrongdoing by the HSBC Parties was always ambitious . . . [and there was a] total absence of a properly pleaded case to that effect.”
He added that the ECU case has not been borne out by the trial evidence because traders at the bank took “perfectly legitimate” steps when handling these orders in a bid to give their client the best possible outcome.
ECU has also claimed that traders at the bank engaged in private trading for their own benefit using information about their client’s trades, as well as overcharging for orders without disclosing this to ECU.
Lawyers for HSBC will make their closing argument on Wednesday.
Scott declined to comment. The banker was never considered a suspect in the Serious Fraud Office’s FX markets investigation, which the agency closed in 2016.
https://www.ft.com/content/0ae23fde-12e5-4314-b43b-1916cb3963b6
2021-07-27 20:47:12Z
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