NEW YORK • A senior HSBC Holdings manager has been arrested and charged alongside a former foreign exchange executive with engaging in a scheme to front-run a US$3.5 billion (S$4.74 billion) transaction by one of the bank's clients, prosecutors in the United States said on Wednesday.
Mark Johnson, HSBC's global head of foreign exchange cash trading in London, and Stuart Scott, its former head of cash trading for Europe, the Middle East and Africa, were charged in a criminal complaint filed in federal court in Brooklyn.
Both men were charged with wire fraud conspiracy, in a case that a person familiar with the matter said was the first against individuals to flow out of a US Justice Department probe of foreign-exchange rigging at global banks.
A lawyer for Johnson declined comment, while an attorney for Scott could not be identified.
Mr Robert Sherman, an HSBC spokesman, said that the bank is cooperating in the Justice Department's foreign exchange investigation.
Prosecutors said Johnson, 50, and Scott, 43, misused information provided by a client who had hired HSBC to convert US$3.5 billion to British pounds in connection with a planned sale of one of the unnamed company's subsidiaries.
The two British citizens then used their insider knowledge to engage in a process called front- running, in which they made trades ahead of the December 2011 transaction, resulting in a spike in the price of the currency that was detrimental to HSBC's client, prosecutors said.
In total, HSBC earned US$3 million from trades its FX traders placed and earned US$5 million executing the transaction, the complaint said.
Assistant Attorney-General Leslie Caldwell said in a statement: "The defendants allegedly betrayed their client's confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank."
Johnson was arrested at John F. Kennedy International Airport on Tuesday night and was released on Wednesday on a US$1 million bond, following a court hearing.