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HSBC has been left red-faced after having to pay a $63.1 million criminal penalty and $38.4 million in restitution charges to resolve accusations that it had defrauded two of its clients.

The bank has paid the fees as part of a deferred prosecution agreement (DPA), filed in the United States District Court for the Eastern District of New York. It’s currently pending review.

On two separate occasions in 2010 and 2011, traders on HSBC’s foreign exchange desk “misused confidential information” provided to them by clients that hired HSBC to execute multi-billion-dollar foreign exchange transactions.

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According to the filing, HSBC traders “then caused the large transactions to be executed in a manner designed to drive the price of the Pound Sterling in a direction that benefited HSBC, and harmed their clients”.

The bank also misrepresented facts to one of the clients, Cairn Energy, “to conceal the self-serving nature of its actions”. HSBC made $38.4 million on the first transaction in March 2010, and around $8 million on the Cairn Energy transaction in December 2011.

HSBC agreed to pay a criminal penalty of $63.1 million. The bank also agreed to continue to cooperate with the department and with foreign authorities “in any ongoing investigations and prosecutions relating to the conduct” (including of individuals), to enhance its compliance program.

Mark Johnson, the former head of foreign exchange cash trading at HSBC, was found guilty of one count of conspiracy and eight counts of wire fraud after a four-week jury trial in Brooklyn, New York. He is due to be sentenced in February.

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The investigation was conducted by the FDIC’s Office of Inspector General and the FBI’s Washington Field Office.

HSBC was fined in October 2017 for “unsafe and unsound practices” in its foreign exchange (FX) trading business.

The firm allegedly neglected its traders misusing confidential customer information, as well as using electronic chatrooms to communicate with competitors about their trading positions.

by Alex Hamilton
Alex is Senior Reporter at IBS Intelligence, follow him on Twitter or contact him at: alexanderh@ibsintelligence.com