Johnson Conviction Overturned

Former HSBC head of FX cash trading Mark Johnson has had his conviction for wire fraud overturned by a US appeals court, ending an eight-year effort and several appeals, as the court expressed “grave doubts” over the basis of the original conviction.

Johnson was convicted on two bases in 2017, “right to control” and “misappropriation”, however as he completed his two-year jail sentence in the US, the US Supreme Court, in a judgement in an unrelated case, made “right to control” invalid grounds for conviction. Johnson launched another appeal following that decision, but initially lost out as the government’s argument that a guilty verdict would have been reached by the original jury on “misappropriation” grounds, was accepted by a lower court.

This has been thrown out by the US Court of Appeals for the Second Circuit, in an Opinion which states, “We find that the government’s case against Johnson under the misappropriation theory is comparatively weak and have grave doubt that the presentation to the jury of the right-to-control theory was harmless.”

The Opinion continues by noting, “We are unconvinced by the government’s argument that Johnson’s jury was not substantially influenced by the inclusion of the invalid right-to-control theory. Indeed, as to least two elements of the misappropriation theory, the government’s case was so weak that we find ourselves doubting that a jury would have convicted Johnson on that basis.”

The “misappropriation” argument claims that the defendant, in this case Johnson, would have used confidential information from Cairn Energy, the client seeking to execute the GBP 2.25 billion spot trade, and behaved in an abnormal or illegal fashion and failed to fulfil a fiduciary obligation. During the trial and subsequent appeals, Johnson’s team argued that no fiduciary relationship existed, pointing to ISDA documentation and conversations between Cairn and HSBC personnel, including Johnson, that explicitly referenced the lack of such a relationship.

While noting that it is legally possible for a person to form a de facto fiduciary relationship notwithstanding a purported contractual disclaimer of such a relationship, the appeals court judges state in their Opinion, however, “…The evidence for such a fiduciary relationship would need to be quite strong.”

They add that the evidence presented by the Government did not show Johnson’s behaviour to be extraordinary, and thus mis-appropriative, in any of the above respects. “Indeed, the government’s evidence showed that [Frank] Cahill, the trader in charge of executing the fix, conducted himself as he “normally” would.”

This was important, the appeals court judges state, because, “As a result, we doubt that a properly instructed jury would have found the government satisfied its burden of showing that Johnson misappropriated Cairn’s information…we think it very unlikely that it was an independent basis for Johnson’s conviction.”