Johnson Files New Appeal to Overturn Conviction
Posted by Colin Lambert. Last updated: August 20, 2024
Former HSBC head of FX cash trading Mark Johnson has launched another appeal to overturn his 2017 conviction for wire fraud relating to an FX trade with Cairn Energy, his effort is being backed by ACI – The Financial Markets Association, which has filed a third Amicus Brief in the case.
In the appeal, Johnson’s legal team argue that if two sophisticated multibillion-dollar companies agree to engage in a commercial transaction, they enter a written contract expressly disclaiming any fiduciary or similar relationship. “If one later sues the other for breach of fiduciary duty, the case would be dismissed,” the appeal states. “Can the government still charge criminal fraud based on the alleged breach of a fiduciary duty? That is the principal question presented in this appeal. The correct and obvious answer is no.
This Court had an opportunity to answer the question five years ago but declined. Instead, it affirmed Mark Johnson’s conviction exclusively under the government’s other theory, “right to control” fraud.”
An earlier attempt by Johnson sought to vacate the conviction because the US Supreme Court, subsequent to him serving his jail sentence, overturned the “right to control” theory as a basis for a wire fraud conviction, but this was denied earlier this year. “Johnson can never get back the time he spent in prison, but his conviction continues to prevent him from pursuing his chosen profession and inflicts other personal and professional harms,” the latest appeal states. “This Court can and should afford him the modest relief of annulling his conviction to stem those continuing injuries.”
In refusing the last attempt to overturn, the US District Court for Eastern New York, agreed that the ‘right to control” meant the conviction could no longer stand, but said it could under the DoJ’s other theory, misappropriation. “The district court was wrong,” the latest appeal argues. “Misappropriation fraud requires a duty of trust and confidence that was breached. Black-letter law forecloses such a duty where sophisticated parties at arm’s length expressly disclaim a fiduciary or similar relationship, as occurred here. Thus, Johnson was not guilty under that theory as a matter of law. But the district court ignored the parties’ unambiguous contract and instead conjured up a duty based on extrinsic evidence.”
Johnson was convicted over a Cable transaction executed with Cairn Energy for $3.5 billion in 2011 at the 3pm London WM Fix. Cairn did not dispute the outcome of the trade, nor did it complain to the authorities, however Johnson was arrested in New York on a subsequent business visit and prosecuted by the US Department of Justice.
The Full FX View
This will be, hopefully, the stage at which this long-running issue is finally resolved, with an overturning of a conviction that was based upon an ever-changing government position and ignores a decision by the US Supreme Court.
ACI – The Financial Markets Association is to be congratulated for fighting the industry’s corner, because it remains a point of concern for all traders that what is accepted as normal industry practice – executing a large trade over a longer window using pre-hedging – can be viewed by US prosecutors as criminal action.
There remains little doubt in my mind that the Cairn trade was executed between two professional counterparties, who were both very familiar with how the market works, and how the trade would be executed. Not only that, but Cairn had a professional advisor, from Rothschild, assisting with their decision making, and this professional also fully-understood the markets and had no issue with how things were done.
This also serves as a timely reminder of the risks involved in any pre-hedging – Australian regulators have sanctioned Westpac on just such an issue in the last two years – and should stimulate thinking amongst those who believe there is no problem with the practice.
I am known to be no fan of hedging ahead of a Fix, so until a better, and fairer, mechanism is provided, the industry needs to be aware that some unlucky trader could become the next Mark Johnson, through no fault of their own.
In its Amicus Brief, ACI states “To be clear, ACI does not take the position that Petitioner-Appellant, individual bank dealers – or anyone – should be exempt from criminal prosecution under Title 18 of the U.S. Code. In this instance, however, in light of the
undisputed facts in the record, the amicus is reinforced in its belief that the District Court’s denial of corum nobis relief based upon the loosely supported notion that the jury could have convicted under the government’s alternative theory of misappropriation stands in opposition to (i) nearly universal terms of industry-standard master agreements, (ii) law and regulation specifically applicable to FX, and (iii) established market-wide standards, custom and practice embodied in specific provisions of the BIS Global Code of Conduct.”
It warns that while the FX Global Code has no standing in US law, “to permit these codified standards as well as the effect of industry-specific U.S. Federal statutes and regulations to be supplanted by application of the far more ambiguous elements of 18 U.S.C. wire fraud would be to exacerbate the deterioration of legal and regulatory certainty across OTC capital markets at large, with unavoidable adverse impacts upon liquidity and stability.”
It adds that if the conviction stands, it will “enshrine a lowering of the bar in disregard of universally recognised standards of dealer conduct and long-standing banking custom and practice with respect to FX transfer”.
