The Last Look…

The law is a tricky beast – certainly one that I have had trouble fathoming out in recent years when it comes to our industry – so it is hard to say which way events will turn in two old FX cases that have sparked to life again on either side of the Atlantic.

In the US, former HSBC head of cash FX trading, Mark Johnson, has filed to have his conviction overturned, something I flagged as possible a few weeks ago after the US dropped their attempts to extradite his former colleague and specifically mentioned a Supreme Court ruling that would have wrecked the central plank of their case (it was the foundation against Johnson).

The details of the appeal can be found in our story, but what I find interesting is in how we are looking at a reverse of the situation in 2017-18 when the initial hearing took place. Back then, while pre-hedging was seen by the FX industry as normal practice, especially at the time of the alleged offence, the US government managed to gain a conviction, largely because circumstances had changed – namely it tapped into the “bankers are bad” sentiment post-GFC and pursued the case on the basis that the conduct would not have been acceptable then, some seven years later.

Now, in a neat reversal, Johnson is arguing that his conviction should be over-turned because of the Supreme Court ruling that “Right to Control” is not a valid argument in wire fraud convictions. In other words, when he was convicted it was OK by law, but now, through the current legal prism in the US, it is not.

Meanwhile, in the UK, the Court of Appeal has allowed a class action against banks for alleged FX market manipulation to proceed. This means, in all likelihood, more negative headlines for the industry, even though it is again about behaviour that is both historic and now stamped out.

Given how the defendants have largely accepted fines from regulators over the very chat rooms targeted in the class action, it is hard to see how they will avoid having to settle, or lose, the renewed case, but, as noted, it wouldn’t be the first time the legal system has surprised.

I wrote in a column a few weeks ago, how I felt the dealers in particular had been badly treated, so it will be interesting to see how these two cases turn out. If, as I hope, Mark Johnson wins his good name back, and the banks front up for another settlement, it will be a continuation of the trend seen in the Libor episode and, I would argue, a fairer outcome than that seen in 2016-19.

We are seeing individuals exonerated, while the banks continue to face class actions. One wonders how long it will be before someone starts asking about the advice and decision-making at the start of the whole sorry affair?

The facts of the matter are that institutions turned a blind eye to the problems around the Fix and getting volume down in a one-minute window, most notably the practice of what was then called “pre-hedging” (it is now, laughably, called “hedging”). This saw them put their traders in harm’s way. Matters were exacerbated by several banks encouraging (occasionally insisting) on traders entering chat rooms, which, inevitably, increased the conduct risks.

When the whole house of cards came tumbling down, a lot of desk-level staff, largely at the initiative of the legal and compliance teams I suspect, were dismissed. The banks paid their fines to the regulators and tried to move on.

What we are seeing now is that approach coming back to bite the institutions involved, because the individuals continue to be exonerated and convictions reversed, which will hopefully continue, while the banks continue to face class actions. One wonders how long it will be before someone starts asking about the advice and decision-making at the start of the whole sorry affair?

Ultimately, the two cases have similar echoes. As noted, Johnson is relying upon a decision taken since his sentence was served, while the UK Court of Appeal specifically mentioned the European Commission’s decision on the Sterling Lads chat room that was handed down since the original decision by the UK’s Competition Appeal Tribunal that effectively ended the class action.

Both show that the legal world is a fluid one, it is to be hoped that after these matters are settled, it stagnates, but I sadly doubt it will.

colin@thefullfx.com