US Government Contests Johnson’s Coram Nobis Argument

The US Department of Justice (DoJ) is contesting the latest attempt by former HSBC head of FX cash trading Mark Johnson to have his 2017 conviction for wire fraud overturned.

In April 2024, Johnson’s filing to have the conviction overturned on a writ of error basis was dismissed by the US District Court judge who oversaw the original case, however an appeal against this decision was launched, arguing that a recent Supreme Court ruling that the “right to control” theory was invalid for wire fraud, invalidated his conviction, a central plank of the government’s case was based upon “right to control”.

While the DoJ accepted that the “right to control” aspect of the case was indeed invalid, it maintained that the conviction should stand as it was also based upon “misappropriation”, specifically that Johnson, and by association HSBC, had a duty of trust and confidence to the client, Cairn Energy, that was breached.

Effectively, the US District Court, in its original decision, found that HSBC and Cairn Energy had a fiduciary relationship, and this is what has caused the subsequent challenges for Johnson as he has sought to overturn the conviction.

In its response to the latest appeal, the DoJ appears to fall back upon its original arguments, stating that Johnson and other HSBC traders bought sterling ahead of the 3pm Fix, at which the GBP 2.25 billion trade was to be executed, inferring that this was front running, rather than hedging ahead of the Fix. At the original trial, evidence was heard that Cairn’s treasurer expected HSBC to buy ahead of the Fix, and it has been argued extensively in these pages, and those of Profit & Loss before, that in 2010, with a one-minute fixing window, it would have been impossible to buy such a large amount of sterling in the allotted time-frame.

Johnson’s latest appeal is supported by a second Amicus Brief from ACI – The Financial Markets Association, but is also likely to find some support from the FX Global Code.

In the latest iteration of the Code, “hedging ahead of the Fix” is seen as an acceptable practice, as long as it is for the benefit of the client. In the Johnson case it was argued, correctly as far as many FX professionals are concerned, that such a large trade, in a one-minute window, would also need to be hedged ahead of that window, so that the market did not explode higher, thus costing Cairn even more money.

With the filing of the DoJ’s response, the case is now expected to move to oral arguments some time in 2025.