Feds Accuse Ex-Barclays Banker of Front-Running Hewlett-Packard

BROOKLYN, N.Y. (CN) – A Barclays Capital banker will appear before a federal judge Wednesday on charges that he orchestrated a self-serving options trade for Hewlett-Packard that cost the company millions.

The conspiracy began, prosecutors say, when Palo Alto, California-based Hewlett-Packard wanted 6 billion British pounds on hand in 2011 so that it could acquire the UK-based software developer Autonomy Corp.

As an American company, HP’s means of obtaining these pounds were limited. Prosecutors say it opted to buy what are known as cable options from Barclays, but that it later determined that it would not actually need the options when it announced in August 2011 that it would acquire Autonomy for $10.3 billion.

Prosecutors say Barclays already received compensation for selling the cable options to HP but that several bank employees schemed to make more money for Barclays at HP’s expense in unwinding the cable options.

Robert Bogucki, a resident of East Setauket, New York, was the head of the foreign-exchange department at Barclays in New York at the time, and the indictment notes that performance-based bonus money accounted for more than 80 percent of Bogucki’s 2011 compensation.

The 45-year-old was charged with a federal indictment in San Jose, California, on Jan. 16 but will make his appearance this afternoon in Brooklyn.

Prosecutors say Bogucki manipulated HP from the get-go about the transaction, saying the market conditions were not ideal to unwind the first tranche of cable options, worth 2 billion British pounds.

Bogucki’s objective here was “to engage in FX trading calculated to depress the value of HP’s cable options,” the indictment states. This type of fraud is known colloquially as front-running.

Barclays noted in an email that has been cooperating fully with the U.S. Department of Justice.

“This incident involved a single transaction from 2011 and predates the extensive improvements to the conduct-and-controls procedures we have made since 2012,” the company continued. “Barclays has strict rules around client confidentiality and takes those commitments very seriously.”

When Bogucki instructed Barclays FX traders to execute the first tranche of the unwind on Sept. 28, the indictment says he “concealed the fact that Barclays had been placing trades calculated to depress the price of cable option volatility.”

Volatility is a metric that affects the value of foreign-exchange options, and prosecutors say the Barclays team was able to use confidential information about the enormous transaction to depress this price at HP’s expense.

Prosecutors say an unnamed co-conspirator of Bogucki’s instructed Barclays FX traders the next day to sell cable options in way that would further depress the price of cable option volatility.

The indictment quotes several boasts the traders made about their scheme, such as that they would “bash the shit out of” and “spank the market” to depress the price of volatility. 

In between such colorful remarks, however, Bogucki also allegedly called for discretion. The indictment quotes him as warning the co-conspirator that his “ass will be in a fucking frying pan” if HP catches on to their scheme.

“The scheme led HP to lose millions of dollars in the value of the cable options it had originally purchased and enabled Barclays to make millions of dollars by acquiring the options from HP at a discounted and favorable price,” the complaint states.

Though not named in the indictment, Bogucki’s co-conspirator is described as a resident of London, England, who worked as a senior FX trader at Barclays London. As with Bogucki, the co-conspirator obtained more than 80 percent of his 2011 compensation in performance-based bonus money.

“The indictment returned today charges a fraudulent manipulation scheme where the defendant betrayed Barclays’ client by lying and misusing the client information, and then masked the activities,”  Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation said in a statement.

Bogucki faces one count of conspiracy to commit wire fraud and six counts of wire fraud. U.S. Magistrate Judge Cheryl Pollak will preside over his 2 p.m. presentment in the Eastern District of New York.

A spokeswoman for HP said the company has no comment on Bogucki’s indictment.

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