(CN) - A former head of currency trading at HSBC is facing extradition from London to the United States, where federal prosecutors have charged him with fraud for alleged front-running trades executed in advance of a client's multibillion-dollar currency conversion.
New York prosecutors allege that Stuart Scott and another one-time HSBC Bank executive, fellow Brit Mark Johnson, garnered improper profits in HSBC prop trading accounts by buying up British currency in the minutes before executing a client's $3.5 billion pounds-sterling conversion in Dec. 2011.
Prosecutors claim Scott and Johnson executed the client's currency conversion in a way that "ramped up" the price of British pounds prior to the 3pm price benchmark, benefiting the HSBC prop trading positions. Allegedly the client, which has been identified as Cairn Energy, was falsely told by a bank supervisor that the unfavorable uptick in the exchange range was due to heavy buying by a Russian bank.
Acting Assistant Attorney General Kenneth Blanco alleged Johnson had "manipulated the foreign exchange market for the benefit of his bank and his bonus pool."
On Oct. 26, the Westminster Magistrates' court in London authorized Scott's extradition to the United States, according to a Bloomberg.
Johnson was convicted for the alleged trading misconduct, being found guilty on one count of conspiracy to commit wire fraud and eight counts of wire fraud after a one-month trial in the Eastern District of New York, the same federal court where Scott faces charges.
The criminal case against the two men was filed in July 2016. The arrest affidavit accused the men of generating more than $7.3 million in profits for HSBC at the expense of Cairn, which had enlisted HSBC as its agent to convert the proceeds from an Indian subsidiary sale into pounds sterling.
At the time of the alleged misconduct, Johnson was serving as head of HSBC's global FOREX cash trading, while Scott served under him as head of FOREX cash trading in Europe, the Middle East and Asia, according to the court documents.
Scott and his attorney have denied the charges.
"We believe the US government’s case to be flawed and materially inaccurate and we also believe that this has led the court to fall into error,” the lawyer said of the extradition ruling, according to a report in the Telegraph.
Last month, the U.S. Federal Reserve fined HSBC $175 million for what the Federal Reserve Board called "unsafe and unsound practices in [the bank's] foreign exchange" trading business. The board stated that between 2008 and 2013 HSBC "failed to detect and address its traders misusing confidential customer information" and their use of chatrooms to talk with competitors about trading positions.
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