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Second Circuit Affirms Wire Fraud Conviction in Foreign Exchange Trading Case

Client Updates
On September 12, 2019, the Second Circuit affirmed the conviction of Mark Johnson, the former head of foreign exchange (“FX”) trading at HSBC. The court had previously granted Johnson bail pending appeal---which some observers had taken as a sign reversal was likely. Johnson also stands in marked contrast to a different FX-related prosecution earlier this year, in which a district judge in San Francisco did not allow wire-fraud charges under similar theories to reach the jury.

Background of Johnson

In 2011, Cairn Energy needed to exchange U.S. dollars into British pounds (the “FX Transaction”). Cairn asked HSBC to execute the FX Transaction as a “fixing transaction,” i.e., a transaction based on the exchange rate at a particular time. HSBC requested that Cairn give it two hours’ notice of the time (the “fix”) at which Cairn wanted to trade. Johnson told Cairn that the two-hour notice was necessary so that HSBC could “‘more quietly … accumulate’ pounds for Cairn,” thereby avoiding an increase in the market price of the pounds. Johnson also indicated—at least implicitly—that HSBC would not “‘ramp,’” or artificially increase, the currency’s price before the fix. Johnson acknowledged though that HSBC wanted to make a profit of “a few pips.” 1

On December 7, 2011, Cairn directed HSBC to execute the FX Transaction using the fix as of 3 p.m. Johnson’s traders then began buying pounds, but did so in a manner designed to increase the price, and thereby ensure a profit for the bank. HSBC made approximately $7 million on the transaction, which involved the acquisition of several billion pounds. Johnson and a colleague later suggested that the increase in the exchange rate before the fix resulted from supposed trading by the Russian central bank.

Johnson is Charged and Convicted

Johnson was convicted of wire fraud conspiracy under 18 U.S.C. § 1349 and multiple substantive counts of wire fraud under 18 U.S.C. § 1343. The government proceeded “primar[ily]” under a theory that Johnson had misappropriated Cairn’s confidential information, in breach of a duty of trust and confidence, by driving up the exchange rate (the “misappropriation theory”). The Government also offered an alternative theory—that Johnson denied Cairn the right to control its assets by depriving Cairn of information necessary to make a discretionary economic decision (the “right to control theory”). The jury’s verdict did not specify which theory it relied on.

The Second Circuit Affirms Johnson’s Conviction

The Second Circuit affirmed Johnson’s conviction under the right-to-control theory, declining to reach the misappropriation theory. The court explained that, although Johnson told Cairn that his team would buy pounds “‘quietly’ without ramping the 3 p.m. fix rate” and would seek only a small profit, Johnson later directed an HSBC trader “to ramp the fix rate.” This deceived “Cairn with respect both how the FX Transaction would be conducted and the price of the FX Transaction.” The court also found these statements were material, because they mispresented how HSBC would trade ahead of the fix. In addition, the Second Circuit found that Johnson and his colleague made a second material misstatement, by claiming that the pre-fix price jump resulted from activity by the Russian central bank. The court summarily dismissed Johnson’s due process-related arguments that it was uncertain “when a fixing transaction becomes criminal.”


Johnson is notable for several reasons. First, Johnson stands in marked contrast to United States v. Bogucki, a case where the defendant was charged with wire fraud and conspiracy to commit wire fraud (i.e., the same charges as Johnson), in connection with an FX-options transaction. Earlier this year, Judge Charles Breyer of the Northern District of California entered a judgment of acquittal before the case was submitted to the jury. As in Johnson, the government advanced both (i) a theory Bogucki misappropriated the client’s confidential information and (ii) a theory that Bogucki deprived the client of money or property through material misrepresentations. Finding that no reasonable jury could convict Bogucki under either theory, Judge Breyer concluded that there was no “expectation of full disclosure between” Bogucki and the client, citing a written agreement that the parties were acting as principals, and not as agents or fiduciaries, and testimony from the client’s representative that he himself “‘bluffed’” and “ ‘BS-[ed]’” Bogucki and his colleagues during negotiations and did not believe “portions of what [Bogucki and his colleagues were] telling him.”

In contrast, troublingly, Johnson does not grapple with the fact that Cairn and its representatives were financially sophisticated parties who were engaged in a negotiation with Johnson. Could they, for example, have taken at face value Johnson’s claim that HSBC wanted to make a profit of only a “few pips,” i.e., 3/100 of a penny? The Second Circuit’s summary rejection of Johnson’s due process and vagueness concerns is also concerning: when did HSBC’s profits from the FX Transaction cross the line that made Johnson’s “a few pips” statement materially misleading? Or, given that Johnson and HSBC had indisputably disclosed that HSBC would trade ahead of the 3 p.m. fix, when did that trading activity become materially misleading “ramping”?

However, Johnson contains several key points for defense practitioners. For one, the court emphasized that, in a right to control case, misrepresentations must “affect the very nature of the bargain,” and not merely cause the victim “to enter into a transaction they would otherwise avoid.” Second, because Johnson contains so little discussion of the sophistication of Cairn’s representatives (and the impact of this sophistication on the materiality of Johnson’s statements), it may well be distinguishable on the facts after cross-examination and/or through documentary evidence. Third, Johnson reiterates prior case law that, when the government advances alternative theories of liability, appellate courts will affirm if any of those theories suffices for conviction. Thus, defense practitioners should at least consider requesting special interrogatories where the government is pursuing alternative theories.

All that said, Johnson is a win for the government, and, in its wake, we expect the government to continue to pursue cases involving currency-related transactions and other complex financial products, particularly in the courts of the Second Circuit. Our team has a long track record in assisting clients navigate the complex issues in these types of cases. If you have any questions or if we can be of assistance in any way, please do not hesitate to reach us.


A “pip” or “point in percentage” is a measure of the price move in a given exchange rate. In the dollars-pounds transaction in Johnson, 100 pips was equivalent to one cent.

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