NY Court allows investors to serve interrogatories on HSBC over Forex deal with DOJ

Maria Nikolova

The plaintiffs in a Forex benchmark rate fixing case are allowed to serve interrogatories on HSBC concerning communications with the Government related to the deferred prosecution agreement between the Department of Justice and HSBC Holdings PLC.

Judge Lorna G. Schofield of the New York Southern District Court has granted a request by the plaintiffs in a Forex benchmark rate fixing case to serve interrogatories on HSBC regarding its deal with the Department of Justice from 2018. Earlier this week, the Judge signed an order approving the plaintiffs’ request.

Let’s recall that this case has been brought by a putative class of consumers and end-user businesses alleging that they paid inflated foreign currency exchange rates caused by an alleged conspiracy among some of the world’s biggest banks to fix prices of FX benchmark rates in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. sec. 1 et seq. The list of defendants includes banks such as JPMorgan, HSBC, Citi, Barclays and UBS.

In their letter motion filed on June 10, 2020, the plaintiffs, inter alia, seek to serve interrogatories on HSBC North America Holdings, Inc. and/or HSBC Bank USA, N.A. to inquire into communications with the Government related to the January 18, 2018, deferred prosecution agreement between the United States Department of Justice and HSBC Holdings PLC. The HSBC defendants opposed the request on the grounds that the agreement is not relevant to the plaintiffs’ claims.

In granting the plaintiffs’ request, the Judge notes that, in the January 18, 2018 deferred prosecution agreement, HSBC Holdings plc asserts that “the allegations described in the Information and the facts described in the attached Statement of Facts are true and accurate, and that the Statement of Facts describes two FX transactions that that were manipulated through “front running,” to the detriment of HSBC Holdings plc’s clients.

For example, the Statement of Facts describes how, before one transaction, HSBC ‘ramped’ the price Sterling/Dollar by aggressively trading before and during the fix in a manner designed to increase the price of Sterling/Dollar. As a result, the price of Sterling/Dollar spiked around the 3 PM fix. Indeed, in the 30 seconds before and 30 seconds after 3:00 PM London time, the price of Sterling/Dollar reached a market high for the day, allowing Johnson, Scott, and other FX traders at HSBC to generate significant profits in their Pbooks from their prior Sterling purchases by selling that Sterling at the higher prices generated by HSBC.

The Judge finds that this conduct is not so different from the conduct alleged by the plaintiffs to be held irrelevant to the action. And that HSBC Holdings plc is not a defendant in this action is relevant only to the extent that the plaintiffs are limited — as with any interrogatories — to seeking information regarding the HSBC Defendants’ communications with the Government relating to the January 18, 2018 deferred prosecution agreement.

Hence, the Court granted the plaintiffs’ motion to the extent that the plaintiffs seek to serve interrogatories on the HSBC defendants to inquire into communications between the HSBC Defendants and the Government related to the January 18, 2018, deferred prosecution agreement.

In the 2018 Deferred Prosecution Agreement, HSBC Holdings PLC agreed to pay a monetary fine of $63,104,000 and restitution of $8,075,000 and $38,400,000.

According to HSBC’s admissions, on two separate occasions in 2010 and 2011, traders on its FX desk misused confidential information provided to them by clients that hired HSBC to execute multi-billion dollar FX transactions involving the British Pound Sterling. After executing confidentiality agreements with its clients that required the bank to keep the details of their planned transactions confidential, traders on HSBC’s foreign exchange desk transacted in the Pound Sterling for the traders and HSBC’s own benefit in their HSBC “proprietary” accounts.

HSBC traders then caused the large transactions to be executed in a manner designed to drive the price of the Pound Sterling in a direction that benefited HSBC, and harmed their clients. HSBC also made misrepresentations to one of the clients, Cairn Energy, to conceal the self-serving nature of its actions.

In total, HSBC admitted to making profits of approximately $38.4 million on the first transaction in March 2010, and approximately $8 million on the Cairn Energy transaction in December 2011.

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