On Thursday, it was announced that the UK-based global financial services company, HSBC Holdings Plc, had entered into a deferred prosecution agreement to resolve charges that it engaged in a scheme to defraud two bank clients. The company has agreed to pay a $63.1 million criminal penalty and $38.4 million in disgorgement and restitution. The company was accused of defrauding two bank clients through a multi-million dollar scheme commonly known as “front-running”.
According to HSBC’s admissions, traders on its foreign exchange desk misused confidential information given to them by clients on two separate occasions in 2010 and 2011. The clients had hired HSBC to execute multi-billion dollar foreign exchange transactions involving the British Pound Sterling. Despite executing confidentiality agreements with its clients, traders on HSBC’s foreign exchange desk transacted in the Pound Sterling for the traders and HSBC’s own benefit.
Then, the traders carried out large transactions in a manner designed to push the price of the Pound Sterling in a direction that benefits HSBC and harmed the clients. It was also alleged that HSBC made misrepresentations to one client, Cairn Energy, to conceal the self-serving nature of the trades. The company ultimately admitted to making profits of roughly $38.4 million on the first transaction in March of 2010 and roughly $8 million on the Cairn Energy transaction in December of 2011.
In accordance to the agreement with the Justice Department, HSBC has agreed to pay a criminal penalty of $63.1 million. The company has also agreed to continue cooperating with the department and foreign authorities in any ongoing investigations and prosecutions. The company will also enhance its compliance program and pay $38.4 million in disgorgement and restitution. Additional details have been made available here.