A “rotten culture” pervaded HSBC’s foreign exchange trading desk between 2004 and 2006, with bankers misusing confidential information to “front run” client orders, it was claimed to the UK’s High Court on Monday.
The allegations were made at the start of a seven-week trial in which currency manager ECU Group has accused HSBC of fraud and misconduct relating to 52 forex trades it placed with the bank during that period. HSBC denies the claims on multiple grounds.
The case threatens to reopen old wounds in the $6.6tn-a-day foreign exchange market, which was rocked by allegations in 2013 that a number of global banks had manipulated currency prices systematically for years. HSBC paid $343m in fines and restitution to the Financial Conduct Authority as well as $276.5m to the US Federal Reserve for failings in its oversight of FX trading between 2008 and 2013.
ECU, which was a HSBC client, alleges misconduct by HSBC traders in the lawsuit including front-running — trading using confidential knowledge of an upcoming client order. It also alleges that HBPB, HSBC’s private bank, engaged in “pip theft” where it added secret “pips” or mark-ups to execution prices reported to ECU so as to secure an unlawful profit.
ECU first complained to HSBC about unusual FX price movements in February 2006 but was told, after an internal HSBC probe, that there was no evidence of wrongdoing.
ECU began reviewing the trades again after 2016, when the US Department of Justice issued a formal indictment against two former HSBC FX traders relating to alleged front-running at the expense of another HSBC client — Cairn Energy.
On Monday Richard Lissack QC, barrister for ECU, claimed to the High Court that the lawsuit related to a “disgraceful episode” in HSBC’s history.
“ECU’s case is that HSBC’s foreign exchange trading desk between 2004 and 2006 were rotten. Traders treated clients’ orders as an opportunity for self-enrichment,” Lissack claimed.
In his written arguments, Lissack claimed HSBC traders saw ECU’s trades as an “easy target”.
HSBC is due to open its case on Tuesday. In its written submissions the bank said ECU’s “incredibly stale allegations are all time-barred” because the alleged events took place more than 15 years ago and it described ECU’s lawsuit as a “farrago of contrived and legally incoherent claims”.
“ECU is now engaged in a cynical and opportunistic attempt to resurrect these stale claims, which it could and should have pursued, if at all, in 2006,” it claims.
“The relevant orders were not front run and, save for some isolated incidents, the HSBC Parties did not commit the wrongdoing ECU alleges,” it said in the written arguments, adding it denied there was any fraud or deliberate concealment in the case. The case continues.