UPDATE 2-HSBC executive pleads not guilty in U.S. over forex scheme

(Adds comment from HSBC, details on Federal Reserve enforcementaction)

By Nate Raymond

NEW YORK, Aug 29 (Reuters) - A senior HSBC Holdings Plc executive pleaded not guilty on Monday to charges thathe participated in a fraudulent scheme to front-run a $3.5billion currency transaction by one of the bank's clients.

The plea on wire fraud and conspiracy charges by MarkJohnson, a British citizen who at the time of his arrest lastmonth was HSBC's global head of foreign exchange cash trading,was entered by his lawyer in federal court in Brooklyn.

"He pleaded not guilty because he is not guilty," FrankWohl, the lawyer, said after the hearing. "He's done nothingwrong."

Johnson and Stuart Scott, HSBC's former head of cash tradingfor Europe, the Middle East and Africa, are believed to be thefirst people to face U.S. criminal charges arising from a probeof foreign-exchange rigging at banks.

The probe led to four banks last year pleading guilty toconspiring to manipulate currency prices. HSBC was not amongthose banks, but in 2014 agreed to pay $618 million to resolverelated probes by U.S. and British regulators.

The U.S. Justice Department has continued to investigate,and HSBC has set aside $1.2 billion to cover variousforex-related probes.

Johnson's arraignment came as the Federal Reserve Boardannounced its second enforcement action against a trader tied tothe probes, Christopher Ashton, formerly of BarclaysPlc.

Prosecutors said Johnson and Scott in 2011 misusedinformation provided by a client that hired HSBC to convert $3.5billion to British pounds in connection with a planned sale ofthe client's foreign subsidiaries.

The defendants then used their insider knowledge to tradeahead of the transaction, causing a spike in the price of thecurrency that hurt HSBC's client, prosecutors said.

The client was not named in court papers, but a source hassaid it was British oil firm Cairn Energy.

In total, HSBC earned $3 million from trades its currencytraders placed, and $5 million from executing the transaction,prosecutors said.

In court on Monday, prosecutor Melissa Aoyagi said theJustice Department was in "discussions" with Johnson's lawyer.She did not elaborate. She also said prosecutors were turningover to the defense "voluminous" amounts of evidence.

HSBC on Monday said it is monitoring developments and isliaising closely with U.S. authorities in their ongoinginvestigation.

Johnson is free on bail. Scott remains in the UnitedKingdom. His lawyer, Gerallt Owen, has said he denies theallegations.

The case is U.S. v. Johnson et al, U.S. District Court,Eastern District of New York, No. 16-cr-00457. (Reporting by Nate Raymond in New York; Editing by Dan Grebler)