(Adds details from court hearing, comment by HSBC spokesman)
By Nate Raymond
NEW YORK, July 20 (Reuters) - A senior HSBC Holdings Plc manager has been arrested and charged alongside aformer foreign exchange executive with engaging in a scheme tofront-run a $3.5 billion transaction by one of the bank'sclients, U.S. prosecutors said on Wednesday.
Mark Johnson, HSBC's global head of foreign exchange cashtrading in London, and Stuart Scott, its ex-head of cash tradingfor Europe, the Middle East and Africa, were charged in acriminal complaint filed in federal court in Brooklyn.
Both men were charged with wire fraud conspiracy, in a casethat a person familiar with the matter said was the firstagainst individuals to flow out of a U.S. Justice Departmentprobe of foreign-exchange rigging at global banks.
A lawyer for Johnson declined comment, while an attorney forScott could not be identified. Robert Sherman, an HSBCspokesman, said the bank is cooperating in the JusticeDepartment's foreign exchange investigation.
Prosecutors said Johnson, 50, and Scott, 43, misusedinformation provided by a client who had hired HSBC to convert$3.5 billion to British pounds in connection with a planned saleof one of the unnamed company's subsidiaries.
The two British citizens then used their insider knowledgeto engage in a process called front-running in which they madetrades ahead of the December 2011 transaction, resulting in aspike in the price of the currency that was detrimental toHSBC's client, prosecutors said.
"Ohhh, f---ing Christmas," Johnson told Scott in a recordedcall the day the transaction went through, the complaint said.
In total, HSBC earned $3 million from trades its FX tradersplaced and earned $5 million executing the transaction, thecomplaint said.
"The defendants allegedly betrayed their client'sconfidence, and corruptly manipulated the foreign exchangemarket to benefit themselves and their bank," Assistant AttorneyGeneral Leslie Caldwell said in a statement.
Johnson was arrested at John F. Kennedy InternationalAirport on Tuesday night and was released on Wednesday on a $1million bond following a court hearing.
Frank Wohl, Johnson's lawyer, in court told a judge thatJohnson had been in the process of moving to the United Stateswith his wife and six children after being transferred by HSBC.
The case was, according to a source, related to a years-longJustice Department probe that has led to four banks last yearpleading guilty to conspiring to manipulate currency prices.
The charges came a day after the Federal Reserve Board saidit was banning Matthew Gardiner, a former FX trader at BarclaysPlc and at UBS AG, from participating inthe banking industry for manipulating pricing benchmarks.
HSBC was not among the four banks that pleaded guilty, butin 2014 agreed to pay $618 million to resolve related probes byU.S. and British regulators.
The Justice Department has continued to investigate, andHSBC has set aside $1.2 billion to cover various forex-relatedprobes, according to a regulatory filing.
The case is U.S. v. Johnson et al, U.S. District Court,Eastern District of New York, No. 16-mj-0674. (Reporting by Nate Raymond in New York and Sruthi Shankar inBengaluru; Editing by Meredith Mazzilli and Matthew Lewis)
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