The United States Commodity Futures Trading Commission (CFTC) may have to resort to international diplomacy if it wants to secure documents it seeks from former HSBC executive Christophe Rivoire, who is accused of manipulation and fraud in connection with swaps related to a bond issuance. This becomes clear from a joint letter filed by the CFTC and Rivoire on January 15, 2021, with the New York Southern District Court.

The letter, seen by FX News Group, says that the CFTC may be unable to get any more of the information it seeks from Rivoire, a French national, in this case, due to the so-called “blocking statute”.

Rivoire’s counsel has recently informed the CFTC’s counsel that the French “blocking statute” prevents the CFTC from obtaining any other discovery from Mr. Rivoire other than via international diplomatic processes. Let’s explain that the “blocking statute” is outlined in Article 1a of Law No. 68-678 of July 26, 1968 Relating to the Communication of Documents and Information of Economic, Commercial, Industrial, Financial or Technical Nature to Foreign Natural or Corporate Persons.

Counsel has represented that the blocking statute prevents the CFTC from taking Rivoire’s deposition and prevents Rivoire from producing other responsive, non-privileged documents located in France. The parties are currently discussing how to proceed with regard to discovery from Rivoire, but have not yet reached any agreement.

In response to Mr Rivoire’s Request for Production, the CFTC has produced over 71,000 documents and audio recordings. To date, Rivoire has produced nine documents in response to the CFTC’s Request for Production.

The Court has set a fact discovery deadline of November 1, 2021. Although the parties are still engaged in document production and the issue of discovery from M. Rivoire is unresolved, the parties currently anticipate that they can complete fact discovery within this time frame.

Let’s recall that the CFTC brought charges against Rivoire back in December 2019. He was charged with engaging in a deceptive scheme to manipulate the pricing of an interest rate swap between a bond issuer and HSBC. Rivoire was employed as the Head of North American Rates in the New York office of HSBC.

The CFTC’s complaint alleges that in June and July 2012, Rivoire knew that a bond issuer had negotiated with the bank to price a bond issuance and a related swap using specific screens displaying prices from an interdealer broker firm, including prices for U.S. dollar interest rate basis swaps with a five-year maturity. Rivoire knew that the swap would be more profitable to the bank if lower prices for five-year basis swaps were displayed on the broker screens during the pricing of the bond issuance and the swap.

As further alleged, to effectuate the scheme to maximize the bank’s profit at the issuer’s expense by manipulating the prices of five-year basis swaps, Rivoire enlisted a trader under his supervision and explicitly directed the trader to “push the screen as much as we can before the pricing” of the swap with the issuer. This meant trading in a manner that would result in a lower price for five-year basis swaps.

The complaint alleges that the trader followed Rivoire’s direction. As a result of Rivoire’s direction, the trader also enlisted the help of a broker at the interdealer broker firm, including telling the broker in advance that the trader needed to move prices on the screens. During the pricing of the swap, Rivoire directed the trader when to sell a large quantity of swaps to manipulate the prices on the broker screens.

Without disclosing his directions to the trader or their conduct prior to the final pricing of the swap, Rivoire falsely or misleadingly told the issuer, “Obviously we are not controlling the screen.” The complaint alleges that the scheme had the effect of moving prices on the broker screens and, because the manipulated prices were used to price the swap, it resulted in a more profitable transaction for the bank and a less profitable transaction for the issuer. This conduct deceived the bond issuer and other market participants.

In its continuing civil litigation, the CFTC seeks, inter alia, civil monetary penalties, disgorgement, restitution, trading bans, and a permanent injunction against future violations of the federal commodities laws.