The Department of Justice (DOJ) has opposed an attempt by former HSBC FX trader Stuart Scott to dismiss the wire fraud charges brought against him.

On May 27, 2022, the DOJ submitted a memorandum of law in opposition to Stuart Scott’s Motion to Dismiss the Indictment.

The indictment in this case, which was returned on August 16, 2016, charged Scott and his co-defendant Mark Johnson with one count of conspiracy to commit wire fraud and ten counts of wire fraud. Once he was charged, Scott remained in the United Kingdom and contested the United States’ efforts to extradite him—which he was entitled to do under U.K. law.

Scott was an FX trader, and later a supervisor, at HSBC Bank plc, a subsidiary of HSBC Holdings plc from approximately 1997 to 2014. During this time, HSBC was one of the largest banking and financial institutions in the world, with a global FX business. Its principal FX trading desks were in New York, London, and Hong Kong. In April 2011, Scott became HSBC’s head of FX cash trading for EMEA in London. In 2011, Cairn Energy plc approached HSBC, in addition to a number of other banks, about bidding on the right to execute a large FX transaction for Cairn.

In approximately 2010, Cairn had entered into an agreement with another company to sell part of Cairn’s ownership interest in an Indian subsidiary for $3.5 billion. Following Indian regulatory approval of the sale, Cairn planned to convert the $3.5 billion in sale proceeds from USD to GBP, which it then intended to distribute to its shareholders.

Prior to providing the banks, including HSBC, with the details of the Cairn FX Transaction in a Request for Proposal (RFP), Cairn required that the banks enter into a confidentiality agreement. In HSBC’s confidentiality agreement, it agreed, among other things, to keep information that it obtained relating to the Cairn FX Transaction confidential and only to use the information it learned from the RFP to assist it in its analysis of the proposed FX Transaction.

Then, in its promotional pitch materials to Cairn, HSBC emphasized its ability to execute the Cairn FX Transaction at the best possible price and the lowest possible risk for Cairn.

HSBC made employees who were given access to confidential Cairn information “insiders” to the Cairn FX Transaction. “Insiders” had an obligation not to misuse Cairn’s confidential information, and Johnson and Scott both became “insiders” to the Cairn FX Transaction.

Despite being “insiders” and knowing that HSBC had represented to Cairn that it would execute the transaction in Cairn’s best interests, the defendants acted to benefit HSBC, and ultimately themselves, at Cairn’s expense in two ways.

First, based on their insider knowledge, the defendants and others at HSBC purchased Sterling in advance of the FX Transaction knowing that the FX Transaction would cause the price of Sterling to increase, thereby generating substantial profits for HSBC (a scheme commonly known as “front-running.”)

Second, the defendants caused the Cairn FX Transaction to be executed in a manner designed to cause the price of the Sterling/Dollar currency pair to spike (commonly referred to as “ramping”), which generated substantial profits for HSBC when it sold the Sterling at that high price. .

In total, HSBC gained approximately $4.2 million from its execution of the Cairn FX Transaction and approximately $3.1 million from the P-book trades of the London and New York FX traders.

Scott seeks to dismiss the indictment on two grounds, both of which are based on his presence outside the United States during the charged conduct. First, he argues that the wire fraud and wire fraud conspiracy statutes with which he is charged do not have extraterritorial reach, and the domestic wires charged in the indictment did not involve “core” or “essential” elements of the alleged fraudulent scheme.

Second, and relatedly, the defendant argues that the indictment violates his right to due process because there was an insufficient nexus between his conduct and the United States.

According to the DOJ, both arguments are without merit and the Court should reject them.

The case against Scott provides an ample nexus to the United States, and the prosecution of him in this country is fair and comports with due process, the DOJ argues.

The US authorities say that Scott perpetrated the charged fraud scheme hand-in-hand with Mark Johnson, who committed the scheme while inside the United States. Working together, Johnson and Scott orchestrated a team of traders located in both New York and London to place front-running trades and ramp the relevant exchange rate for the Cairn transaction, and then worked together, again from both New York and London, to conceal this conduct from their client.

Given that a substantial portion of the jointly undertaken criminal conduct occurred in the United States, the nexus is clear, the DOJ says.

Furthermore, while Scott was not located in the United States during this conduct, he knowingly conspired with Johnson, who was. The United States has jurisdiction over the actions of Scott as a co-conspirator with Johnson, who perpetrated the charged crimes from inside the United States.

Moreover, Scott himself knowingly participated in multiple telephone calls and communications in furtherance of the fraudulent scheme to and from New York. And the scheme involved international wires in connection with the transactions that were conducted through banks in New York, which is unsurprising given that the scheme involved a Sterling/Dollar exchange.

Scott’s intentional participation in criminal conduct that spanned continents and his participation in multiple wire communications to and from the United States in furtherance of that conduct fairly subjects him to prosecution in this country, the DOJ concludes.