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United States v. Johnson

United States Court of Appeals, Second Circuit

September 12, 2019

UNITED STATES OF AMERICA, Appellee,
v.
MARK JOHNSON, Defendant-Appellant. [*]

          Argued: May 31, 2019

         Mark Johnson, the former global head of the foreign exchange trading desk at the investment bank HSBC, was convicted by a jury of wire fraud and conspiracy to commit wire fraud in connection with a foreign currency exchange transaction with Cairn Energy. At trial, the Government argued, among other things, that Johnson denied Cairn the right to control its assets by depriving it of information necessary to make its own discretionary economic decisions.

         Johnson argues that there was insufficient evidence for a reasonable jury to convict him under a right-to-control theory because Cairn received the benefit of its bargain in the transaction and any misrepresentations Johnson may have made were immaterial. We conclude that there was sufficient evidence to convict Johnson on the right-to-control theory because a reasonable jury could conclude that his misrepresentations to Cairn related to the price of the transaction and were capable of influencing Cairn's decisionmaking.

          Lauren Howard Elbert, Assistant United States Attorney (David C. James, Assistant United States Attorney, Carol Sipperly, Brian Young, Assistant Chiefs, Blake Goebel, Trial Attorney, United States Department of Justice, on the brief), for Richard P. Donoghue, United States Attorney, Eastern District of New York, Brooklyn, NY, for Appellee United States of America.

          Alexandra A.E. Shapiro, Shapiro Arato LLP, New York, NY (Eric S. Olney, Jacob S. Wolfe, Shapiro Arato LLP, New York, NY, Frank H. Wohl, John R. Wing, Lankler Siffert & Wohl LLP, New York, NY, on the brief), for Defendant-Appellant Mark Johnson.

          Before: CALABRESI and LOHIER, Circuit Judges, and DONNELLY, District Judge [**]

          LOHIER, CIRCUIT JUDGE

         Mark Johnson, the former global head of the foreign exchange trading desk at the investment bank HSBC, was convicted by a jury of wire fraud and conspiracy to commit wire fraud in connection with a foreign currency exchange transaction with Cairn Energy. At trial and on appeal, the Government argued that Johnson could be convicted on either of two theories of criminal liability: (1) misappropriation of the confidential information of Cairn in breach of a duty of trust and confidence owed to Cairn; or (2) denial of Cairn's right to control its assets by depriving it of information necessary to make discretionary economic decisions. In response, Johnson argues that there was insufficient evidence for a jury to convict him under the misappropriation theory and also insufficient evidence to convict him under a right-to-control theory because Cairn received the benefit of its bargain and any misrepresentations that Johnson may have made were immaterial. We conclude that there was sufficient evidence to convict Johnson on the right-to-control theory because a reasonable jury could conclude that his misrepresentations to Cairn related to the price of the transaction, which was an essential element of the parties' bargain, and were capable of influencing Cairn's decisionmaking. Accordingly, we need not reach Johnson's arguments as to the misappropriation theory, and Johnson's conviction is AFFIRMED.

         Background

         1. Facts

         Because this is an appeal from a judgment of conviction entered after a jury trial and Johnson challenges the sufficiency of the evidence against him, the following facts are drawn from the trial evidence and described "in the light most favorable to the Government." United States v. Caltabiano, 871 F.3d 210, 213 (2d Cir. 2017).

         A. Cairn Energy Selects HSBC to Perform a Large FX Transaction

         Cairn, whose stock trades on the London Stock exchange, is one of Europe's leading oil and gas firms. In August 2010 Cairn announced a plan to sell a majority interest in one of its subsidiaries and to distribute a substantial amount of the sales proceeds to its shareholders. Before Cairn could distribute the proceeds, however, it had to first convert the U.S. dollars (USD) it received from the sale into British pounds (GBP). Cairn retained Rothschild & Co., an investment bank, to advise it on conducting a significant foreign currency exchange transaction of up to four billion dollars for pounds (the FX Transaction). Such a transaction involves trading one currency for another at the exchange rate for the underlying currencies, whose values are governed by the laws of supply and demand. Movements in exchange rates are measured in "pips," and 100 pips is equivalent to one penny.

         In 2011 Cairn sent Requests for Proposals (RFPs) to nine major banks to execute the FX Transaction. HSBC responded to the RFP by recommending that Cairn employ a method of currency exchange known as a Fixing Transaction. HSBC explained that a Fixing Transaction involved exchanging GBP for USD at either a daily exchange rate that the European Central Bank published, or at an hourly exchange rate that the company WM/Reuters published. The parties eventually agreed to use the hourly exchange rate published by WM/Reuters.[1]To effectuate the transaction and to give HSBC time to buy the pounds to sell to Cairn, HSBC requested that Cairn provide HSBC two hours' advance notice of the hourly exchange rate, or fix, at which Cairn wanted to trade. HSBC warned that a Fixing Transaction involved some risk because Cairn would be exposed to exchange rate fluctuations in the hours prior to the fix. But HSBC also reassured Cairn that it could "seamlessly execute a transaction of this magnitude without creating excessive market volatility." App'x 274. HSBC further explained that a Fixing Transaction provided transparency to Cairn's shareholders, who would be able to see that Cairn paid no more than the published market rate.

         About a week after HSBC's response to Cairn's RFP, Francois Jarrosson, the Rothschild partner principally responsible for the Cairn engagement, spoke with Johnson about a Fixing Transaction. Johnson explained that having at least two hours' notice before the designated fix would allow HSBC to "more quietly . . . accumulate" pounds for Cairn. App'x 386. But if Cairn gave HSBC only thirty minutes' notice, Johnson warned, HSBC would have "a lot to buy" and would "cause a lot of noise" in the market. App'x 387. Johnson also said that HSBC would aim "to make a small amount of money out of [the Fixing Transaction] clearly because that's . . . our business," but that HSBC also wanted "a happy customer" who would get "a fair price." App'x 387. Jarrosson worried that HSBC might make more than "a small amount of money" if it was able to purchase pounds at an exchange rate much lower than the hourly fix that Cairn would eventually be obligated to pay. In that case, Jarrosson asked, would HSBC be open to sharing "some [of the] upside" with Cairn? App'x 389. Johnson demurred, and answered that a bank that offered a discount on the fix rate really intended to trade currency before the fix in such a way as to artificially increase, or "ramp," the currency's price at the fix. After ramping the fix, Johnson added, such a bank would sell the currency to its counterparty at the inflated fix, making up for any loss on the negotiated discount. Johnson said that he was "horrified" when he saw banks offering "the fix minus one pip" (in other words, the exchange rate at the fix minus one hundredth of a cent), because those banks clearly intended to "ramp the fix" at the expense of the counterparty. App'x 389-90.

         Following his call with Johnson, Jarrosson recommended that Cairn engage HSBC and use a Fixing Transaction to complete the currency exchange.

         B. The Mandate Letter

         In late October 2011 Cairn and HSBC signed a "Mandate Letter" that formally awarded Cairn's FX engagement to HSBC. The Mandate Letter committed HSBC to execute an FX Transaction at Cairn's request for an amount up to $4 billion USD. The Letter also gave Cairn the option of performing the trade through a Fixing Transaction or a Full-Risk Transfer. If Cairn chose a Fixing Transaction, HSBC would be obligated to perform the transaction at a price equivalent to a publicly available fix rate, provided that Cairn gave HSBC around two hours' notice prior to the particular hourly fix that Cairn wanted to use. If Cairn chose a Full-Risk Transfer, HSBC would be obligated to perform the transaction at the prevailing market rate at the time of Cairn's call plus, at most, a 100-pip charge. The additional charge for the Full-Risk Transfer protected HSBC against the currency risk it assumed by first guaranteeing Cairn a particular GBP/USD exchange rate and only thereafter purchasing pounds to sell to Cairn.

         C. The ...


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