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 ...