During the late 1980s savings and loan collapse, more than 1,000 bankers went to jail for various kinds of financial fraud. Famous names like Michael Milken, the Keating Five and Ivan Boesky were tried and convicted of manipulation and theft–and did their time behind bars. Not so following the 2008 financial crash, a collapse far bigger and more devastating for investors, great and small. But following the 2008 debacle, under what came to be known as the "Holder Rule," not a single individual banker from the "too big to fail" financial institutions of Wall Street and the City of London suffered personal prosecution.
President Barack Obama, who came into office with the financial backing of Wall Street banks and Connecticut hedge funds, and his Attorney General Eric Holder both made the specious argument that the threat of "collateral damage" to the global financial system was such that all top bankers had to be given a permanent "stay out of jail for free" card. It came to be known as "too big to jail."
On October 23, 2017, a Federal Grand Jury in Brooklyn, New York ripped up the "Holder Rule" and convicted a top banker from the big London bank HSBC on nine counts of conspiracy and wire fraud. A second HSBC banker is now awaiting extradition from the UK to stand trial on similar charges.
Mark Johnson was the head of HSBC's global foreign exchange cash trading desk and Stuart Scott was a subordinate of Johnson at the London trading desk. Both men conspired to rip off Cairn Energy by "front running" a Cairn transaction commissioned to HSBC. Cairn had $3.5 billion in US dollars from the sale of an India subsidiary and they commissioned HSBC to convert the dollars into UK pound sterling. Just prior to the sale, Johnson and Scott made major purchases of the British currency with bank funds, thus costing client Cairn $8 million in added costs and making themselves and the bank a $500,000 profit on the transaction.
Compared to other bad acts by HSBC, the "front running" scheme was small potatoes. But it was a serious crime and this time, the Department of Justice had the green light to make the case–not against the bank but against the individuals who carried out the crime. It helped that there were taped conversations between Johnson and Scott in which they gloated over the fact that they "got away with it."
Johnson faces up to 30 years in US Federal prison for each of the nine counts.
HSBC is notorious for its role as a laundromat for Mexican and Colombian drug cartels and Middle Eastern terrorist groups. In 2012, the Senate Permanent Investigations Subcommittee (SPIS) published a 300-page report thoroughly documenting HSBC's collusion with the drug cartels and Middle Eastern banks financing Al Qaeda. That report was referred to the Obama Justice Department, and the DOJ quickly reached a "deferred prosecution" deal with the bank. Not one HSBC banker faced individual prosecution. Under the deferred prosecution deal, the bank promised "never to do it again" and in return, they got to pay a fine and walk away scott free. Even after they broke the terms of the deferred prosecution deal, the bank and Federal prosecutors begged the Judge overseeing the compliance phase of the case to keep the findings under seal.
In a novel civil case in Federal court in Texas, HSBC has been sued by the families of American government officials brutally killed by the Mexican drug cartels, charging that the bank was complicit in the murders under US anti-terrorism laws, because they laundered the money used to pay the assassins. Evidence presented in Court in that case shows a depth of collusion between the bank and the cartels that is mind blowing. The attorney for the plaintiffs in that case is a former Federal Prosecutor, Richard Elias, who quit the DOJ after he found evidence of massive and willful fraud by Citibank mortgage bankers only to see his higher-ups in Washington cut a deferred prosecution and civil fine deal under the Holder Rule.
Not surprisingly, the US mainstream media (MSM) has barely covered the Johnson case. Not one major newspaper gave it frontpage coverage. Bloomberg New's legal team did report on the court ruling–and on the panic is has caused in board rooms and trading desks at the big Wall Street and London banks.
While it is too soon to say that the Johnson conviction opens a new era in which bankers at big TBTF institutions are going to be held accountable for their criminal actions–usually targeted against their own customers–the case is a hopeful sign that the playing field is getting a little more level.