The currencies market goes on trial this week in a process that has whittled down systemic poor behaviour, years of investigations and billions in bank fines to three former London traders. They face a court in New York and a potential sentence of 10 years in jail.
Five years after the foreign-exchange scandal broke, the British traders’ fate will be decided by a jury after a three-week trial beginning on Tuesday.
The group’s banter-filled chatroom — dubbed “the Cartel”, “the A-Team” and “the Mafia” — engaged in a “conspiracy” to “suppress and eliminate competition” in trade in the dollar, prosecutors allege. The former traders— and friends — deny the single charge of price-fixing.
Richard Usher, formerly of JPMorgan, Rohan Ramchandani, who was one of Citigroup’s most senior currency dealers, and Christopher Ashton, who worked at Barclays, each face a potential $1m fine in addition to a custodial sentence. They are the only people to have faced a jury over the 2013 forex-rigging scandal that generated $10bn in fines for six banks, including their former employers.
Another former group member, Matt Gardiner, who worked at Standard Chartered and UBS, will also be in court. But he will not be a defendant. Instead, as part of a plea deal with the US Department of Justice, Mr Gardiner will give evidence against the trio.
The jury’s verdict on a single charge also brings high stakes for the DoJ, which is eager to show it can apply antitrust law to alleged wrongdoing by traders in financial markets, even for activity outside the US and not involving US clients. The department has had a mixed record on recent transatlantic cases where it has accused overseas traders of other financial crimes, from Libor-rigging to spoofing.
Jurors will also draw a line under years of scrutiny that has led to reform of almost every aspect of behaviour in what was once a chummy freewheeling corner of the financial markets.
‘One team, one dream’: the former friends now in court
Mr Ramchandani was once the chief dealer for major currencies at Citigroup, where colleagues would refer to his ‘Rain Man-like’ memory for market moves. A post-Citi career at brokerage London Capital Group proved shortlived.
Like Mr Ramchandani, Mr Usher sat on a subgroup of Bank of England’s forex joint standing committee; another embarrassing link for the central bank to the scandal. Mr Usher, a former trader at Royal Bank of Scotland, moved to JPMorgan Chase.
The junior member of the chatroom, who was not part of the close-knit network of traders comprising his co-defendants and Matt Gardiner. The ex-Barclays trader oversaw voice-spot trading around the world from London. He formerly worked at UBS.
The former trader at UBS and Standard Chartered is the DoJ’s star witness. His agreement to testify for the prosecution was part of a deal that kept him from being indicted with the others, with whom he started the chatroom.
Other cases involving British currency traders have landed in US courts before, most notably Mark Johnson, the HSBC trader who is appealing a two-year US prison term after being found guilty of fraud in October 2017 for inappropriately placing trades ahead of a large transaction for a client, Cairn Energy. Johnson’s former colleague, Stuart Scott, avoided trial after winning an appeal against extradition to the US in July.
Unlike Mr Scott, the “A-Team” did not fight extradition, despite the UK’s Serious Fraud Office dropping its parallel investigation in 2016, saying that even if it could prove its evidence at the highest possible standard, that would still be too little for a successful UK case.
Mess this up and sleep with one eye open at night
While the HSBC case involving Mr Johnson and Mr Scott was heralded as a forex case by the DoJ, at its heart it was a front-running fraud; it did not turn on the alleged rigging of the 4pm London benchmark rate that acts as a snapshot of exchange rates in a fast-moving $5tn-a-day market and that drew intensive regulatory attention.
Online chatter between “The Cartel” — now famed in banking circles as perhaps the most unfortunate chatroom moniker in the history of financial markets — was full of jargon and colour on market conditions, and ended up as a key component of regulatory findings against their banks, as well as HSBC and Royal Bank of Scotland.
The serious point of their banter was, in part, to share slivers of information about their intentions for trading around currencies benchmarks, with the aim of helping each other to make profits or avoid losses. Their efforts were not guaranteed success and did not always achieve it.
“Mess this up and sleep with one eye open at night,” Mr Ramchandani joked in one of the conversations around whether to allow Mr Ashton into the group.
“We protect each other,” Mr Ramchandani also remarked, while reminding his friends of the need to keep “other numpty’s” out of their loop of shared information. The banter extended to jocular and at times mock-offensive nicknames — a pattern among traders that the DoJ believes is indicative of a conspiracy.
Prosecutors in the justice department were divided on whether to bring the case, according to a person familiar with the discussions at the time. While some viewed the wealth of chatroom evidence as helpful to the case, others worried the defence would argue it showed the defendants did not think they were doing anything wrong.
In 2014, an independent investigation into what the Bank of England knew of traders’ activity showed that the central bank’s chief currencies dealer, Martin “Hammer” Mallett, described some of it as “manipulation” as far back as 2008.
Trading around fixes was a frequent topic of conversation between traders and the BoE, and no action to reform the activity was taken until public attention turned to the matter in 2013. Dozens of traders in every major dealing bank were swiftly fired when investigations intensified. Several successfully won tribunals for unfair dismissal.
Still, authorities believe the activity falls foul of antitrust rules. It is notable that the DoJ presented the case as one of price-fixing rather than fraud, as it did in the prior Libor-rigging scandal.
John Terzaken, a partner at Simpson Thacher and a former DoJ senior director, said the case would be a “bellwether” for the application of competition theories to trading cases. “It may sharpen their focus if this case doesn’t pass muster with the jury,” he said. “They’re unlikely to see a fact pattern again that has a chatroom named the ‘Cartel’.”