Forex Probe Finds New Signs of Potential Wrongdoing
J.P. Morgan and Citi Sack Forex Staff Partly as a Result of U.S. Justice Department Investigation
LONDON—Banks and traders that figured the worst was over in the foreign-exchange scandal are facing an unpleasant surprise.
Investigations into attempted manipulation of the vast currencies markets have uncovered new signs of potential wrongdoing, sparking a fresh round of firings by Wall Street banks and snaring new financial institutions.
J.P. Morgan Chase & Co. and Citigroup Inc., which settled some U.S. and British investigations last year, both recently have fired or suspended foreign-exchange employees based in part on materials turned up by a continuing U.S. Justice Department investigation, according to people familiar with the matter. J.P. Morgan on Wednesday set aside an additional $990 million to pay for investigations and other legal expenses, while its chief executive complained about being “under assault” from regulators.
A major brokerage firm, Tullett Prebon PLC, has launched an internal review into its practices in the currencies markets, according to a person familiar with the matter.
The moves come as the Justice Department conducts sprawling antitrust and fraud investigations into potential improprieties in the foreign-exchange market. The investigations are examining a wider array of issues than the U.S. and British probes that six banks last autumn paid a total of $4.3 billion to settle, according to people familiar with the investigations. In those cases, the banks acknowledged that their employees had attempted to manipulate parts of the currencies market.
Among the aspects of the Justice Department’s criminal probe is whether bank employees tipped off hedge-fund clients to large foreign-exchange trades that the banks were planning and that were likely to move markets, these people say. The Justice Department’s fraud division also is looking into the practice of “spoofing,” in which traders or brokers submit fake trading data to move markets, or confuse clients or competitors.
At UBS AG , which has been cooperating with the Justice Department in the hopes of receiving leniency, government investigators have sought to interview an employee in the Swiss bank’s wealth-management business as part of their criminal probe, according to a person familiar with the matter. The UBS employee, based in a Florida wealth-management office, was involved in electronic communications that caught the attention of investigators, this person said.
Scrutiny of UBS’s large wealth-management business, which caters to ultrarich individuals, would represent a new focus in the investigation, which so far has mostly targeted potential wrongdoing by traders and salespeople in investment banks.
Multiple teams of Justice Department lawyers this month have been in London to interview past and present traders and salespeople from Royal Bank of Scotland and HSBC Holdings PLC, according to people familiar with the matter. Another round of interviews, with higher-ranking bank employees, is scheduled to occur in coming weeks, one person said.
Banks spent much of 2013 and 2014 trying to clean up their foreign-exchange desks. Over that period, global banks suspended or fired dozens of people who were involved in what bank lawyers concluded were improper emails or electronic-chat sessions.
But the investigations by the U.K.’s Financial Conduct Authority and the U.S. Commodity Futures Trading Commission, among others, focused on a fairly small group of traders who were members of specific electronic chat rooms that the agencies concluded were rife with misconduct.
The Justice Department’s investigation is taking longer but is focusing on a larger group of employees. As investigators share their findings with bank lawyers, more disciplinary action is getting under way.
J.P. Morgan last week suspended Gordon Andrew, a London-based currencies trader, after finding evidence that he disclosed trade information to employees of other banks, according to people familiar with the matter. One area of concern: Mr. Andrew’s work converting large quantities of euros into pounds at benchmark rates in connection with subsidies that the European Union pays each year to British farmers, one person said.
Mr. Andrew didn’t respond to requests for comment.
Citigroup in recent weeks has suspended or fired several foreign-exchange traders and salespeople, according to people familiar with the matter. Bank executives say more disciplinary action is expected in coming months as Citigroup cooperates with the Justice Department investigation, which is uncovering new information about potential wrongdoing.
A broker at Tullett Prebon, the firm that is conducting an internal review, was referred to in an electronic chat room known as “The Cartel” as a conduit for trades, according to people who have seen the chat transcripts. That chat room was the main focus of the British investigation and is also under scrutiny by the Justice Department. The broker, who was referred to in the chats by a colorful nickname, remains employed by Tullett.
Tullett’s involvement in the foreign-exchange saga harks back to the scandal surrounding manipulation of benchmark interest rates. British fraud prosecutors last year criminally charged a former Tullett broker with helping bank traders rig rates, and Tullett has said it is cooperating with government investigations.
At HSBC, one aspect of the Justice Department investigation is whether the bank’s salespeople leaked market-moving information to hedge fund Moore Capital Management LLC about a coming trade related to a major corporate acquisition, The Wall Street Journal reported in November.
In Washington, Justice Department investigators are in the process of conducting final interviews with past and present UBS employees, suggesting that a settlement is possible in the next month or two, according to people familiar with the matter.
Justice Department officials have told lawyers representing banks and traders that they intend to file criminal charges against individuals and perhaps some of the institutions this year, according to people familiar with the discussions.