US Judge acquits FX Trader of front-running

In an order published 4th March 2019, a Californian federal court acquitted Robert Bogucki (former head of Barclays Capital Inc.’s New York (“Barclays”) foreign exchange trading operation) of all charges in a US criminal case alleging wire fraud. This case related to the alleged manipulation of foreign exchange options by Bogucki in advance of an exceptionally large trade by Hewlett-Packard Company (“HP”) in 2011 through a method commonly referred to as “front-running”. It is the latest in a number of cases in which the US government has sought to argue the existence of a fiduciary-like duty on a dealer in favour of its counterparty on the basis of assurances made by the dealer.

In this instance, the US Government was unsuccessful however other front-running cases have resulted in convictions, most notably in 2018 case United States v Johnson in which ex-HSBC FX trader Mark Johnson was imprisoned for two years. The Bogucki decision further establishes the boundaries between legal and illegal trading practices in the context of FX front-running, pre-positioning, and pre-hedging, especially in light of the Johnson decision. The factual differences between this and the Johnson case provide useful guidance to the market on these issues. We can expect further guidance from the New York Federal Appellate court later this year when it is expected to issue a judgment on the Johnson appeal.