CFTC action against former HSBC exec reaches Hong Kong

A lawsuit brought by the United States Commodity Futures Trading Commission (CFTC) against former HSBC executive Christophe Rivoire, who is accused of market manipulation, has spread to Hong Kong.

Christophe Rivoire is now seeking the assistance of the judicial authorities of Hong Kong in obtaining necessary witness testimony from non-party Stephan Tsang, who in 2012 served as the Co-Head of Rates in Asia for HSBC Holdings plc.

Mr Tsang participated in calls with Mr Rivoire regarding the transaction that is at the heart of the CFTC case. Counsel for Mr Rivoire has engaged in good faith discussions with U.S. counsel for Mr Tsang in an effort to reach a resolution wherein Mr Tsang would voluntarily provide testimony in a remote deposition in this action. To date, Mr Tsang has agreed to voluntarily provide testimony in Hong Kong, but only in the presence of his counsel in person.

This is not possible due to the ongoing COVID-19 pandemic and current travel restrictions and quarantine requirements for U.S. citizens traveling to Hong Kong. The defendant is thus seeking Mr Tsang’s testimony through a Letter of Request.

Let’s recall that, on December 19, 2019, the CFTC filed a complaint in the New York Southern District Court. This is a civil lawsuit alleging that the defendant, Christophe Rivoire, violated various United States federal statutes, including the Commodities Exchange Act. Mr Rivoire has denied the allegations.

The Complaint arises from a 2012 transaction involving subsidiaries of HSBC and a Japanese bond issuer. In July 2012, HSBC served as co-underwriter and sole swap arranger on a $2 billion bond issuance and corresponding U.S. dollar interest rate swap for the Issuer.

Under the terms of the Bond Issuance, the Issuer issued $2 billion 5-year obligation bonds and paid a fixed rate of interest to investors. The Bond Issuance was priced on a conference call on July 11, 2012. Concurrently with the Bond Issuance, the Issuer entered into an Interest Rate Swap with HSBC, where the Issuer swapped its fixed-rate payment obligations for a floating rate obligation. Mr Tsang, whose examination is requested, participated in calls with Mr Rivoire regarding the Transaction.

The complaint alleges that Mr Rivoire, the head of HSBC’s North American Rates business, engaged in a scheme to manipulate the prices of U.S. dollar interest rate basis swaps with a five-year maturity, which were used to price the Interest Rate Swap. The Complaint alleges that manipulated prices were used to price the Interest Rate Swap, resulting in a more profitable transaction for HSBC and a less profitable transaction for the Issuer.

In support of its argument, the Complaint refers to discussions between Mr Rivoire and Mr Tsang regarding the Transaction. The CFTC alleges that in these discussions, Mr Rivoire told Mr Tsang that traders could manipulate the market in connection with the Transaction.

The CFTC alleges that, by engaging in this conduct, Mr Rivoire violated Sections 6(c)(1),13(a) and 13(b) of the Act, 7 U.S.C. § 9(1), 13c(a), and 13c(b) (2018), and Regulation 180.1(a), 17 C.F.R. § 180.1(a) (2019).

The CFTC is seeking: (i) an order finding the Mr. Rivoire violated certain U.S. federal statutes; (ii) a permanent injunction; (iii) civil monetary penalties; (iv) disgorgement; (v) full restitution to the Issuer in the amount that the Issuer was harmed; (vi) costs and fees; and (vii) such other relief as the Court deems just and proper.

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29 Replies to “CFTC action against former HSBC exec reaches Hong Kong”

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