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Mark Johnson led an HSBC foreign exchange desk

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Johnson accused of "front-running' Cairn Energy trade

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Fraud theories underlying conviction invalid or weak

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US Attorney's office in Brooklyn declined to comment

By Jonathan Stempel

NEW YORK, July 17 (Reuters) - A U.S. appeals court on

Thursday voided the 2017 fraud conviction of a former HSBC

executive who spent two years in prison for

"front-running" a British oil and gas exploration company's $3.5

billion currency trade.

In a 3-0 decision, the 2nd U.S. Circuit Court of Appeals in

Manhattan said Mark Johnson's conviction was tainted because the

Supreme Court in an unrelated case later repudiated a fraud

theory that underlay it.

The appeals court also expressed "grave doubt" Johnson could

have been convicted under an alternative theory that he

defrauded HSBC client Cairn Energy, now known as Capricorn

Energy ( CRNZF ).

A spokesman for the U.S. attorney's office in Brooklyn

declined to comment.

"We are delighted that justice has finally been achieved

for Mark Johnson," his lawyer Alexandra Shapiro said in a

statement. "Mr. Johnson carried out the Cairn transaction

consistent with industry practice and in violation of no law or

rule."

Johnson, a British father of six in his late 50s, had been

the head of HSBC's ( HSBC ) global foreign exchange cash trading desk.

He was the first banker tried in the United States on

currency rigging charges, following global probes into the

multitrillion-dollar per day currency market.

According to prosecutors, Cairn had retained Johnson and

another former HSBC executive in 2011 to convert $3.5 billion

into British pounds sterling as it prepared to sell an Indian

subsidiary.

Prosecutors said the executives quietly bought pounds for

HSBC's ( HSBC ) own accounts before completing Edinburgh-based Cairn's

trade, reaping a profit of about $7 million, court papers show.

A jury convicted Johnson of wire fraud and conspiracy after

a four-week trial. The appeals court upheld the conviction in

2019.

But on Thursday, the appeals court said a 2023 Supreme Court

ruling, Ciminelli v U.S., meant Johnson could not be convicted

of denying Cairn a right to control its assets by reneging on a

promise not to ramp up the pound's price.

Circuit Judge Guido Calabresi also said evidence that

Johnson breached duties to Cairn by misappropriating its

confidential information for his own benefit was "weak," and it

was unlikely a jury would convict Johnson on that basis alone.

"We find ourselves--at the very least--in 'virtual

equipoise' as to whether any jury, presented only with the

misappropriation theory, would convict Johnson," Calabresi

wrote. "That is more than enough to leave us with grave doubt."

The appeals court returned the case to U.S. District Judge

Nicholas Garaufis, who oversaw the trial.

The case is Johnson v. U.S., 2nd U.S. Circuit Court of

Appeals, No. 24-1221.