Johnson v. United States

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

JOHNSON, MEMORANDUM & ORDER

Petitioner, 23-CV-5600 (NGG)

-against-

UNITED STATES OF AMERICA,

Respondent.

NICHOLAS G. GARAUFIS, United States District Judge.

Petitioner Mark Johnson was convicted in October 2017 of one

count of wire fraud conspiracy and eight counts of wire fraud for

actions he undertook as the head of HSBC’s Global Foreign Ex-

change Business. He has since served his sentence and term of

supervised release and has paid his fine. He now seeks to vacate

his conviction by bringing a petition for a writ of error coram

nobis following the Supreme Court’s decision in Ciminelli v.

United States, 598 U.S. 306 (2023), which invalidated the right-

to-contro! theory of wire fraud, a theory which was included in

Mr. Johnson’s jury charge.

For the reasons discussed herein, because a review of the record

demonstrates that justice does not require vacatur of Mr. John-

son’s conviction, his Petition is DENIED.

I. BACKGROUND

A. Factual Background

In 2016, Mark Johnson was charged with wire fraud and wire

fraud conspiracy for activities he undertook in 2011, while the

London-based head of HSBC Bank ple’s (“HSBC” or the “Bank”)

Giobal Foreign Exchange Business. (Mot, For Writ of Coram

Nobis (“Petition”), Mark Johnson v. United States of America, No.

23-CV-5600 (“Civ. Dkt.”)!, Civ. Dkt. 1); see also Indictment,

United States v. Mark Johnson, No. 16-CR-457 (NGG) (Cr.

Dkt.”), Cr. Dkt. 182; Final Jury Charge (Cr. Dkt. 162) at 33-37.)

(Cr. Dkt. 9).}

In this role, Mr. Johnson acted with others at HSBC to pitch and

service the foreign exchange (“FX”) needs of Cairn Energy

(“Caim” or the “Client”), a large European energy company.

Cairn sought a bank to execute FX transactions following a recent

sale of its stake in Cairn India, which required the conversion of

approximately 4 billion US Dollars (“USD”) to GB Pounds Ster-

ling (“GBP”). (See Cairn Request for Proposal dated October 4,

2011 (“Cairn RFP”) (Government Exhibit (“GX”) 103B) at 1; see

also A-267.7)

Cairn required banks, before receiving the request for proposals

(“RFP”), to enter into a confidentiality agreement which required

HSBC not to disclose any confidential information received from

Cairn and only to use the confidential information for the reasons

for which the information was provided. (See generally Non-Dis-

closure Agreement (GX 102B); see also A-264.) The Agreement .

stated that it would “remain in full force and effect” for two years.

(Non-Disclosure Agreement at 2.)

1 The court cites to Mr. Johnson’s civil docket, No. 23-CV-5600, which in-

cludes briefing relating to his Petition, with “Civ. Dkt.” The court cites to

Mr. Johnson's criminal docket, No. 16-CR-457, which includes filings re-

lating to his criminal trial and conviction with “Cr. Dkt.”

2 “A” refers to the page numbers provided in the Second Circuit Appendix.

See Appendix, United States v. Johnson, No. 18-1503 (2d Cir. Aug. 30,

2018) Dkts. 57-59. The court generally cites to the criminal docket and

trial exhibits, However, when first citing to the exhibits, the court refer-

ences the first page on which the exhibits are included in the Second

Circuit Appendix, which is cited throughout Johnson’s briefing. (See gener-

ally Petition; Reply.)

While pitching its services, HSBC, including Mr. Johnson, made

certain representations about how it would engage in FX trans-

actions. See infra. Most relevant are representations about how

the Bank would engage in a “fix” transaction where the Bank

agrees to engage in a cutrency transaction at what is essentially

a proxy for the prevailing market rate (the “fix rate”) at some

future designated time (the “fix time”). (Mandate Letter (GX

115B); see also A-309.)? In these transactions, all things equal,

the Bank’s profit depends on the difference between the price at

which the Bank buys the target currency and the price at which

the Bank sells the target currency to the Client at the fix time.

(See Sept. 25, 2017 Trial Tr., (Cr. Dkt. 270) at 86:5-11, 105:8-

108:24 (testimony of Dr. David DeRosa, an expert in the field of

foreign exchange transactions, reviewing the mechanics of a fix

transaction).) The Client, on the other hand, prefers a lower “fix

rate,” because a lower rate means it receives more of the target

currency using the same amount of base currency.

In this case, Cairn was seeking to convert USD to GBP. They

would thus desire a lower GBP/USD rate because a lower rate

means Cairn would receive more GBP per unit of USD. So if the

rate increased ten minutes before the fix time, Cairn would re-

ceive fewer GBP for the same amount of USD than if the fix time

was ten minutes earlier. The Bank, however, stood to profit if the

market GBP/USD exchange rate (the “price” of 1 GBP in USD) at

the fix time was higher than the GBP/USD rate at which the Bank

accumulated USD.*

3 Under the terms of the Mandate Letter, HSBC committed to “[t]rade with

Cairn at a Spot execution price equivalent to one (or several) publicly avail-

able fixing(s), the price would be no higher than the mid fixing(s) level,

provided HSBC is given c. 2 hours notice prior to each fixing.” (Mandate

Letter at 1.)

4 The “price” at the relevant fix time was 1.57185 GBP/USD, and HSBC

offered to conclude the transaction at a rate 0.00025 better for Cairn at

Because of the misaligned incentives in FX transactions, Caim

sought assurances that, if chosen to engage in the relevant trans-

action, HSBC would act in Cairn’s interest by limiting the risk of

a spike in the exchange rate. Cairn’s RFP stated that the “key cri-

terion for the selection of banks for the role of Execution Bank

will be the ability to deliver a seamless process for the currency

exchange within a defined timetable whilst providing Cairn with

the best execution strategy and pricing.” (Cairn RFP at 1.) And

HSBC and Johnson made specific representations about how

they would provide this. In a slide deck used to pitch Gairn, HSBC

stated that:

Time to execute is essentially a choice for the company, as

HSBC is able to provide one quote for the full amount or

even drip feed the market in utmost confidential nature

so as to ensure there are no sudden FX moves against the

company. (HSBC Sales Pitch (GX 104B) at 5 (emphasis

added); see also A-272).

Mr. Johnson also spoke with Francois Jarrosson, a partner at the

investment bank Rothschild who was working on behalf of Cairn,

where he described to Jarrosson how HSBC would effectuate the

transaction. (See generally Transcript of October 13, 2011 Phone

Call (GX 193(T)) (Oct. 13, 2011 Jarrosson Call”); see also A-

376.) When discussing the Bank’s approach to a fixed transac-

tion, Mr. Johnson stated that the Bank would accumulate the

desired currency “quietly” and described the process for accumu-

lating the funds for a fix transaction as gradually building up

1.5716 GBP/USD. (Email From Hamza Azeem dated December 7, 2011

(GX 153); see also A-325.) This exchange rate allowed Cairn to convert

USD 3,536,100,000 into the GBP 2,250,000,000 Cairn requested (GBP

2,250,000,000 times 1.5716 GBP/USD = USD 3,536,100,000). (id.) If the

GBP/USD rate was 0.0010 lower, Cairn would save USD 2,250,000 (GBP

2,250,000,000 times 0.0010 GBP/USD = USD 2,250,000).

.

their position while trying to “control the market so it doesn’t

look too noisy.” Cd. at 12.)

Johnson also stated that the Bank has “absolutely no control over

where the price is” but that accumulating funds over a longer

period of time would allow the Bank to avoid “noise,” or price

volatility, around the fix time. Ud. at 12-13.) And Johnson drew

a distinction between HSBC’s approach and other banks. (Id. at

14.) He stated that the pricing that other banks offer indicates

that they “ramp the fix” (or increase the fix rate to the benefit of

the Bank) which undermines the whole point of this type of

transaction which is to offer price clarity and transparency by

providing the customer the average rate around the fix time. (d.

at 14-15.)

Cairn ultimately chose HSBC. They also decided to use the fixing

transaction rather than alternative trading strategies. The deci-

sion to do so was in part due to the transparency of this strategy

and their understanding that HSBC had a “best execution’ duty

not to influence the market adversely with the Company’s trade.”

(Cairn Board Meeting Minutes (Defense Exhibit (“DX”) 309) at

2; see also A-407; Rothschild Information Memorandum (GX

113B) at 4; A-308.)

After being chosen, the Bank committed to the transaction in a

“Mandate Letter,” which noted that the transaction is subject to

the terms of the International Swap Dealers Association Master

Agreement (“ISDA”)°, entered into between Cairn and HSBC the

prior year, in June 2010. (Mandate Letter at 1; see also ISDA (GX

* An ISDA Master Agreement is a standard form agreement published by

the International Swap Dealers Association that provides certain legal and

credit protections for parties in over-the-counter transactions. Sonterra

Cap. Master Fund, Ltd. v. Barclays Bank PLC, 366 F. Supp. 3d 516, 521 1.8

(S.D.N.Y. 2018); see also In re Lehman Bros. Holdings Inc., 970 F.3d 91, 96

n.3 (2d Cir. 2020).

191); see also A-351.) The ISDA included several provisions re-

lating to the relationship between Cairn and HSBC, including: a

“non-reliance” provision in which the parties state that they are

acting for their own account, a provision in which HSBC dis-

claimed that it was acting as a fiduciary of the other party, and a

provision in which HSBC disclaimed an agency relationship. (Id.

at 23.) The ISDA also noted that the relationship for a given

transaction may be modified by a “written agreement between

the parties that expressly imposes affirmative obligations to the

contrary for that Transaction.” ({Id.)

On December 7, 2011, a little over a month after Cairn chose

HSBC for its FX needs, Cairn requested that HSBC exchange USD

into GBP 2.25 billion (the equivalent of approximately USD 3.5

billion) using a fix transaction with the fix rate to be set that day

at 3:00 p.m. See United States v. Johnson, 945 F.3d 606, 610 (2d

Gir. 2019).® Stuart Scott, who worked with Mr, Johnson, passed

this information to Frank Cahill, an HSBC trader who would ex-

ecute the transaction. (Oct. 4, 2017 Trial Tr. (Cr. Dkt. 265-2) at

987:17-988:25, 1001:2-1003:21.) Cahill then accumulated Ster-

ling in a manner that he testified intentionally caused the

GBP/USD fix rate to increase ahead of the fix time, which led to

greater profits for HSBC at the expense of Cairn. Ud. at 994:15-

997:17, 1127:24-1128:21.) If trying to keep the price low, he

would have employed a different trading strategy. Ud. at 998:6-

998:22).

6 The initial request was for a smaller amount but was then increased to

GBP 2.25 billion. (Oct. 6, 2017 Trial Tr. (Dkt. 265-4) at 1424:7-1425:25;

see also Oct. 12, 2017 Trial Tr. (Dkt. 275) 2044:2-20; GX 163.) Upon learn-

ing that the amount would increase, Johnson said “[nJo, you’re kidding”

and “fucking Christmas” and did not express concern about the potential

for a price increase given the larger order size. (Oct. 6, 2017 Trial Tr. at

1425:16-25; Oct. 17 Tr. (Dkt. 277) at 2285:1-17; see also GX 163.)

Arecorded phone call between Johnson and Scott that began at

2:54 p.m., minutes prior to the fix time, indicates that Mr. John-

son was aware that the trader was increasing the price. (See First

Dec. 7, 2011 Phone Cali Tr. (GX 167(T)) (Jarrosson / Scott

Phone Call”) at 1; see also A-335.) Johnson and Stuart discussed

the increase in the exchange rate and Johnson stated that the

trader engaged in the transaction should not try to “ramp” the fix

above a certain level to avoid raising concerns with Caim. {d.)

Specifically, Johnson stated that the trader should not ramp the

fix above 1.5730 GBP/USD, because the client would “squeal” if

the rate was 100 “pips”? higher than the rate that morning when

Cairn requested the transaction, which is what the Client would

have received in a “full risk transfer” transaction, an alternative

to the fix transaction. (Id.; see also Mandate Letter (describing the

“full risk transfer” method)).? Cahill testified that, apart from the

direction not to ramp the price above the level noted by Johnson,

he did not have any discussions in which he was told he should

not increase the price, which he would otherwise do to increase

profits for the Bank. (Oct. 4, 2017 Trial Tr. at 993:2-7, 999:10-

1003:21.)

In a call just fourteen minutes after the fix time, Scott falsely

stated to Cairn’s adviser, Francois Jarrosson, that the increase

was a result of FX activities by the Russian Central Bank. (See

Second Dec. 7, 2011 Phone Call Tr. (GX 168(T) (“Post-Transac-

tion Jarrosson Call”) at 1-3; see also A-338.) Johnson supported

7 A pip in this context is one one-hundredth of a penny; a movement of

100 pips in a GBP 2 billion trade would be equal to $20 million. (Sept. 25,

2017 Trial Tr., at 111:10-112:8.)

8 Under the full risk transaction, HSBC committed to “[t]rade with Cairn

at a Spot execution price of prevailing screen rate (to be independently

benchmarked and agreed with Rothschild) plus, at most, 1OOpips for a full

risk transfer execution.” (Mandate Letter at 1.)

Scott’s lie, stating that the Russian Central Bank was “always sell-

ing dollars.” (Post-Transaction Jarrosson Call at 3.)

HSBC ultimately profited about $7 million on the transaction

with Cairn.° Johnson, 945 F.3d at 611. A significant portion of

the profit was attributed to Johnson’s trading book. (Oct. 5, 2017

Trial Tr. at 1190:15-25 (Cr. Dkt. 265-3); see also Government’s

Opposition to Petition (“Opp.”) (Civ. Dkt. 5) at 2 n.2.)

B. Procedural Background

Mr. Johnson was indicted in August 2016 on nine counts of wire

fraud, in violation of 18 U.S.C. § 1343, and one count of wire

fraud conspiracy, in violation of 18 U.S.C. § 1349.19 (See gener-

ally Indictment.) In describing Johnson’s wire fraud charge, the

Indictment stated that he “did knowingly and intentionally de-

vise a scheme and artifice to defraud the Victim Company, and

to obtain money and property from the Victim Company by

means of materially false and fraudulent pretenses, representa-

tions and promises.” (id. (4 37, 39.)

Mr. Johnson’s jury instructions, when describing the elements of

wire fraud, stated that the government must prove, inter alia,

° The defense’s expert calculated that HSBC made between $6.7 million

and $7.5 million on the deal. (Oct. 10, 2017 Trial Tr. at 1636:22-25 (Cr.

Dkt. 273).)

10 Johnson’s colleague Stuart Scott was named as a co-defendant. (See In-

dictment.) However, he never appeared because, in July 2018, the U.K.

High Court of Justice found that he was not extraditable. (Government

Mot. to Dismiss as to Stuart Scott (Cr. Dkt. 315) at 2.) The Government

moved to dismiss Mr. Scott in June 2023, after concluding that efforts to

secure his appearance are futile and that the small probability of securing

his appearance did not justify keeping the matter on the court’s docket.

id.) In so concluding, the Government’s motion noted that Ciminelli in-

validated the right-to-control theory, one of the two theories with which

it planned to proceed against Scott. Ud. at 3n.1.}) The court granted the

government’s motion on June 27, 2023. (Cr. Dkt. 316.)

that the scheme targeted “money or property.” (Final Jury In-

structions (Cr. Dkt. 162) at 30, 33.) The instructions then noted

that the Government put forward two theories that pertain to

money or property, the right-to-control theory and the misappro-

priation theory, and that, to convict Johnson, the government

had to prove either of these theories beyond a reasonable doubt.

(id. at 33-37.)!! Based on these instructions, the jury convicted

Johnson of eight of the wire fraud counts and his sole count of

wire fraud conspiracy. (Jury Verdict (Cr. Dkt. 182); Judgment

(Cr. Dkt. 239).) The jury did not indicate on which theory it re-

lied upon. (See Jury Verdict.)

The Second Circuit Court of Appeals affirmed Mr. Johnson’s con-

viction on the right-to-control theory, concluding that “the

evidence was sufficient to convict Johnson of wire fraud and con-

spiracy to commit wire fraud for depriving [Cairn] of the ‘right

to contro! its assets.” See Johnson, 945 F.3d at 612.1? In doing so,

the Second Circuit held that Johnson made “at least two” mate-

rial misrepresentations “to Cairn about how HSBC would trade

ahead of the fix and the price would be determined.” Id. at 614-

15. The first was Johnson’s representation on his call with Jar-

rosson that he would not “ramp the fix.” Id. at 614. The Circuit

found that, based on the trial evidence, Johnson misrepresented

the process by which HSBC would engage in the fix transaction

because he knew how important the execution process was to

Cairn and, contrary to his representations, he directed the HSBC

trader to “ramp the fix to a rate just below 1.5730.” Id. The sec-

ond misrepresentation was that the Russian Central Bank caused

the market movement before the fix time, a story that Johnson

11 The Indictment did not reference the “right-to-control” theory, but it did

reference the misappropriation theory’s elements, reviewed infra, noting

that as part of the scheme, Johnson breached “HSBC's duty of trust and

confidence to the Victim Company.” (Indictment { 10.)

12 When quoting cases, unless otherwise noted, all citations and internal

quotation marks are omitted, and all alterations are adopted.

supported despite knowing it was untrue. Id. at 614-15. Although

this statement was made after the fix time, it was found to be

material because a jury could have found that it influenced

“Cairn’s decision not to pursue various courses of action immedi-

ately after the fact.” Id. at 615. The Second Circuit did “not

consider Johnson’s arguments with respect to the misappropria-

tion theory” because it affirmed based on the right-to-control

theory. /d. at 612.

Following his conviction, this court sentenced Johnson to twenty-

four months followed by three years of supervised release and

imposed a $300,000 fine. (Judgment at 2-3, 7-8.) Johnson has

since served his sentence and paid his fine. (Petition at 12; see

also Satisfaction of Judgment (Cr. Dkt. 305).)

On July 25, 2023, Mr. Johnson filed the present coram nobis Pe-

tition, requesting that this court vacate his conviction after the

Supreme Court 2023 invalidated the right-to-control theory in

Ciminelli. (See generally Petition). Before reviewing Johnson’s Pe-

tition, the court finds it useful to first review the right-to-control

theory that was invalidated by Ciminelli.

Cc. Legal Background: The Right-To-Control Theory of

Wire Fraud and Ciminelli

It is a federal crime to devise or intend to devise “any scheme or

artifice to defraud” by means of the wires. See 18 U.S.C. § 1343.

To sustain a wire fraud conviction, the Government must estab-

lish the defendant (1) had an intent to defraud, (2) engaged in a

scheme or artifice to defraud involving material misrepresenta-

tions, meaning misrepresentations that tend to influence, or are

capable of influencing, the decision of the decision-making body

to which they were addressed, and (3) used the interstate or in-

ternational mails or wires to further that scheme. United States v.

Caltabiano, 871 F.3d 210, 218 (2d Cir. 2017). (See also Final Jury

Instructions at 30.)

10

The Supreme Court has long held that “to defraud” refers to

“wronging one in his property rights.” Cleveland v. United States,

531 U.S, 12, 19 (2000); McNally v. United States, 483 U.S. 350,

358 (1987). Prior to the Supreme Court’s decision in Ciminelli,

this Circuit considered the “right to contro!” a property right. See

United States v. Wallach, 935 F.2d 445, 462-463 (2d Cir. 1991).

This property right encompassed the right to control “potentially

valuable economic information necessary to make discretionary

economic decisions.” Ciminelli v. United States, 598 U.S. 306, 309

(2023); see also Wallach, 935 F.2d at 462-463, Examples of con-

victions under the right-to-control theory included when the

scheme “affected the victim’s economic calculus or the benefits

and burdens of the agreement, pertained to the quality of ser-

vices bargained for, or exposed the victim to unexpected

economic risk.” United States v. Percoco, 13 F.4th 158, 170 (2d

Gir, 2021), rev’d and remanded sub nom. Ciminelli, 598 U.S. 306.

In 2023, the Supreme Court roundly rejected the right-to-control

theory. Ciminelli, 598 U.S. at 309. The Court held that because

“the wire fraud statute reaches only traditional property inter-

ests” the “right-to-control theory cannot form the basis for a

conviction under the federal fraud statutes.” Id. at 316, The Court

noted a particular concern with the breadth of the right-to-con-

trol theory, noting a concern that it treats “mere information as

the protected interest” and “criminalizes traditionally civil mat-

ters and federalizes traditionally state matters.” Id. at 315-16, In

Ciminelli, the defendant’s indictment and conviction were based

solely on the right-to-control theory. Id. at 316.8

13 Ciminelli and Percoco v. Uniled States, 598 U.S. 319 (2023), decided the

same day, have led to the vacatur of at least one conviction in this district.

See United States v. Full Play Grp., S.A., No. 15-CR-25253 (PKC), 2023 WL

5672268, at *15, *19-26 (K.D.N.Y. Sept. 1, 2023) (finding that after

Pereoco and Ciminelli, the wire fraud statute, Section 1346, does not ex-

tend to the “foreign commercial bribery schemes” charged against the

defendants.).

11

The court now turns to the standard for reviewing Mr. Johnson’s

Petition.

HW. LEGAL STANDARD

“The writ of error coram nobis is an extraordinary remedy that

issues only in extreme cases, and typically is available only when

habeas relief is unwarranted because the petitioner is no longer

in custody.” United States v. Rutigliano, 887 F.3d 98, 108 (2d Cir.

2018). The burden is on the defendant to show that relief is war-

ranted. Id.

To receive coram nobis relief, a petitioner must demonstrate that

“1) there are circumstances compelling such action to achieve

justice, 2) sound reasons exist for failure to seek appropriate ear-

lier relief, and 3) the petitioner continues to suffer legal

consequences from his conviction that may be remedied by

granting of the writ.” Kovacs v. United States, 744 F.3d 44, 49 (2d

Cir. 2014).

In considering whether circumstances compel granting of the

writ to achieve justice, “a new rule of substantive criminal law is

presumptively retroactive because a defendant may have been

punished for conduct that simply is not illegal.” United States v.

Mandanici, 205 F.3d 519, 525 (2d Cir. 2000). This includes sub-

stantive changes in the controlling interpretation of criminal

statutes. United States v. Reguer, 901 F. Supp. 515, 520 (E.D.N.Y.

1995) (citing Davis v. United States, 417 U.S. 333 (1974)). The

Supreme Court invalidating the right-to-control theory in Ci

minelli may therefore serve as a basis for coram nobis relief for

defendants convicted under this theory.

However, when the jury was presented with multiple theories for

criminal liability, only one of which was subsequently invali-

dated, the court applies a harmless error analysis. See Hedgpeth

y. Pulido, 555 U.S. 57, 58 (2008) (citing Brecht v. Abrahamson,

507 U.S. 619, 623 (1993)). This analysis considers “whether the

12

flaw in the instructions had substantial and injurious effect or in-

fluence in determining the jury’s verdict.” Hedgpeth, 555 U.S. at

58 (citing Brecht, 507 U.S. at 623). This “substantial influence”

standard is met if there is “grave doubt” that the error affected

the jury’s verdict; if so, “the conviction cannot stand.” O’Neal v.

McAninch, 513 U.S. 432, 435, 437-38 (1995). “A judge is in

‘srave doubt’ when ‘the matter is so evenly balanced that the

judge feels himself in virtual equipoise as to the harmlessness of

the error.” Peck v. United States, 106 F.3d 450, 454 (2d Cir.

1997) (quoting O’Neal, 513 U.S. at 435).

Ill. DISCUSSION

The determinative question for Johnson is whether he can meet

the first coram nobis factor, that justice compels granting the

writ.!4

A, Circumstances Compelling Action

Mr, Johnson was convicted of one count of wire fraud conspiracy

and eight counts of wire fraud. The jury instructions stated that

either the misappropriation theory or the right-to-control theory

would be sufficient to convict, and it is unclear upon which the-

ory the jury relied when finding Johnson guilty. (Final Jury

Charge 33-37; Jury Verdict.) The question as to the first coram

14 As noted, coram nobis requires showing compelling circumstances to jus-

tify action, sound reasons for delay, and continuing legal harm. As to the

second factor, Johnson brought this Petition in July 2023, just two months

after Ciminelli which formed the basis of his Petition. Johnson is thus able

to justify the delay in bringing this Petition, which the Government does

not contest. (See generally Opp.) As to the third, the ongoing harms cited

by Petitioner, (see Opp. at 24-25; Ex. C to Petition (Civ. Dkt. 1-5)), in par-

ticular his restrictions on travel and his career, extend beyond a “mere

desire to be rid of the stigma of a conviction.” Fleming v. United States, 146

F.3d 88, 90 (2d Cir, 1998). They are thus sufficient to demonstrate that

Johnson continues to suffer consequences that resulted from his convic-

tion.

13

nobis factor is therefore whether there is grave doubt that includ-

ing the invalid right-to-control theory affected the verdict’s

outcome. If there is not grave doubt that the jury would have

convicted Johnson under the misappropriation theory based on

a review of the trial record, the error is harmless and the first

coram nobis factor is not met.1>

In considering the misappropriation theory, the court first ad-

dresses Petitioner’s argument that the theory is invalid outside of

the securities context. (Petition at 26 n.6.) The court then reviews

Johnson’s case under the elements of the misappropriation the-

ory. These elements are that: (1) “the Defendant entered into a

15 The government argues that the court should uphold the conviction un-

der both the misappropriation theory and the “traditional” theory of fraud.

(Opp. at 12, 22-24.) The Second Circuit’s recent analysis in United States

y. Tuzman is helpful in considering whether this theory should be consid-

ered in the court’s harmless error analysis. No. 21-2229, 2024 WL 1173044

(2d Cir. Mar. 19, 2024). In Tuzman, the Second Circuit upheld a wire fraud

conviction on direct review by applying the traditional theory of fraud

when the jury charge included instructions similar to Johnson’s, Id. at *3.

In both Tuzman and here, the instructions note that the scheme must have

deprived the victim of money or property and expands the definition of

property to include the right to control assets G.e. the right to control

money or property or assets). The Second Circuit found that although the

definition of money or property included the right to control assets, the

court still “read the jury the traditional property theory,” Tuzman, 2024

WL 1173044 at *3; see also Tuzman Jury Charge, Trial Tr. at 7171:22-

7172:10, United States v. Tuzman, No. 15-CR-536 (PG) (S.D.N.Y. Decem-

ber 22, 2017), Dkt. 707. However, the traditional fraud theory is

inappropriate here because the jury in Johnson’s case was also instructed

that to find Petitioner guilty under the right-to-control theory, it must find

that the scheme was meant to deprive Cairn of money or property and that

the “the property at issue is the alleged victim’s right to control its as-

sets, which can be harmed when the alleged victim is deprived of

potentially economically valuable information that would be valuable in

deciding how to use those assets.” (Final Jury Charge at 36 (emphasis

added).) Because the court directed the jury to focus solely on the right to

control assets if convicting under the right-to-control theory, the traditional

fraud theory was not properly before the jury and will not be considered.

14

relationship of trust and confidence with Cairn”; (2) “Cairn pro-

vided the Defendant with confidential information in the course

of such a relationship”; (3) “the defendant .. . secretly used that

information for his own benefit, under circumstances where that

use could or did result in a tangible harm to Cairn”; and (4) the

defendant acted “with knowledge and fraudulent intent.” (Final

Jury Charge at 35.)

1. Whether the Misappropriation Theory is Valid

In a footnote, Petitioner suggests that the misappropriation the-

ory is invalid because it is limited to the securities context and

that applying it to foreign exchange trading would not have

“made sense.” (Petition at 26 n.6 (citing United States v. O'Hagan,

521 U.S. 642 (1997)).) Johnson’s trial counsel raised a similar

atgument when arguing that the court should not include the

misappropriation theory in the jury charge. (Defense Letter dated

October 15, 2017 (CR Dkt. 153) at 7-20.)1° But, as this court

found prior to including this theory it in the jury charge, although

this theory is generally brought in the securities context, the “Su-

preme Court has held that wire fraud charges may also proceed

on a misappropriation theory.” (Memorandum and Order dated

September 1, 2017 (Dkt. 101) at 10 (citing Carpenter v. United

States, 484 U.S. 19, 26-27 (1987)); see also Memorandum and

Order dated September 21, 2017 (Dkt. 126) at 4-5 (discussing

the misappropriation theory in the context of “both prosecutions

under the wire fraud and mail fraud statutes as well as civil and

criminal actions enforcing SEC Rule 10b-5, 17 C.F.R. § 240.”);

Charge Conference Tr. at 2246:24-2247:11 (finding that

16 There is some overlap between Petitioner’s argument that the misappro-

priation theory is invalid outside of the securities context and the argument

that Johnson did net owe a duty of trust and confidence as a matter of law,

which is discussed in the following section.

15

whether Johnson owed a duty to Cairn under the misappropria-

tion theory was a question for the jury to decide)). See also United

States v. Chestman, 947 F.2d 551, 566 (2d Cir. 1991).

Petitioner does not cite to any intervening and controlling law

that would lead the court to reverse its prior determination that

the theory is valid. The court thus finds that this theory is valid

for the purpose of evaluating Mr. Johnson’s Petition under the

harmless error analysis.

Johnson also argues that it is unfair or unjust that the Circuit did

not to consider the validity of the misappropriation theory di-

rectly because it upheld the conviction solely under the now-

invalid right-to-control theory. (See, e.g., Mot. at 12-13, 16, 21;

Reply at 1-2, 7.) See also Johnson, 945 F.3d at 612 (“[Wle need

not and do not consider Johnson's arguments with respect to the

misappropriation theory.”). However, the Circuit through its si-

lence did not indicate, much less hold, that the misappropriation

theory was invalid as a matter of law. And the Circuit’s failure to

consider this theory does not provide reason for this court to re-

consider its own prior rulings.

The court thus moves onto whether there is grave doubt as to

whether the jury would find that the elements of the misappro-

priation theory were met.

2. Misappropriation Theory Element #1: Duty of

Trust and Confidence

a. Duty as a Matter of Law

To meet the first element of the misappropriation theory, the jury

had to find that Johnson owed Cairn a “duty of trust and confi-

dence.” (Final Jury Charge at 34.) Whether this was a matter for

the jury to decide, or whether Johnson did not owe this duty as

a matter of law, was thoroughly litigated by Johnson’s trial coun-

sel. (See Memorandum and Order dated September 1, 2017 at 8-

16

13 (discussing the misappropriation theory when ruling on John-

son’s fourth motion in limine to exclude evidence and testimony

related to the non-disclosure agreement); Memorandum and Or-

der dated September 21, 2017 at 4-10 (same) (citing Carpenter

v. United States, 484 U.S. 19, 27 (1987) and Chestman, 947 F.2d

at 568): Defense Letter dated October 15, 2017 at 7-15 (defense

arguing that the misappropriation theory fails because “the evi-

dence does not support . . . the existence of any ‘duty of trust and

confidence”); Charge Conference Tr. at 2242:11-2247:11 (par-

ties discussing the misappropriation theory).)

The court found this to be a “knotty issue” but ultimately held

that it was a jury question as to whether Johnson owed Gairn a

heightened duty that went beyond a straightforward counter-

party duty. (Charge Conference Tr. 2242:13-14, 2246:24-

22.47:11; see also Final Jury Charge at 34-35 (including the mis-

appropriation theory as a valid theory of conviction).)

Petitioner reiterates many of the arguments raised by trial coun-

sel in arguing that, as a matter of law, Johnson did not owe this

duty to Cairn. (Compare Petition at 26-31 with Defense Letter

dated October 15, 2017 at 7-15.) But Petitioner again does not

cite to any intervening and controlling cases that would lead it to

reverse its decision that the question of duty was validly put be-

fore the jury. Petitioner notes the concern raised in Ciminelli that

the federal fraud statutes must be construed narrowly, (Petition

‘at 315-16 (citing Ciminelli, 598 U.S. at 315-16)), but this general

statement was made in the context of a concern of criminalizing

“mere information,” as compared to traditional property inter-

ests. Ciminelli, 598 U.S. at 315-16. That concern is not implicated

when applying the misappropriation theory which imposes

“heightened responsibilities” on defendants who enter into a re-

lationship of trust and confidence with the victim. (Final Jury

Charge at 35.) See also Carpenter 484 U.S. at 25 (distinguishing

the property rights under the misappropriation theory from the

17

property rights at issue in McNally.) As per Johnson’s Final Jury

Charge, criminal liability may only be imposed where the jury

finds: that this duty exists, that the defendant had as a result of

this relationship, that the defendant received information as a re-

sult of this relationship, that the defendant used this information

with knowledge and fraudulent intent, and that this could or did

result in “tangible harm” to the victim. Ud.) This stricter standard

mitigates the over-criminalization concerns raised in Ciminelli.

Petitioner also argues that Ciminelli altered the law as it relates

to the language in the Mandate Letter and ISDA because Ci-

minelli overruled the Second Circuit’s decision in United States v.

Binday, (see Reply at 16), which the Circuit cited when, in up-

holding Johnson’s conviction, it stated that “Section 1343 applies

even if the parties’ contract was never breached.” Johnson, 945

F.3d at 613 (citing United States v. Binday, 804 F.3d 558, 564 (2d

Cir. 2015), abrogated by Ciminelli, 598 U.S. 306). This argument

is also unavailing. First, the Second Circuit discussed Binday only

after Johnson relied on it in part to argue essentially the same

argument he raises here, that he cannot be liable for wire fraud

absent a contractual breach. Johnson, 945 F.3d at 613 (“Relying

in part on our decision in Binday, Johnson urges that he cannot

be criminally liable for wire fraud in the absence of a contractual

breach.”). The Circuit then discussed and rejected Johnson’s in-

terpretation of the case. Id. (“[F]raudulent intent may be

apparent where the false representations are directed to the qual-

ity, adequacy or price of the goods themselves . . . because the

victim is made to bargain without facts obviously essential in de-

ciding whether to enter the bargain. Similarly here, Johnson

represented to Cairn that the price of the FX Transaction would

be determined under particular conditions.”) Second, and more

significantly, Ciminelli’s reference to Binday related to the harm

to the property interests at issue in Binday, specifically, the “right

to control [] assets,” Ciminelli, 598 U.S. at 313. The Supreme

Court did not discuss Binday’s analysis of the relation between

18

the misrepresentations at issue, the harm, and any relevant bar-

gains, Binday, 804 F.3d at 570, or otherwise invalidate Second

Circuit law that a defendant may commit wire fraud even absent

a breach of contract when the defendant had an intent to defraud

and the contemplated harm affects the “very nature of the bar-

gain.” United States v. Starr, 816 F.2d 94, 98 (2d Cir. 1987).

Thus, Ciminelli did not change the law as it relates to whether

the Mandate Letter’s reference to the ISDA eliminated the possi-

bility of finding guilt under the misappropriation theory.”

Petitioner also cites to a 2018 Second Circuit case, Allen v. Credit

Suisse Securities (USA) LLC, in which, according to Petitioner, the

Circuit “held that a multitude of analogous fix transactions per-

formed by HSBC did not give rise to . . . fiduciary status.” (Reply

at 13-14 (citing Allen v. Credit Suisse Sec. (USA) LLC, 895 F.3d

214, 223 (2d Cir. 2018)).) However, this case involves different

relationships between Johnson and Cairn than the relationships

considered in Allen, and Allen was expressly limited to the ERISA

context, considering the ERISA definition of fiduciary which fo-

cuses on “the exercise, as well as the possession, of authority or

control over a pension plan's assets.” Allen, 895 F.3d at 222-23,

There, the Circuit concluded that “the alleged wrongdoing did

not afford defendants the control over the Plans’ assets necessary

to make them ERISA functional fiduciaries.” Id. at 225-26. The

17 The court does not consider the Government’s alternative argument that

Petitioner’s argument also fails because the confidentiality agreement con-

stituted an express term that would impose affirmative obligations on

HSBC for a specific transaction (i.e., the FX transactions that were the sub-

ject of the RFP process), which, according to the Government, would then

impose an obligation on the parties under the terms of the ISDA. (Opp. at

19: see also ISDA at 23 (noting that the terms of the ISDA relating to the

relationship between the parties may be altered with “a written agreement

between the parties that expressly imposes affirmative obligations to the

contrary for that Transaction.”))

19

case does not control in this wire fraud case, considering a sepa-

rate duty of trust and confidence.

The court thus declines to reconsider its rejection of trial coun-

sel’s argument that Johnson did not owe a duty of trust and

confidence under the misappropriation theory as a matter of law.

b. Harmless Error Review

Turning to whether there is grave doubt that the jury would have

found, absent the right-to control-theory, that the defendant “en-

tered into a relationship of trust and confidence with Cairn.” (See

Final Jury Charge at 34.) See also United States v. O'Hagan, 521

U.S. 642, 652 (1997).

This duty “exists only where (1) a defendant explicitly accepts

that duty, or (2) where a defendant’s acceptance of that duty may

be implied from a pre-existing fiduciary or similar relationship of

trust and confidence between that defendant and the claimed

principal.” (Final Jury Charge at 35.) See also Chestman, 947 F.2d

at 571. A “duty of trust and confidence is not to be lightly im-

plied.” (Final Jury Charge at 35.) See also United States v. Skelly,

442. F.3d 94, 98 (2d Cir. 2006). “[E]ntrusting someone with con-

fidential information does not, without more, give rise to a

relationship of trust and confidence.” (Final Jury Charge at 35.)

See also Chestman, 947 F.2d at 568 (citing Walton v. Morgan

Stanley & Co. Inc., 623 F.2d 796, 799 (2d Cir. 1980)). Important

considerations in determining whether this duty is to be found

are: “reliance” of the victim on the defendant, control over the

victim’s assets, the victim’s sharing of confidential information

with the defendant, and the degree of confidence and trust that

the victim placed in the defendant. (Final Jury Charge at 34.) See

also Chestman, 947 F.2d at 568-69. □

The facts presented at trial support a jury’s finding that Johnson

owed a duty of trust and confidence to Cairn. The Government

provided evidence that HSBC entered into a confidentiality

20

agreement that was to remain in effect for two years, where the

Bank promised not to disclose the confidential information pro-

vided and to use it solely for the purposes for which it was

provided. Johnson and HSBC also made specific representations

about how they would engage in the relevant transaction, with

Johnson explaining how the Bank would purchase the target cur-

rency in a way that avoids noise and an increase in price prior to

the fix time, distinguishing how HSBC would approach the trans-

action with competitors that ramp up the fix rate to profit at their

- clients’ expense. Then, once Cairn engaged HSBC for the trans-

action, Cairn acted in reliance on this relationship of trust and

confidence to provide Johnson and HSBC information that John-

son exploited to increase the fix rate ahead of the fix time ina

way that increased their profits.

The record also demonstrates the importance of trust in Caim’s

decision to choose HSBC. Cairn required the Bank to maintain

confidentiality as a precondition to be considered in the selection

process, Cairn was also explicit that the key criteria in the selec-

tion would be best execution and pricing. While generalized

agreements to offer best execution would not, on their own, cre-

ate a heightened duty on HSBC or Johnson, Cairn’s criteria are

relevant when considering the later representations about the fix

transaction and the Client’s reasonable reliance on these state-

ments. These include later representations that HSBC would

“drip feed” the market to avoid moves against the company and

Johnson’s statements to Jarrosson about how they would engage

in the fix transaction—i.e. that they would limit noise, that they

cannot control the price, and that they would not act like other

banks that ramp up the price. Johnson’s committing to engage in

the transaction in this manner while receiving Cairn’s confiden-

tial information indicates that he fostered and accepted of a

heightened duty of trust and confidence. This is not a case where

21

a duty was imposed “unilaterally” by a purported victim entrust-

ing someone with confidential information. Chestman, 947 F.2d

at 567. (See also Final Jury Charge at 35.)

Taken together, the court finds that there are not grave doubts

that a jury would find that there was a relationship of trust and

confidence between Johnson and Cairn.

Petitioner argues that the Mandate Letter disclaimed any height-

ened duty, citing to language stating that any “transaction

undertaken will be governed by the terms of the ISDA in place

between HSBC and Cairn.” (Mandate Letter at 1.) This language,

according to Johnson, precludes finding a duty under the misap-

ptopriation theory because it incorporated the ISDA’s non-

reliance provision and a provision stating that the parties are not

acting as fiduciaries. (Petition at 29-30; see also ISDA at 23.)

Johnson’s trial counsel raised similar arguments when requesting

that the court not instruct the jury on the government’s misap-

propriation theory. (Defense Letter dated October 15, 2017 at 8-

9, 13-14.) As discussed supra, there has not been intervening and

controlling law and the court thus declines to reverse its prior

determination that whether Johnson owed a duty was a question

for the jury. (Jury Charge Tr. at 2246:24-2247:11; Defense Letter

dated October 15, 2017 at 8-9 (reviewing the ISDA and testi-

mony presented at trial concerning the ISDA).)

The court also finds that the standard language in the ISDA does

little to support Petitioner on this grave doubt as to harmless er-

ror review. HSBC and Cairn executed the ISDA in June 2010,

over a year prior to HSBC signing the confidentiality agreement

as part of the RFP process and Cairn engaging HSBC for the

transaction at issue, If relying on these provisions, it would re-

quire the jury to set aside: the confidentiality agreement which,

by its terms, was to be in effect for two years; the RFP which

specified that Cairn was interested in a transaction that guaran-

teed best execution for the specific currency transaction; the

22

representations HSBC and Johnson made about how they would

engage in the transaction; and that Cairn chose HSBC based on

their understanding that the Bank would have a “best execution’

duty not to influence the market adversely with the Company’s

trade.” (Cairn Board Meeting Minutes at 2.) The court rejects that

the jury would find that the line in the Mandate Letter would

carry the weight that the Petitioner places on it. That there is not

grave doubt on this issue is further supported by the jury finding,

which it was required to do even if relying on the right-to-control

theory to convict, that Johnson made “misrepresentations and

omissions that deceived Cairn” and that went to the “heart of

Gairn’s bargain with HSBC.” (Final Jury Charge at 36.) The jury

would be unlikely to have found this if the ISDA language was

controlling as to the relationship between Cairn and Johnson

such that it made meaningless the representations that preceded

and succeeded the Mandate Letter.

Petitioner also argues that a duty of trust and confidence did not

exist because HSBC and Cairn are sophisticated, multibillion dol-

lar enterprises operating at arm’s length. (Petition at 30; Reply at

13.) But the record demonstrates a different relationship. Cairn

sought a Bank to engage in a specific transaction in a specific

manner, And Johnson and HSBC provided specific representa-

tions about how they would execute the transaction, including

representations that the Bank could not control the price and

would not act in a way that ramped up the price to Cairn’s loss.

This was not someone placing a generic market order through a

broker based on the broker’s representation that they provided a

“fair price.” It was a transaction that was preceded by specific

statements by HSBC and Johnson that “would deceive an objec-

tively reasonable investor.” United States v. Litvak, 889 F.3d 56,

23

69 n.13 (2d Cir. 2018).38 When considering the transaction in

context, the evidence demonstrates that the parties were not

mere counterparties operating at arm’s length.

In sum, absent the invalid right-to-control theory, the court does

not have grave doubts that the jury would find beyond a reason-

able doubt that Johnson owed a duty of trust and confidence to

Cairn. This element therefore favors upholding Johnson’s convic-

tion.

3. Misappropriation Theory Elements #2 through #4

There are also not grave doubts that a jury would find that the

remaining elements are met based on the record presented at

trial.

The second element requires that “Cairn provided the Defendant

with confidential information in the course” of the relationship

of trust and confidence. (Final Jury Charge at 35.) There is no

serious dispute that this occurred. After the parties entered into

a non-disclosure agreement, Cairn provided confidential infor-

mation relating to the transaction at issue, including the

information provided in the request to engage in the 2.25 billion

18 The parties dispute the application of Litvak to the facts here with Peti-

tioner arguing that it supports a finding that here there was an arms-length

relationship. (Compare Opp. at 17-18 with Reply at 12.) In Litvak, the Cir-

cuit found that the “banter employed” by the appellant, a broker-dealer in

the RMBS market, did not support that an agency relationship existed

when considering the context of the broker-dealer relationship. Litvak, 889

F.3d at 69 n.13. However, this was because the government pointed to “no

evidence” that the appellant “took steps sufficient to cause [the victim] to

disregard the common knowledge of the market.” Id. at 69. Here, by con-

trast, there is significant evidence in the record that Johnson’s statements

amount to “more than a salesman’s banter” such that a reasonable investor

would consider their relationship one of “special trust.” Id. at 69 n.13.

24

GBP / 3.5 billion USD FX transaction at the fix time, which al-

lowed the Bank to profit by accumulating the target currency and

increasing the fix rate ahead of the fix.

The record also supports that the jury would find the third ele-

ment met, that Johnson used this confidential information for his

own. benefit in a manner that could cause Cairn tangible harm.

The evidence demonstrates that the use of the confidential infor-

mation, after being passed onto HSBC’s trader, led to greater

profits for HSBC and greater profits attributable to Johnson at

the expense of Cairn, which suffered tangible economic harm by

paying more for the target currency. In addition, regardless of

the theory adopted by the jury, the jury had to find beyond a

reasonable doubt that the scheme to defraud resulted in “tangi-

ble economic harm” to Cairn in order to convict Johnson. (Jury

Charge at 36.) The court is confident that the jury would find

that the third element is met.

Finally, four calls demonstrate that a jury would find that John-

son meets the fourth element, acting with knowledge and

fraudulent intent. First, in the call between Jarrosson, who was

acting on behalf of Cairn, and Johnson before HSBC was chosen

to engage in the transaction, Johnson described how the Bank

would engage in the fix transaction if chosen by the Client, Spe-

cifically, Johnson stated that HSBC would slowly build up their

position in the currency to allow Cairn to receive a better price in

the transaction. He then distinguished their approach from com-

petitors who engage in practices that increase the fix price for

their own profit, which “horrified” Johnson because it undercuts

“the point of doing a fix” which is to provide the client clarity as

to the average price around the fix time. (Oct. 13, 2011 Jarrosson

Call at 14-15.) This indicates Johnson’s knowledge and aware-

ness, when describing his approach to the transaction, that

ramping up the price would benefit himself and harm Cairn.

25

The next three calls occurred between Johnson and his colleague,

Stuart Scott, on the day of the relevant transaction. In the second

call, Johnson expresses excitement that the Client wished to in-

crease the transaction amount, exclaiming “fucking Christmas”

upon hearing this news, and he does not express a concern that

the larger amount could cause the exchange rate to increase. (See

GX 163; see also Oct. 6, 2017 Trial Tr. at 1424:7-1425:25 (play-

ing the phone call audio for the jury).) This indicates Johnson’s

knowledge that the transaction would generate a substantial

profit and that Johnson was not concerned that an increase in

the transaction amount to such a large size could increase the

exchange rate and harm Cairn. The third call occurred at 2:54

p.m., just minutes before the 3:00 p.m. fix time. In this call, John-

son and Scott discuss the level to which Cahill, the HSBC trader,

should increase the exchange rate with Johnson saying that he

should not do so past 100 pips to avoid upsetting the Client. This

indicates that Johnson was aware of the price increase and that

he directed it to happen only up to a certain level, contradicting

his prior representations to the Client. The fourth call occurred

at 3:14 p.m., after the fix transaction. In this call, Scott falsely

told Jarrosson, who was acting on behalf of Cairn, that the price

increased because of actions undertaken by the Russian Central

Bank. Johnson then supported this statement, despite his aware-

ness that his trader was increasing the price to HSBC’s benefit, by

stating that the Russian Central Bank was always buying dollars.

These calls, considered together, demonstrate that Johnson acted

knowingly and with fraudulent intent.

In sum, the misappropriation theory was presented to the jury

and remains valid. When reviewing the record, the court does

not have grave. doubts that, absent the invalid right-to-control

theory, the jury would have found that Johnson met each of the

elements required under the misappropriation theory. The court

therefore finds that Johnson is unable to demonstrate that justice

compels granting of the writ and DENIES his motion.

26

IV. CONCLUSION

For the reasons discussed herein, Mr. Johnson is unable to

demonstrate that circumstances compel granting his Petition for

writ of error coram nobis to achieve justice. His Petition is there-

fore DENIED.

SO ORDERED.

Dated: Brooklyn, New York

April#2, 2024

s/Nicholas G. Garaufis

NICHOLAS G. GARAUFIS

United States District Judge’

27