Former HSBC director faces call for testimony in CFTC case

As a lawsuit brought by the Commodity Futures Trading Commission (CFTC) against former HSBC executive Christophe Rivoire continues, the defendant is seeking the judicial authorities of the United Kingdom in obtaining necessary witness testimony via videoconference from non-party Paul J. Bye (P.J. Bye) who in 2012 served as Managing Director and Global Head of Public Sector Syndicate in the United Kingdom for HSBC Holdings plc.

The request for assistance was filed by Mr Rivoire on November 5, 2021 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 (CEA). 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.

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. Bye regarding 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).

Mr Bye participated in a rehearsal for the Pricing Call (the “Dry Run”) as well as in the Pricing Call, and had calls and discussions with Mr. Rivoire and others at HSBC regarding the Transaction.

Mr Bye is said to have played an important role in the transaction at issue in this litigation and has a deep knowledge of HSBC’s practices in connection with Supra-national, Sovereign, and Agency (“SSA”) bond issuances and associated issuer interest rates swaps.

The proposed Letter of Request seeks essential testimony from Mr Bye. He participated in the Dry Run and Pricing Call for the Transaction, which are both critical to this action. Moreover, the CFTC relies on direct communications between Mr Bye and Mr Rivoire as evidence in support of its theory that Mr Rivoire engaged in market manipulation and fraud.

Rivoire says that he must be permitted to ask Mr Bye about the Transaction, as well as his discussions with Mr. Rivoire and others related thereto. Mr Rivoire also wishes to ask Mr Bye about his experience with SSA bond issuances and associated issuer interest rate swaps, and in leading pricing calls, all of which are highly relevant to this litigation and the Transaction at issue.

The CFTC has indicated to the defendant that it does not take a position on his Letter of Request.