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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`---------------------------------------------------------------- X
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`STEPHEN CALLAHAN,
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` Plaintiff,
` :
`
` :
` v.
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`
` :
`HSBC SECURITIES (USA) INC., HSBC NORTH
` :
`AMERICA HOLDINGS INC. and HSBC
` :
`HOLDINGS PLC,
` :
`
` :
` Defendants.
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`---------------------------------------------------------------- X
`
`
`
`Civil Action No.:
`
`
`COMPLAINT
`
`
`Jury Trial Demanded
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`
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`Plaintiff Stephen Callahan (“Callahan” or “Plaintiff”), by and through his attorneys,
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`
`
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`Wigdor LLP, as and for his complaint against Defendants HSBC Securities (USA) Inc. (“HSBC
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`Securities”), HSBC North America Holdings Inc. (“HSBC North America”) and HSBC Holdings
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`plc (collectively, “HSBC,” the “Bank” or “Defendants”) hereby alleges as follows:
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`PRELIMINARY STATEMENT
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`1.
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`HSBC has a history of engaging in front-running—the unlawful practice of using
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`non-public client information to trade for the Bank’s “proprietary” account to the detriment of its
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`own customers. Indeed, in 2018, the Bank paid more than $100 million to resolve criminal
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`allegations involving a “front-running scheme that enabled [the Bank] to acquire millions of
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`dollars to benefit [the] institution and harm [its] clients.”1 As part of the deal with federal
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`prosecutors, HSBC agreed to “enhance its compliance program” and, among other things,
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`“terminat[e] the employment of employees involved in wrongdoing.”2 Sadly, nothing has
`
`
`1
`https://www.justice.gov/opa/pr/hsbc-holdings-plc-agrees-pay-more-100-million-resolve-
`fraud-charges
`2
`Id.
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`1
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 2 of 14
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`
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`changed.
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`2.
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`In 2021, Callahan arrived at HSBC as a trader. Almost immediately, he witnessed
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`rampant front-running, including directives to junior traders to “always” prioritize the Bank’s
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`proprietary account. Callahan protested, warning junior traders that front-running was unlawful
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`and repeatedly complaining to management about the “epic” front-running problem. HSBC
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`promptly retaliated against Callahan by failing to promote him, suspending him, withholding his
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`annual bonus and ultimately firing him.
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`3.
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`Defendants’ conduct violated New York Labor Law § 740 which prohibits an
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`employer from taking any retaliatory action against an employee, including suspension or
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`termination, because the employee disclosed, or threatened to disclose, the employer’s unlawful
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`activity.3
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`JURISDICTION AND VENUE
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`4.
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`This Court has jurisdiction pursuant to 28 U.S.C. § 1332, as there is diversity of
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`citizenship among the parties, and this action involves an amount in controversy exceeding
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`$75,000, excluding interests and costs.
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`5.
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`Pursuant to 28 U.S.C. § 1391(b), venue is proper in the Southern District of New
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`York because a substantial part of the events or omissions giving rise to this action occurred
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`there, including Plaintiff’s employment and performance, and the unlawful employment
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`practices alleged herein.
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`
`
`
`
`
`3
`Plaintiff has also filed a complaint with the Occupational Safety and Health
`Administration (“OSHA”) alleging that Defendants violated whistleblower provisions of the
`Sarbanes-Oxley Act of 2002 (“SOX”), 18 U.S.C. 1514A.
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`
`
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`2
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 3 of 14
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`
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`PARTIES
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`6.
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`Plaintiff Stephen Callahan is a former Director at HSBC. At all relevant times,
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`Plaintiff was an “employee” under New York Labor Law § 740. Plaintiff is domiciled in
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`Florida.
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`7.
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`Defendant HSBC Securities, a bank holding company incorporated in Maryland
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`with its principal executive offices at 452 5th Avenue, New York, NY 10018-2706, is a wholly-
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`owned subsidiary of HSBC North America. At all relevant times, HSBC Securities was an
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`“employer” under New York Labor Law § 740.
`
`8.
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`Defendant HSBC North America, the holding company for HSBC Holding plc’s
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`operation in the United States, is a Delaware corporation with its headquarters in New York City
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`at 452 5th Avenue, New York, NY 10018-2706. It is an indirect wholly-owned subsidiary of
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`HSBC Holdings plc. At all relevant times, HSBC was an “employer” under New York Labor
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`Law § 740.
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`9.
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`Defendant HSBC Holdings plc is a British multinational bank and financial
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`services holding company headquartered at 8 Canada Square in London E14 5HQ, United
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`Kingdom. At all relevant times, HSBC was an “employer” under New York Labor Law § 740.
`
`I.
`
`
`FACTUAL ALLEGATIONS
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`BACKGROUND
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`10.
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`11.
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`Stephen Callahan has been a trader for almost 30 years.
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`For the first decade of his career, he traded for small firms, graduating in the next
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`decade to work for some of the most prominent firms on Wall Street, including Bear, Stearns &
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`Company, Barclays Capital and Morgan Stanley & Company.
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`3
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 4 of 14
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`12.
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`During this middle phase of his career, Callahan held senior roles at each of these
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`firms and was twice elevated to running businesses.
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`13.
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`In 2011, Callahan decided to change his domicile to Florida. He worked as a
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`macro hedge fund manager in the U.S. Rates Business for Rosenthal Collins until 2019, when he
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`moved with the Collins group of traders to DV Trading.
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`14.
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`In 2021, Callahan was approached by Joseph Leary (former Managing
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`Director/Co-Head of Developed Rates Trading) about working as a Director with HSBC to help
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`run its U.S. Rates trading desk (the “desk”).
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`15.
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`Leary said he needed a senior person like Callahan because he was being given
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`additional duties that would draw his attention elsewhere.
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`16.
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`He was eager to hire Callahan, not just for Callahan’s seniority, but because
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`Callahan could increase the Bank’s penetration with senior money managers with whom he had
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`developed trusted working relationships.
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`17.
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`Callahan was drawn to the opportunity because Leary assured him that Callahan
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`had a good chance of heading the desk, which would include hiring a new coterie of traders.
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`18.
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`Callahan also found the job appealing because he and Leary had complimentary
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`skill sets, and he missed the camaraderie of working with a team after almost a decade of trading
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`on his own.
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`19.
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`Shortly after Callahan received his offer letter but before he accepted the position,
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`Leary left to take a job at another bank.
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`
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`4
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 5 of 14
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`20.
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`As a result, Callahan reached out to Leary’s supervisor,4 Jason Henderson
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`(Executive Vice President, Head of Markets and Securities Services, North America), for
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`assurance that he could be a potential replacement for Leary.
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`21. With Henderson’s agreement, Callahan accepted the Bank’s offer.
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`22.
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`Shortly before Callahan’s start date, Henderson announced that William “Bill”
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`Glenn would be elevated above Callahan to desk manager on an interim basis.
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`23.
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`Henderson reassured Callahan that this was a temporary move made strictly for
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`compliance reasons, as the desk had a significant number of junior traders and Callahan could
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`not officially supervise the desk until he had passed his licensing exams.5
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`24.
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`25.
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`Callahan started working at HSBC on August 23, 2021.
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`During his first few weeks, Callahan and Henderson discussed their vision for
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`new hires to remake the trading desk and Callahan began interviewing candidates.
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`26.
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`Callahan also spent this time studying for his licensing exams and learning about
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`HSBC’s business.
`
`II.
`
`
`CALLAHAN COMPLAINS ABOUT ILLEGAL FRONT-RUNNING
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`27.
`
`The HSBC U.S. Rates trading desk is designed with open-plan seating where
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`traders sit next to each other, without cubicles or other barriers between them.
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`28.
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`As a result, traders can easily observe and overhear their colleagues’
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`conversations. Almost from the outset of his employment and throughout his tenure at the Bank,
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`Callahan observed traders engaging in front-running.
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`
`4
`Leary reported to Henderson and Mehmet Mazi (Head of Global Debt Markets).
`5
`Callahan was required to retake the exams because his licenses had lapsed. His work at
`Rosenthal Collins and later at DV Trading did not require licensure.
`5
`
`
`
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 6 of 14
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`29.
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`He saw traders with non-public knowledge of impending orders routinely trade
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`for the Bank’s proprietary account ahead of placing a client’s order to influence the price of the
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`security, such that the Bank would maximize its upside and minimize its downside at the expense
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`of the customer.
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`30.
`
`Front-running is a violation of Section 10(b) of the Securities Exchange Act of
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`1934 (“Exchange Act”), Exchange Act Rules 10b-5(a) and (c), and Financial Industry
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`Regulatory Authority (“FINRA”) Rule 5720, among other laws and rules.
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`31.
`
`Callahan observed front-running most frequently with “long end” securities (those
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`on the yield curve of more than ten years) where there is more price volatility, making it easier
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`for traders to move the price so that they can buy from, or sell to, the customer to garner a profit,
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`or limit a loss for the Bank.
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`32.
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`For example, Callahan noticed that HSBC traders would routinely prevent prices
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`from being auto quoted because the auto quotes on the “long end” were lower than the rest of the
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`market, and traders wanted to be able to move the price of the security to bid or offer at a lower
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`price than the auto quote.
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`33.
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`On one occasion in particular, in or about September 2021, Callahan overheard
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`Brian Yip (Former Vice President, U.S. Rates Trading – TIPS and Inflation Derivatives) instruct
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`junior trader Russell Dean to “always” buy or sell for the Bank before putting a price on a
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`transaction for a customer.
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`34.
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`Concerned both that Yip was engaging in front-running and teaching less
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`experienced traders to do the same, Callahan warned Dean about front-running.
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`35.
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`Dean confirmed that he had been instructed by Yip to engage in the practice.
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`6
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 7 of 14
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`36.
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`Callahan alerted Glenn, the desk supervisor, stating that the practice was
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`unacceptable.
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`37.
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`38.
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`Glenn seemed unconcerned and did not respond, other than to say, “Ok.”
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`In another example from later in the fall of 2021, HSBC customer Lundy Wright
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`(Senior Vice President and Portfolio Manager at George Weiss Associates) asked Jae Yang
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`(Rates Trader – Director) for an offer on 50 million five-year securities.
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`39.
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`Yang responded with an offer and ended up losing money on the trade.
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`40. Wright then asked Yang for another offer on 50 million five-year securities.
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`41.
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`Callahan overheard Yang state that he was going to buy (or “lift”) five-year
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`securities in front of Wright.
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`42.
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`Yang then placed two separate trades to buy five-year securities before giving
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`Wright an offer.
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`43.
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`He then struck a deal to sell the securities Wright at a higher price, resulting in a
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`profit for HSBC at Wright’s expense.
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`44.
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`Callahan, surprised that Yang would openly announce that he intended to engage
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`in front-running, asked Ed Takvor (U.S. Rates Trader), “Did I hear that right?”
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`45.
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`46.
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`47.
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`48.
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`Takvor nodded in agreement.
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`Callahan turned to Glenn and stated, “I can’t believe Yang just said that.”
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`Glenn pretended not to have heard Yang announce his unlawful activity.
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`Callahan told Glenn, in no uncertain terms, that front-running was illegal, the
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`SEC was currently looking at front-running in equities and that it could not happen on their desk.
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`49.
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`Glenn then claimed—disingenuously—that he did not know what Yang had done
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`was illegal.
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`7
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 8 of 14
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`50.
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`Callahan pushed back by stating that Glenn could not be ignorant of the illegality
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`of front-running given his many years as a trader and the common knowledge that a trader
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`cannot enter the market to place a trade for the Bank before the price for the same security has
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`been agreed upon with the customer.
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`51.
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`52.
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`Takvor again agreed.
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`Callahan further stated that he had observed Glenn engaging in front-running
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`himself since Glenn took over the bond seat from Yip. Glenn did not respond.
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`53.
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`Callahan stated that he was “not going to jail,” meaning that he did not want any
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`part of the illegal activity.
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`54.
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`Later that day, Callahan reported the incident to Michael Brennan, the HSBC
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`salesman for Wright’s firm, and his junior associate, Daniel Wolff.
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`55.
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`Both Brennan and Wolff admitted that front-running happened frequently at
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`HSBC.
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`56.
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`Callahan also had a follow-up conversation with Dean the same day, where he
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`again emphasized that front-running was illegal and admonished Dean not to risk his license “for
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`someone else’s stupidity.”
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`57.
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`In October 2021, Callahan had dinner with Henderson where he protested that
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`there was a significant amount of front-running on the desk.
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`58. While Henderson purported to thank Callahan for alerting him to the problem,
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`Henderson did not take any remedial action.
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`59.
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`In November 2021, Callahan passed the licensing exams and began trading seven-
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`to-ten-year notes.
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`8
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 9 of 14
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`60.
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`His newly assigned seat put him next to Glenn, where he observed Glenn continue
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`to engage in front-running.
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`61.
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`On more than one occasion, Callahan told Glenn that what he was doing was not
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`allowed. Glenn simply shrugged off the warnings.
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`62.
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`In early December 2021, HSBC reneged on its promise to consider Callahan to
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`replace Leary as head of the desk (undoubtedly, because of Callahan’s repeated complaints about
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`front-running) and instead announced that Stefan D’Annibale had been hired.
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`63.
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`On or about December 14, 2021, Callahan told D’Annibale that there was an
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`“epic” front-running crisis on the desk and urged D’Annibale to address the problem.
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`64.
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`Callahan provided D’Annibale with a detailed account of the front-running
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`incidents he observed involving Yip, Yang and Glenn.
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`65.
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`66.
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`Callahan offered to talk to the desk again about the need to stop front-running.
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`Just a few days later, on or about December 17, 2021, Callahan met with Glenn,
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`Takvor, Dean, Kyle Hackett (Global Markets Analyst) and others to warn them about the illegal
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`activity.
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`67.
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`Between January and early February 2022, Callahan twice more notified
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`D’Annibale that the illegal conduct was ongoing, although the situation had somewhat improved.
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`68.
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`69.
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`Nonetheless, the front-running continued.
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`For example, in the middle of February, DoubleLine Capital informed Carl
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`Neuhaus (Managing Director, Head of G10 Rate Sales, Americas) that it was going to “roll
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`forward”6 on approximately $900 million in old bonds.
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`6
`A trader “rolls forward” when he simultaneously offsets his current position and
`establishes a new position.
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`9
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 10 of 14
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`70.
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`Neuhaus informed Glenn about this, who then started selling old bonds in the
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`broker screens and moved the price, resulting in a significant profit for the Bank.
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`71.
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`In another example, Andrew DiMaria, a portfolio manager at Point72, asked the
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`Bank to sell $100 million worth of long bonds at 3:00 p.m. on March 1, 2022.
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`72.
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`Glenn sold long bonds before the 3:00 p.m. deadline and then filled DiMaria’s
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`order at the appointed time.
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`73.
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`This removed all risk from Glenn’s trades and generated a significant profit for
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`the Bank, to DiMaria’s detriment.
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`74.
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`Callahan told Glenn that he should have given DiMaria a better price on the trade
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`given how much Glenn’s trade had moved the market.
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`75.
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`76.
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`Glenn disagreed.7
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`DiMaria later complained to Callahan about the aggressive trading Glenn engaged
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`in before executing Point72’s order.8
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`III. HSBC UNLAWFULLY RETALIATES AGAINST CALLAHAN
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`77.
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`On March 7, 2022, only a month after Callahan’s most recent conversation with
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`D’Annibale about the ongoing front-running problem, and less than a week after Callahan
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`chastised Glenn for front-running on the Point72 trade, D’Annibale suspended Callahan.
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`
`7
`Glenn could have avoided front-running by asking DiMaria for pre-hedging authority in
`writing but failed to do so.
`8
`Callahan was so concerned about the illegal practice that in early March 2022, he notified
`an attorney with the U.S. Commodity Futures Trading Commission (“CFTC”). A few weeks
`later, the attorney stated that front-running was not within the CFTC’s purview and suggested
`that Callahan instead file a complaint with the U.S. Securities and Exchange Commission or the
`U.S. Department of Justice.
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`10
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 11 of 14
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`78.
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`According to D’Annibale, a complaint had been lodged against Callahan,
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`requiring an internal investigation.
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`79.
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`D’Annibale disabled Callahan’s access to the Bank’s platforms and directed
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`Callahan not to contact anyone at the Bank.
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`80.
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`He also placed a “hold” on Callahan’s 2021 bonus, which was scheduled to be
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`paid at the end of that week.
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`81.
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`D’Annibale refused, however, to state what Callahan had purportedly done
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`wrong.
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`82.
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`On March 9 and 11, 2022, lawyers representing HSBC interviewed Callahan, who
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`was not represented by counsel at the time.
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`83.
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`They claimed that the Bank placed Callahan on administrative leave because the
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`Chicago Mercantile Exchange (“CME”) had requested information about five of Callahan’s
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`trades.
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`84.
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`This was a routine request in the industry, and HSBC’s decision to preemptively
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`suspend Callahan was highly unusual.
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`85.
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`Upon information and belief, HSBC typically does not place traders on
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`administrative leave while reviewing CME information requests.
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`86.
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`Indeed, upon information and belief, the CME had referred Glenn’s trades to the
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`Bank for review on multiple occasions, but in not one of those instances was Glenn put on
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`administrative leave.
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`87.
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`During the interviews, Callahan asked HSBC’s lawyers for more information so
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`that he could fully explain the trades, but they did not provide any.
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`11
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 12 of 14
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`88.
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`Callahan subsequently retained counsel, who, on or about March 29, 2022,
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`reiterated Callahan’s request for more information since he had been provided with little, if any,
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`context for the trades in question.
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`89.
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`Among other things, counsel asked that HSBC make available the screens from
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`the small number of trades under review so that Callahan could fully and accurately respond to
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`the Bank’s inquiries.
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`90.
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`Counsel also notified HSBC’s attorneys that Callahan had additional information
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`to share, referring to the persistent front-running crisis.
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`91.
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`HSBC did not respond. On April 4, counsel again reached out to share his
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`concerns about the Bank’s trading practices.
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`92.
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`The next day, April 5, HSBC fired Callahan, claiming—nebulously—that his
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`trading created “risk” for the Bank.
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`93.
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`In fact, Callahan had multiple conversations with D’Annibale about what his risk
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`limits were, during which D’Annibale admitted that he had not seen anything in Callahan’s
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`trading that worried him.
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`94.
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`After firing Callahan, HSBC refused to pay his bonus from the prior year and
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`filed a negative U5 with the Financial Industry Regulatory Authority.
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`FIRST CAUSE OF ACTION
`(Violation of NYLL § 740)
`Against All Defendants
`
`Plaintiff hereby repeats, reiterates and re-alleges each and every allegation in each
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`95.
`
`of the preceding paragraphs as if fully set forth herein.
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`96.
`
`Plaintiff disclosed to multiple supervisors an activity, policy or practice of the
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`Defendants that he reasonably believed was in violation of law, rule or regulation.
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`
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`12
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 13 of 14
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`97.
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`98.
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`99.
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`Plaintiff also objected to such activity, policy or practice.
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`As a result, Defendants took retaliatory action against Plaintiff.
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`Defendants’ retaliatory action was willful, malicious or wanton.
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`PRAYER FOR RELIEF
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`WHEREFORE, Plaintiff prays that the Court enter judgment in his favor and against
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`Defendants, containing the following relief:
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`A.
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`B.
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`C.
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`D.
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`E.
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`F.
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`G.
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`H.
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`An injunction to restrain continued violations of NYLL § 740;
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`Reinstatement, including full fringe benefits and seniority rights;
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`Compensation for lost wages, benefits and other remuneration;
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`An award of punitive damages;
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`A payment of reasonable costs, disbursements, and attorneys’ fees;
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`Prejudgment interest on all amounts due;
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`A civil penalty of an amount not to exceed ten thousand dollars; and
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`Such other and further relief as the Court may deem just and proper.
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`13
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`Case 1:22-cv-08621 Document 1 Filed 10/11/22 Page 14 of 14
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`JURY DEMAND
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`Plaintiff hereby demands a trial by jury on all issues of fact and damages stated herein.
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`Dated: October 11, 2022
`New York, New York
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`WIGDOR LLP
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`By: ____________________________
`Valdi Licul
`Laura Edidin
`
`85 Fifth Avenue
`New York, NY 10003
`Telephone: (212) 257-6800
`Facsimile: (212) 257-6845
`vlicul@wigdorlaw.com
`ledidin@wigdolaw.com
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`
`Counsel for Plaintiff
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`14
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