By Nate Raymond

NEW YORK (Reuters) - The United States will seek the extradition from Britain of a former HSBC Holdings Plc executive accused of participating in a fraudulent scheme involving a $3.5 billion currency transaction, prosecutors said on Friday.

In a letter filed in federal court in Brooklyn, prosecutors said the U.S. government will initiate formal proceedings to seek Stuart Scott's extradition after learning he did not wish to come to the United States voluntarily to face the charges.

The U.S. Justice Department has begun the process of preparing an extradition package for the State Department to submit to the United Kingdom, the letter said.

A lawyer for Scott, who currently resides in Hertfordshire, England, did not immediately respond to requests for comment.

Scott, HSBC's former head of cash trading for Europe, the Middle East and Africa, was charged in July along with Mark Johnson, a British citizen who was HSBC's global head of foreign exchange cash trading and who was arrested in New York.

The men are believed to be the first individuals to face U.S. criminal charges arising from a probe of foreign-exchange rigging at banks.

The probe led to four banks last year pleading guilty to conspiring to manipulate currency prices. HSBC was not among those banks, but in 2014 agreed to pay $618 million to resolve related probes by U.S. and British regulators.

The U.S. Justice Department has continued to investigate, and HSBC has set aside $1.2 billion to cover various forex-related matters.

Prosecutors said Johnson and Scott in 2011 misused information provided by a client that hired HSBC to convert $3.5 billion to British pounds in connection with a planned sale of the client's foreign subsidiaries.

They then used their insider knowledge to trade ahead of the transaction, causing a spike in the price of the currency that hurt HSBC's client, prosecutors said.

The client was not named in court papers, but a source has said it was British oil firm Cairn Energy.

In total, HSBC earned $3 million from trades its currency traders placed, and $5 million from executing the transaction, prosecutors said.

Johnson has pleaded not guilty and is free on bail. Scott's lawyer in Britain, Gerallt Owen, has said he denies the allegations.

The case is U.S. v. Johnson et al, U.S. District Court, Eastern District of New York, No. 16-cr-00457.

(Reporting by Nate Raymond in New York; Editing by Tom Brown)