South African rand manipulator fights to avoid going to jail

Glen Point Capital co-founder Neil Phillips, who was found guilty last year of manipulating the US dollar-South African rand exchange rate, shouldn’t get a prison term, his lawyers argued in a court filing.

The 54-year-old former hedge fund executive was convicted of a single count of commodities fraud by a jury in October after a weeklong trial.

Prosecutors had accused him of directing $725 million in trades on Dec. 26, 2017, to raise the rand’s value against the dollar and trigger a payout on a $20 million option.

“Mr. Phillips’ career was destroyed by a single trade,” his lawyers wrote in a sentencing memo submitted late Monday.

“His hedge fund has been wound down, he spent a month in prison under very harsh conditions, he was tried in a foreign country after more than a year of litigation, and, ultimately, convicted of a serious felony that will prevent him from being licensed in the securities or commodities industries ever again (absent a successful appeal).”

They also argued that it isn’t a typical fraud case.

“Indeed, there is no comparable prior criminal case,” they wrote, adding, “It is not a case that involved false statements or representations; it is not a case that involved taking advantage of unwitting or unsophisticated market participants.”

The case raised questions about federal prosecutors enforcing US laws against foreign nationals caught up in manipulation schemes.

Phillips’ lawyers have argued that prosecutors in Manhattan didn’t have the right to scrutinize a trade placed by Phillips from South Africa and executed by a Nomura banker in Singapore, which resulted in the payout on an option sold by a London broker.

The US said the chatroom orders by Phillips passed through servers in New York, establishing a connection between the manipulation and the US.

Long Arm of the Law

US District Judge Lewis Liman mainly agreed with Phillips’ argument that prosecutors hadn’t proved that his activities had a close connection to US commerce, saying most of the links to the US were “indirect or insignificant.”

The government’s theories “would expand United States swap regulations to a vast array of transactions around the globe based on incidental and insubstantial ties to the United States,” Liman said.

But he found that the roles of JPMorgan Chase & Co. and Morgan Stanley in various parts of the deal gave US prosecutors jurisdiction.

“A fraud orchestrated and conducted abroad, but perpetrated on a United States prime broker or swap counterparty, undermines the soundness of the domestic markets for prime brokerage services and swaps,” Liman said in March.

Deterrence Achieved

Phillips’ lawyers argued that no purpose would be served by incarcerating their client.

“Neil does not need to be further deterred from any criminal conduct,” they wrote. “The public does not need to be protected from Neil’s activity. And the fact that the government chose to bring this case has more than accomplished any possible goal of general deterrence.”

The government is expected to file its own recommendation for Phillips’ punishment next week. Liman has scheduled the sentencing for June 3. While the maximum sentence for commodities fraud is 10 years, Phillips is unlikely to receive such a severe penalty.

Phillips, a native of South Africa who lives in London, is expected to appeal his conviction to the 2nd US Circuit Court of Appeals, which has overturned several jury verdicts involving overseas financial misconduct.