Big break for South African rand manipulator

Glen Point Capital co-founder Neil Phillips avoided a US prison term for manipulating an exchange rate to trigger a $20 million barrier option.

US District Judge Lewis Liman on Tuesday instead sentenced the 53-year-old Phillips to two years of probation and the one month he already served in a Spanish jail after his 2022 arrest.

Prosecutors had asked that the former hedge fund manager be sentenced to two years behind bars to deter others from similar conduct.

Phillips was convicted in October of a single count of commodities fraud after a weeklong trial. He directed more than $700 million in trades on Dec. 26, 2017, that raised the value of the South African rand to 12.50 against the US dollar, the barrier rate at which the option he bought from Morgan Stanley for $2 million would pay out.

Liman said the case was a serious one that merited the charges the government brought. But he also said the foreign exchange spot market wasn’t regulated, Phillips didn’t try to conceal his actions and that the participants were sophisticated players.

Morgan Stanley “is hardly the kind of unsuspecting victim” that the government usually brings charges on behalf of, the judge said.

He noted that the bank could have taken other measures to protect against its risk from the option and didn’t request restitution from Phillips.

The judge further noted that Phillips has sole custody of two children who would be harmed by a lengthy incarceration. Liman also ruled that Phillips can spend part of his probation at residences in London and South Africa.

But though he spared him from jail, Liman imposed a $1 million fine on Phillips over his conduct, the maximum under the statute.

Phillips embraced his lawyers after the punishment was pronounced and, as he did after his trial, shook the hands of the prosecutor and FBI agent in court for his sentencing.

“He’s looking forward to being reunited with his family,” Sean Hecker, Phillips’ main lawyer, said outside court.

Lawyers for Phillips argued that prison was unnecessary because he had been punished enough by the destruction of his career, the downfall of his hedge fund and his time in a Spanish jail.

Soros Backing

Addressing the judge before his sentencing, Phillips said the case had been “an incredibly difficult experience” that he wouldn’t wish “on anyone, even my worst enemy.”

He said the time spent away from his children in jail was a “greater punishment” than anything the court could impose.

Though he avoided prison, the sentence capped a fall from grace of Phillips, previously celebrated as a canny and aggressive trader.

Backed by George Soros, London-based Glen Point was one of the biggest hedge fund launches of 2015. A macro fund focused on emerging markets, it at one point managed more than $2 billion for clients like the Teacher Retirement System of Texas.

The case was a rare attempt by US prosecutors to clamp down on wrongdoing in the currency markets, where daily trading often rises above $7 trillion, and regulations are loosely enforced. Phillips’ lawyers contended that the government was criminalizing conduct that had never before been considered illegal.

The sentencing took place in the same courthouse where Archegos Capital Management co-founder Bill Hwang is on trial for fraud and market manipulation.

Similar to Phillips, Hwang has tried to argue that counterparties like Credit Suisse Group AG, Morgan Stanley and others that he allegedly defrauded were sophisticated financial players who knowingly took risks trading with his family office.

Phillips argued that “barrier chasing” was a standard trading practice that Morgan Stanley anticipated and moved to offset Phillips’ actions with its own trades.

The bank sold more than $560 million in rand while Phillips was carrying out his “Boxing Day trades.” It was also revealed at trial that Morgan Stanley offered to buy back the Glen Point option for $13 million on Dec. 18, 2017.

Phillips’ arrest in Ibiza in September 2022 sent shock waves through the world of macro funds, which make trades based on economic trends across a broad swath of assets such as foreign exchange.

Glen Point was started by Phillips and his former colleague at BlueBay Asset Management, Jonathan Fayman. The fund closed in 2022 after a failed merger with rival macro fund Eisler Capital.

Phillips can still challenge his conviction to the 2nd US Circuit Court of Appeals. His lawyers have signaled they may argue that the prosecution was insufficiently connected to the US markets, as Glen Point was based in London and Phillips directed his trades from South Africa through a Singapore-based Nomura Holdings trader.

Prosecutors have argued that jurisdiction was proper because Phillips’ trades involved the US dollar and a US bank was the victim of the crime.