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Glen Point Capital co-founder Neil Phillipsavoided a US prison term for manipulating an exchange rate in order to triggera $20 million barrier option.
US District Judge Lewis Liman on Tuesdayinstead sentenced the 53-year-old Phillips to two years of probation and theone month he already served in a Spanish jail after his 2022 arrest.Prosecutors had asked that the former hedge fund manager be sentenced to twoyears behind bars to deter others from similar conduct.
Phillips was convicted in October of a singlecount of commodities fraud after a weeklong trial. He directed more than $700million in trades on 26 December 2017, that raised the value of therand to 12.50 against the US dollar, the barrier rate at which the option hebought from Morgan Stanley for $2 million would pay out.
Liman said the case was a serious one thatmerited the charges the government brought. But he also said the foreignexchange spot market wasn't regulated, Phillips didn't try to conceal hisactions and that the participants were sophisticated players.
Morgan Stanley "is hardly the kind ofunsuspecting victim" that the government usually brings charges on behalfof, the judge said. He noted that the bank could have taken other measures toprotect against its risk from the option and didn't request restitution fromPhillips.
READ | Rand manipulator should be jailed for two years, US prosecutors contend
$1 Million Fine
The judge further noted that Phillips has solecustody of two children who would be harmed by a lengthy incarceration. Limanalso ruled that Phillips can spend part of his probation at residences inLondon and South Africa.
But though he spared him from jail, Limanimposed a $1 million fine on Phillips over his conduct, the maximum under thestatute.
Phillips embraced his lawyers after thepunishment was pronounced, and as he did after his trial, shook the hands ofthe prosecutor and FBI agent in court for his sentencing.
"He's looking forward to being reunitedwith his family," Sean Hecker, Phillips' main lawyer, said outside court.
Lawyers for Phillips argued that prison wasunnecessary because he had been punished enough by the destruction of hiscareer, the downfall of his hedge fund and his time in Spanish jail.
READ | Rand manipulation: SA-born trader found guilty of forex fraud in New York
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 thetime spent away from his children in jail was a "greater punishment"than anything the court could impose.
Though he avoided prison, the sentence cappeda fall from grace of Phillips, previously celebrated as a canny and aggressivetrader. Backed by George Soros, London-based Glen Point was one of the biggesthedge fund launches of 2015. A macro fund focused on emerging markets, it atone point managed more than $2 billion for clients like the Teacher RetirementSystem of Texas.
The case was a rare attempt by US prosecutorsto clamp down on wrongdoing in the currency markets, where daily trading oftenrises above $7 trillion and regulations are loosely enforced. Phillips' lawyerscontended that the government was criminalising conduct that had never beforebeen considered illegal.
The sentencing took place in the samecourthouse where Archegos Capital Management co-founder Bill Hwang is on trialfor fraud and market manipulation. Similar to Phillips, Hwang has tried toargue that counterparties like Credit Suisse Group AG, Morgan Stanley andothers that he allegedly defrauded were sophisticated financial players whoknowingly took risks trading with his family office.
READ | Big legal blow for SA-born rand manipulator
Standard practice
Phillips argued that "barrier chasing"was a standard trading practice that Morgan Stanley anticipated and moved tooffset Phillips' actions with its own trades. The bank sold more than $560million 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 GlenPoint option for $13 million on 18 December 2017.
Phillips' arrest in Ibiza in September 2022sent shock waves through the world of macro funds, which make trades based oneconomic trends across a broad swath of assets such as foreign exchange.
Glen Point was started by Phillips and hisformer colleague at BlueBay Asset Management, Jonathan Fayman. The fund closedin 2022 after a failed merger with rival macro fund Eisler Capital.
Phillips can still challenge his conviction tothe 2nd US Circuit Court of Appeals. His lawyers have signalled they may arguethat the prosecution was insufficiently connected to the US markets, as GlenPoint was based in London and Phillips directed his trades from South Africathrough a Singapore-based Nomura Holdings trader.
Prosecutors have argued that jurisdiction wasproper because Phillips' trades involved the US dollar and a US bank was thevictim of the crime.
