Neil Phillips, the former Chief Investment Officer of London-based hedge fund Glen Point Capital, has been convicted of commodities fraud. A federal jury in Manhattan took less than a day to reach the verdict, although Phillips was acquitted of a separate conspiracy charge. The case revolves around a $20 million foreign exchange (FX) options trade and offers a glimpse into the complex world of currency trading.
London Hedge Fund Manager Convicted of Forex Market Manipulation
The trial centered on a trade Glen Point Capital entered in 2017, focusing on the South African rand. Phillips had a bullish outlook on the currency, which ultimately paid off as the rand strengthened against the US dollar. However, prosecutors claimed that Phillips manipulated the market by trading the dollar-rand currency pair (USD/ZAR) so heavily that he intentionally shifted the exchange rate to profit from his options contract.
According to the prosecutors, Phillips tampered with the USD/ZAR exchange rate twice during December 2017, taking advantage of low trading volumes in the spot market. His goal was to lower the currency pair's price to a specific threshold, enabling his firm to secure payouts from binary options.
Phillips defended his actions, stating that his trading was a legitimate strategy based on his belief that the South African rand would strengthen. He attributed this belief to a 2017 leadership vote in South Africa that would determine the country's next president. Sean Hecker, Phillips' attorney, expressed strong disappointment in the verdict, vowing to continue fighting for his client's innocence.
"Moments ago, a jury unanimously found that Neil Phillips intentionally manipulated the Foreign Exchange, or 'FX' market — the world's largest decentralized financial market — in order to trigger a $20 million windfall for his hedge fund under a barrier option," Damian Williams, the US Attorney, commented on the conviction.
As a result of the conviction, Phillips now faces a maximum sentence of 10 years in prison. A judge will determine the final sentencing at a later date.
"The policing of the financial markets is critical to the health and sanctity of our economy. I commend the Securities and Commodities Fraud Task Force of this Office for continuing to be a global law enforcement leader in ensuring fair market activity for investors at every level," Williams concluded.
Neil Phillips, who launched Glen Point Capital in 2015 with financial backing from George Soros, has a diverse background. Raised in South Africa, he began his career trading at various banks, including Morgan Stanley. Interestingly, he also served as the executive producer of a 2021 documentary about unprosecuted Nazi war criminals.
Final Outcome of the December 2022 Case
The latest court decision marks the conclusion of a case that Finance Magnates reported on in late 2022, when the US Commodity Futures Trading Commission (CFTC) had initiated a civil enforcement action against Neil Phillips and two Glen Point Capital entities.
Phillips was accused of manipulating the market to activate payouts from two binary options contracts. He was found to have traded a large volume of the USD/ZAR currency pair to reach a specific exchange rate, which was the trigger point for the binary options contracts. He even went so far as to inquire about the amount he needed to sell in order to reach his target price and ceased trading once that price was achieved.
Less than two weeks ago, news emerged that Morgan Stanley, the alleged victim of Phillips' actions, is also under scrutiny. Initially, prosecutors wanted to keep Morgan Stanley's involvement under wraps, concerned that it might divert the jury's attention. They feared the jury might compare the bank's actions to Phillips' instead of focusing solely on the legal aspects.
