Neil Phillips convicted of manipulating USD/ZAR to trigger $20M payout

Prosecutors accuse Phillips, who was also chief investment officer at Glen Point, of manipulating the US dollar/ South African rand exchange rate to trigger a decent payment under two large binary option contracts his fund had bought.

The complaint describes at least two co-conspirators, raising the possibility of charges against more people. US federal prosecutors said that under the terms of the option contracts at issue, if the USD/ZAR exchange rate fell below certain levels, the contracts would pay out $30 million to two commodity pools under the joint management of Glen Point Capital.

Phillips and his London-based hedge fund, which was previously backed by George Soros, is charged with conspiracy to commit commodities and wire fraud, commodities fraud, and wire fraud.

The indictment occurred around Christmas time in late December 2017 when only a few days were left before a “one touch” digital option for USD/ZAR was set to expire worthless. Phillips and his staffers engaged in a scheme to artificially drive down the exchange rate to a barrier rate of 12.5, which triggered payouts on the option contracts.

As alleged, Phillips engaged an employee of Nomura bank in to aggressively sell USD/ZAR through the level, thus triggering the payout. The CFTC says that Phillips sold around $725 million USD/ZAR in just over an hour around the Singapore open.

However, Phillips’ defense team countered allegations, asserting that all trades were legitimate and conducted transparently in the open market. They further argued that the so-called victims were seasoned financial entities, well-versed in the intricacies of trading.

“What Neil did next was precisely what someone with a fundamental view, an investment thesis and an option position that was about to be triggered would do,” defense lawyer Jenna Dabbs said in opening statements in the trial.

Phillips also argued that his actions were a component of a broader, long-term strategy and aligned with established industry practices related to barrier trading. He mentioned that Morgan Stanley, which had sold the option to Glen Point for approximately $2 million, also executed similar trades to mitigate its own risk stemming from the wager.

The US attorney for the Southern District of New York, Damian Williams, praised the conviction to safeguard the integrity of financial markets. He added that his office is determined to root out these types of frauds so financial markets remain a level playing field.

“The policing of the financial markets is critical to the health and sanctity of our economy, and our office will be continuing to be a global law enforcement leader in ensuring fair market activity for investors at every level,” he added.

Phillips, who previously managed a $1.4 billion global macro fund at BlueBay Asset Management and co-founded Glen Point Capital, could face up to 10 years in prison. Glen Point Capital ceased trading operations in February of the previous year.