Glen Point Capital’s Neil Phillips found guilty of foreign exchange fraud, faces 10 years in prison

The jury deliberated for less than half a day before deciding the case. Phillips did not visibly react as the verdict was read. Afterwards, in an unusual move, he shook hands with the prosecutors before being embraced by his lawyers.

“We’re disappointed,” Sean Hecker, one of Phillips’ lawyers, said outside the courtroom. “We continue to believe very strongly in Neil’s innocence. We don’t believe he should have been charged in the first place, and we’ll keep fighting.” The defence said it would ask Judge Liman to set aside the verdict and would file an appeal if that was not successful.

Buying binge

The indictment of the high-flying London-based trader, whose George Soros-backed fund was one of the biggest launches in 2015, reverberated across the world’s financial capitals when it was unsealed in September last year. Phillips’ dramatic arrest in Ibiza at the request of US authorities led to the suspension of several of former staffers who had joined other funds from Glen Point.

At the heart of the prosecutors’ case was a one-hour buying binge of the South African currency in the early hours of December 26, 2017. The “Boxing Day trades” effectively moved the exchange rate to 12.50 rand against the dollar, the barrier at which the Morgan Stanley option would pay out. According to the government, Phillips resorted to market manipulation because the option was set to expire on January 2, 2018.

Jurors were shown transcripts of Bloomberg chats in which Phillips discussed how “to break 50” with the Singapore-based trader at Nomura Holdings who placed his orders.

“My aim is to trade thru 50,” Phillips said in one message. “Get it thru,” he said in another.

Prosecutors also played an earlier phone conversation in which Phillips told one of his Glen Point traders that he might need him “to start f—ing around in dollar/rand tonight”.

‘Investment thesis’

The prosecution case notably did not rely heavily on eyewitness testimony. The Nomura salesperson who worked with Phillips, Rahul Kamath, was one of two uncharged co-conspirators described in the indictment, but neither of them testified at the trial.

The defence presented evidence that Phillips, who was born and raised in South Africa, was pursuing a strategy based on a strong belief that the rand would rise once Cyril Ramaphosa emerged as the country’s presumptive next president after the African National Congress election on December 18, 2017. Phillips’ lawyers argued that the Boxing Day trades were motivated by this strategy, not the $US20 million option.

“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,” defence lawyer Jenna Dabbs told the jury in opening statements in the trial.

Phillips’ lawyers noted that other market participants were also making similar trades based on political developments in South Africa, chief among them Morgan Stanley. It was revealed at trial that on December 18, 2017, the bank offered to buy back the Glen Point option for $US13 million. Morgan Stanley also sold more than $US560 million in rand while Phillips was buying on Boxing Day.

The case was a rare attempt by US prosecutors to enforce a code of conduct in the loosely regulated currency markets, where daily trading often tops $US7 trillion. In the past, the government has focused more on foreign exchange collusion and price fixing by big banks rather than a specific set of trades.

In a statement after the verdict, Manhattan US Attorney Damian Williams said the “policing of the financial markets is critical to the health and sanctity of our economy” and commended his office’s prosecutors for working to ensure “fair market activity for investors at every level”.

Phillips’ trial began and ended while Williams’ office was prosecuting its fraud case against FTX co-founder Sam Bankman-Fried. A verdict in that case could come as soon as next week, following the former crypto mogul’s planned testimony in his own defence.

The defence focus on the sophistication of the alleged victims of market manipulation offers a preview of what lawyers are likely to argue in the Archegos case, in which Mr Hwang and his family office’s chief financial officer, Patrick Halligan, are accused of deceiving Morgan Stanley, Credit Suisse, Nomura and other banks into taking stock positions that lost them more than $US10 billion when Archegos collapsed.

Bloomberg