Publications
Partners
- For more financial news, go to the News24 Business front page.
A US federal judge upheld the conviction of Glen Point Capital co-founder Neil Phillips, who was found guilty last year of manipulating the US dollar-South African rand exchange rate, despite questioning the Justice Department’s role as the policeman of financial markets around the globe.
US District Judge Lewis Liman mainly agreed with the former hedge fund executive’s argument that prosecutors hadn’t proved that his activities had a close connection to US commerce, saying that most of the links to the US were “indirect or insignificant.”
READ | Rand manipulation: SA-born trader found guilty of forex fraud in New York
The government’s theories “would expand United States swap regulations to a vast array of transactions around the globe based on incidental and insubstantial ties to the United States,” Liman said. But he found that the roles of JPMorgan Chase & Co. and Morgan Stanley in various parts of the deal still gave US prosecutors jurisdiction and aligns with the goals of the 2010 Dodd-Frank Act.
“A fraud orchestrated and conducted abroad, but perpetrated on a United States prime broker or swap counterparty, undermines the soundness of the domestic markets for prime brokerage services and swaps,” Liman said. “If individuals outside the United States can defraud their American prime brokers and swap counterparties with impunity, then those markets will lack the very accountability Dodd-Frank sought to ensure.”
Phillips, 53, was convicted of a single count of commodities fraud by a jury in Manhattan in October after a weeklong trial. Prosecutors had accused Phillips of directing $725 million (R13.7 billion at current rates) in trades on December 26, 2017, to intentionally raise the value of the South African rand against the US dollar and trigger a payout on a $20 million option.
In post-trial motions, Phillips’ lawyers argued that federal prosecutors in Manhattan didn’t have the right to scrutinize a trade placed by Phillips from South Africa and executed by a Nomura banker in Singapore which resulted in the payout on an option sold by a London broker on behalf of Morgan Stanley International, which is based in London. Prosecutors countered that the chatroom orders by Phillips passed through servers in New York and thus established a connection between the manipulation and the US.
READ | Rand manipulation: Fund manager used Japanese investment bank for suspect trades
Despite losing this round, Phillips can challenge his conviction to the 2nd US Circuit Court of Appeals, which has overturned jury verdicts in other cases brought by federal prosecutors enforcing US laws against foreign nationals caught up in manipulation schemes.
“We are extremely disappointed by the court’s decision, but remain hopeful that our client will ultimately prevail,” Phillips’ lawyers said in a statement.
Phillips is scheduled to be sentenced on May 23. He faces as much as 10 years in prison on the single commodities fraud charge of which he was convicted.
Glen Point was started by Phillips and his former colleague at BlueBay Asset Management, Jonathan Fayman, in 2016. The firm was set to be acquired in December 2021 by Edward Eisler’s Eisler Capital, which was also focused on macro trading. But the deal fell apart in February because of a disagreement on the level of risk Glen Point’s fund could take, and the firm later shut down.
