South African-born trader Neil Phillips (pictured) was on Tuesday sentenced to probation instead of prison for his role in manipulating the US dollar/rand exchange rate to trigger a lucrative option payout.
The leniency in sentencing was influenced by US District Judge Lewis Liman’s view that the victim was Morgan Stanley, a major financial institution familiar with the risks of the unregulated foreign exchange spot market.
Judge Liman’s decision was also influenced by Phillips’ sole custody of two children. Phillips will be allowed to spend part of his probation in London and South Africa. The judge imposed a fine of $1 million on Phillips, the maximum under the statute.
Federal prosecutors pushed for a two-year prison sentence for Phillips, who was convicted in October last year of orchestrating $700m in trades to manipulate the rand to a barrier rate of 12.50 against the dollar. This rate determined the payout of a $20m option Phillips had purchased from Morgan Stanley.
Judge Liman opted for a lighter sentence: two years of probation and the month Phillips had served in a Spanish jail following his arrest in 2022.
The judge said all the parties involved were sophisticated market participants aware of the risks. He stated that Morgan Stanley was “hardly the kind of unsuspecting victim” the government typically represents, noting the bank could have taken measures to mitigate its risk and did not seek restitution from Phillips.
Prosecutors attempted to conceal Morgan Stanley’s identity during the trial, fearing jurors might be influenced by the bank’s actions and question its victimhood.
Phillips defended his actions by arguing that “barrier chasing” was a common trading practice anticipated by Morgan Stanley, which had attempted to counteract his trades by selling more than $560m in rand while he executed his trades.
It also came to light during the trial that Morgan Stanley had offered to buy back the option from Glen Point Capital for $13m on 18 December 2017.
Phillips was the co-founder and chief investment officer of London-based Glen Point Capital.
Glen Point Capital, backed by George Soros, was one of the largest hedge fund launches of 2015. Phillips founded the firm with Jonathan Fayman, a former colleague at BlueBay Asset Management. Glen Point closed in 2022 after a failed merger with rival macro fund Eisler Capital.
The saga began in late October 2017, when Phillips’ hedge fund purchased the “one touch” digital option for the dollar/rand currency pair, set to expire on 2 January 2018. This option, with a notional value of $20m, required the dollar/rand exchange rate to dip below 12.50 to trigger the payout. By mid-December 2017, the exchange rate had fluctuated between 14.50 and 13.15. Following Cyril Ramaphosa’s election as ANC leader on December 18, 2017, the rate dropped to as low as 12.52.
With the option nearing expiration and not yet triggered, Phillips allegedly schemed to manipulate the exchange rate. Between just before midnight on 25 December and about 12.45am on 26 December, Phillips directed a Singapore-based trader at Nomura Holdings to execute trades worth about $725m to drive the exchange rate below 12.50.
Although Phillips was found guilty of commodities fraud, he was acquitted of a related conspiracy charge.
He can still appeal his conviction to the Second US Circuit Court of Appeals. His lawyers have suggested they may argue that the prosecution was insufficiently connected to US markets because Glen Point was based in London and Phillips directed his trades from South Africa through the trader in Singapore.
