In a recent indictment, the DOJ said that the co-founder of a hedge fund backed by George Soros, Neil Phillips, was arrested for forex manipulation in Spain.
A FX trade that George Soros made $1 billion on thirty years ago was widely seen as manipulative at the time, and the Hungarian was fortunate to escape arrest. His protégé was not as fortunate today.
The DOJ stated in an unsealed indictment (pdf below) this morning that Neil Phillips, the co-founder and CIO of the UK-based hedge fund Glen Point Capital, was accused of planning to manipulate the FX market. The 52-year-old was detained in Spain earlier this week at the US’s request. He was accused of planning to influence the USD/ZAR exchange rate on Christmas Day 2017 amid low volume trading to cause a $20 million payment under a barrier options contract.
Former BlueBay fund managers Jonathan Fayman and Phillips, who oversaw a $1.4 billion macro hedge fund at BlueBay from 2009 to 2014, founded Glen Point, which had around $1.5 billion in capital at the beginning of the year. As recently as March, the fund tried to sell itself to the hedge fund Eisler Capital, which is controlled by Ed Eisler, a former co-head of Goldman’s global securities arm. However, the deal failed “due to disagreement over the level of risk Glen Point’s fund could take.” The two London-based companies date back to the beginning of 2015 and can be traced to macro trading. In an effort to compete for funds and talent with industry giants like Millennium Management and Citadel, Eisler has been diversifying his business practises.
One of the fund’s original backers and billionaire FX and macro trader George Soros provided Glen Point with its initial funding.
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Prosecutors claim that in late October 2017, Phillips purchased a digital option for the USD/ZAR currency pair that was due to expire on January 2, 2018. The option, which had a barrier rate of 12.50 ZAR to USD and a notional value of $20 million, gave the fund the right to a $20 million payment if the rate fell below 12.50 before the expiration date.
According to authorities, Phillips started making spot trades late on Christmas Day in an effort to drive the exchange rate down as the option was about to expire. He also instructed a Singapore-based employee of an unnamed bank to sell $725 million for more than 9 million South African rand. According to the statement, this caused the currency rate to drop below the trigger, enabling Phillips to profit from the sale to the extent of about $15.6 million.
Additional information from the DOJ statement:
Damian Williams, the United States Attorney for the Southern District of New York, and Michael J. Driscoll, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment charging NEIL PHILLIPS, the co-founder and chief investment officer of a hedge fund based in the United Kingdom, with conspiracy to commit commodities fraud, conspiracy to commit wire fraud, commodities fraud, and wire fraud in connection with a scheme to artificially manipulate the United States dollar (“USD”) / South African rand (“ZAR”) exchange rate to fraudulently trigger a $20 million payment under a barrier options contract. PHILLIPS was arrested in Spain earlier this week at the request of the United States.
U.S. Attorney Damian Williams said: “As alleged, Neil Phillips – the co-founder and chief investment officer of a prominent U.K. hedge fund – manipulated the FX market in order to unlawfully obtain millions of dollars in payments for his hedge fund under an options contract. Market manipulation is pernicious in all of its forms and today’s charges are a reminder that the Southern District of New York will steadfastly investigate and prosecute such activity whether it occurs in the equity market, the FX market, or elsewhere in the financial system.”
FBI Assistant Director Michael J. Driscoll said: “As alleged, Mr. Phillips maliciously manipulated global markets in order to defraud financial institutions for illicit profit. The FBI is determined to root out these types of frauds so financial markets remain a level playing field. As shown today, the FBI will find fraudulent actors no matter where in the world they are located and seek to bring them back to the United States to face the consequences of their actions in our federal criminal justice system.
Read the indictment given below: