Glen Point’s Neil Phillips Facing Reduced US Criminal Case

Glen Point Capital co-founder Neil Phillips is facing a reduced criminal case after US prosecutors dropped the most serious charges against him.

(Bloomberg) — Glen Point Capital co-founder Neil Phillips is facing a reduced criminal case after US prosecutors dropped the most serious charges against him.

Federal prosecutors in New York on Monday said they were withdrawing charges of wire fraud and conspiracy to commit wire fraud, leaving the former hedge fund manager to face commodities fraud and related conspiracy counts. Wire fraud is punishable by up to 20 years in prison, while the commodities fraud charge carries a maximum sentence of 10 years.

It wasn’t immediately clear why prosecutors dropped the wire-fraud charges less than a month before Phillips is set to go on trial for allegedly manipulating currency markets in an attempt to make a $20 million wager on the exchange rate between the US dollar and South African rand pay off. US District Judge Lewis Liman earlier this month denied Phillips’s motion to dismiss the case.

The US “stands behind” its indictment of Phillips and its ability to prove at trial that he committed wire fraud, but “acknowledges that the jury and the court may well find otherwise,” prosecutors said in a letter to Liman filed late Monday. To streamline the trial and avoid a protracted legal fight, prosecutors said, they’ll move forward only on two counts of commodities fraud.

A spokesman for the US attorney’s office in Manhattan declined further comment.

Read More: Glen Point’s Phillips Says US Wants to Criminalize FX Trades

The case against Phillips has raised fresh concerns over “barrier chasing,” where traders bet that a currency will break through a specified level. Phillips allegedly attempted to drive down the exchange rate between the US dollar and the South African rand on the day after Christmas in 2017 to trigger an option on the pairing. 

The government said in Monday’s filing that it intends to show Phillips is guilty of commodities fraud because he manipulated the dollar/rand market to trigger the option. 

While many on Wall Street consider the once-widespread practice fair game given the amount of risk it entails, others consider it market manipulation. Phillips had argued in his motion to dismiss that the government was criminalizing a common practice in foreign exchange trading.

“We are pleased that the government has belatedly recognized that its wire fraud theory couldn’t withstand scrutiny at trial,” Sean Hecker, a lawyer for Phillips, said in an emailed statement. “But we remain disappointed that the government has failed to acknowledge the substantial shortcomings in what’s left of its case. Neil Phillips’s trading was lawful, consistent with market practice and undertaken with the sole intention of doing right by his investors.”

Phillips had been charged with wire fraud for allegedly directing Glen Point to tell counterparties that the option had been triggered but failing to inform them that it was caused by his trades. Though they are no longer charging that conduct, prosecutors said they reserve the right to contend that Phillips’s decision to not tell others about his trades is evidence of his guilt and “proof that his actions were not ‘fully disclosed’ to the market.”

The case is US v. Phillips, 22-cr-138, US District Court, Southern District of New York (Manhattan).

(Updates with maximum penalties and additional excerpts from filing.)

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