Glen Point Capital co-founder Neil Phillips urged a federal judge to throw out charges that he tried to manipulate the foreign exchange market, saying the US is attempting to criminalize normal trading activity.
The case attempts to criminalize activity in the FX market that has never been prosecuted before, David Gopstein, a lawyer for Phillips, said at a hearing in Manhattan Tuesday.
Phillips is accused of attempting to drive down the exchange rate between the US dollar and the South African rand on the day after Christmas in 2017 to trigger a $20 million wager on the pairing.
The case has raised fresh concerns over “barrier chasing,” where traders bet that a currency will break through a specified level. While many on Wall Street consider the once-widespread practice fair game given the amount of risk it entails, others consider it market manipulation.
Gopstein argued the government case relies on the premise that Glen Point was required to disclose its own trading activity to other parties. He said the government is using boilerplate language to criminalize transactions that were made in an open, unregulated market and carried actual risk.
‘Fair Notice’
“There was no fair notice that form language in a stock agreement about a third party’s ministerial role carried with it an obligation to disclose a party’s trading activity,” he said. “And failure to disclose could be considered criminal.”
Other financial institutions were parties to the transaction, prosecutors said, including a bank in Manhattan that paid the $20 million option; another Manhattan-based bank that served as the fund’s prime broker; and a financial services firm that facilitated the purchase of the option.
None of the firms were identified by the government, but Glen Point identified JPMorgan Securities LLC as its prime broker in a filing with the US Securities and Exchange Commission and Bloomberg reported in September that the firm that facilitated the purchase was Nomura Holdings Inc.
Read more: Nomura Made FX Trades for Glen Point at Heart of Fraud Claim
But the government argued that the defense is wrongly trying to focus on the boilerplate language when there were more traditional problems with the transaction.
“The government’s view is that open market trades like buying spot rand can be manipulative when there is an intent to artificially move the price,” said Assistant US Attorney Thomas S. Burnett. “There was an actual action, trading conduct with an intent to trigger the option by artificially moving the price. The timing of the trading, the volume of the trading, the way the trades were executed, all goes to intent.”
Phillips attended the hearing remotely from London. He was arrested on the Spanish island of Ibiza last year, waived extradition in January and is scheduled to go to trial in October.
He has pleaded not guilty. Judge Lewis J. Liman said he will rule on the motion to dismiss as soon as possible.
Glen Point was set to be acquired in December 2021 by Edward Eisler’s Eisler Capital, but the deal fell apart because of a disagreement on the level of risk Glen Point’s fund could take and Phillips’ firm later shut down.
The case is US v. Phillips, 22-cr-138, US District Court, Southern District of New York (Manhattan).
A previous version of the story was corrected to fix spelling in the headline.
(Updates with Glen Point’s closure in last paragraph.)
