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London hedge fund founder arrested in Spain and charged with market manipulation

The arrest of Glen Point Capital co-founder Neil Phillips for alleged foreign-exchange market manipulation threatened to ripple across the hedge fund industry as another firm suspended staffers who previously worked with him.

Phillips, 52, was arrested in Spain on a request from the US earlier this week, federal prosecutors in New York said Thursday in a statement.

Kirkoswald Asset Management put on leave several employees who used to work at London-based Glen Point and Balyasny Asset Management let go some former Glen Point staff who had joined the firm recently, according to people with knowledge of the matter.

A person familiar with the matter said Kirkoswald was awaiting more information and stressed that the firm had no reason to believe the employees were involved in the alleged market manipulation. But similar caution may emerge elsewhere on Wall Street and within the Square Mile, where Phillips was associated with some of the biggest names in the hedge fund universe.

Phillips was charged with conspiring to manipulate the US dollar-South African rand exchange rate in late 2017.

The indictment, which was returned in March but previously sealed, describes at least two co-conspirators, raising the possibility of charges against more people.

William J. Stellmach, a lawyer for Phillips, didn’t immediately respond to a phone call and an email seeking comment on the charges.

Soros backing 

The alleged market manipulation came roughly two years after Phillips started Glen Point with his former BlueBay Asset Management colleague Jonathan Fayman. The pair raised nearly $2 billion from investors including George Soros.

Glen Point was set to be acquired in December by Edward Eisler’s Eisler Capital, which was also founded in London in 2015 and similarly 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.

Eisler, onetime co-head of global securities at Goldman Sachs Group Inc., has been expanding into other strategies in a bid to compete with industry giants such as Millennium Management and Citadel for capital and talent.

A spokesman for Eisler Capital confirmed Phillips never joined the firm and declined further comment.

US regulators have been cracking down on market manipulation since the financial crisis more than a decade ago. Dozens of banks and traders have been accused of rigging markets including interest rates and precious metals, and even lying to customers about the prices of asset-backed securities.

Option trigger

According to prosecutors, Phillips’s hedge fund bought a digital option for the dollar-rand currency pair in late October 2017 that was set to expire on January 2, 2018. The option had a notional value of $20 million and a barrier rate of R12.50 to the dollar, entitling the fund to a payment in that amount if the rate went below the barrier before the expiration date.

With the option set to expire, Phillips began making spot trades in an effort to push the exchange rate lower late on Christmas Day, while directing a Singapore-based employee of an unidentified bank to sell $725 million in exchange for more than R9 billion, according to prosecutors. That pushed the exchange rate below the barrier, triggering the $20 million option. Phillips collected more than $15.6 million from the deal and also allocated $4.34 million to an unidentified client.

His Glen Point Global Macro Fund recorded one of its strongest monthly gains in December 2017, up 6% and contributing to a 22% return that year, according to an investor document seen by Bloomberg.

Other financial institutions were parties to the transaction, prosecutors said, including a bank headquartered 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.

New money

Phillips joined BlueBay, owned by Royal Bank of Canada, in 2005 as a money manager. He started managing a macro strategy within the firm’s multi-strategy fund in 2007 and went on manage the firm’s standalone macro hedge fund two years later. BlueBay closed the $1.4 billion macro fund after Phillips and Fayman left in November 2014 to found Glen Point.

The firm also enjoyed a high profile because it was among a small number of hedge funds to raise new money in 2016 when investors were pulling billions from the industry, according to research firm eVestment.

Phillips, who is currently in custody in Spain pending potential extradition, faces as much as 20 years in prison on the most serious charges, prosecutors said.

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

© 2022 Bloomberg


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