(Bloomberg) – Glen Point Capital and its founder Neil Phillips have been sued by the U.S. Commodity Futures Trading Commission for allegedly conspiring to trigger payouts on two options contracts totaling $30 million.
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Following a series of trades, the CFTC says in its lawsuit, a supervisor at the brokerage firm that executed the trades heard how they went and responded bluntly.
“Jesus,” he said, according to the complaint.
The lawsuit, filed Thursday in Manhattan federal court, expands the legal troubles of Phillips, who was charged by federal prosecutors in New York about three months ago with conspiring to manipulate the 7-day foreign exchange market, $5 trillion. He is awaiting extradition from an Airbnb on the Spanish island of Ibiza, where he was arrested while on vacation.
Read more: Trader stuck in Ibiza awaits FX deal splitting Wall Street
Phillips declined to comment on the CFTC lawsuit. The agency said it had no comment beyond the complaint.
Barrier hunt
Wall Street remains divided on whether barrier hunting, a bet that a currency will cross a specified level, should be allowed. Some traders believe that any trade that takes risk should be allowed, while others consider it manipulation.
Now, with the CFTC adding its civil suit to the Justice Department’s criminal charges, the case could become something of a referendum on what has always been considered fair game in the forex market.
The CFTC complaint refers to two sets of transactions, one of which appears to be the same one cited by prosecutors. Phillips’ hedge fund purchased a digital option for the dollar-rand currency pair in late October 2017, which was due to expire on January 2, 2018. The option had a notional value of $20 million and a barrier rate of 12.50 rand for a dollar. entitling the fund to a payment of this amount if the rate falls below the barrier before the expiration date.
Prosecutors say Phillips began making spot trades to drive the exchange rate down on Christmas Day, ordering a Singapore-based salesperson at an unidentified brokerage firm to sell $725 million in exchange for more of 9 billion rand. The goal was to send the rate below the barrier and trigger the option, allowing Phillips to raise more than $15.6 million from the deal. The company, which the United States has identified only as Bank 3, is Nomura.
Read more: Nomura carried out foreign exchange transactions for Glen Point amid fraud claim
Lawton King, spokesperson for Nomura, declined to comment on the CFTC lawsuit.
Chase is on
Shortly after the trades, employees at the brokerage firm seemed to realize the seriousness of the situation, according to the CFTC complaint, with the salesman who placed the trades telling his supervisor that he had tried not to respond directly to the “very explicit” of Phillips. communications, but could not just stop the trade.
“I just wanted you to know because there was no real way of knowing. [Phillips]”No, we’ll just hold off while I confirm compliance or whatever,” the seller said, according to the complaint.
The supervisor’s candid one-word assessment followed soon after.
The CFTC alleges that Phillips engaged in another chase three days later with the same bank, to drive the exchange rate below a rate of 12.25 rand per dollar, triggering a payment of 10 million dollars linked to another option.
Glen Point closed this year after a failed merger with rival hedge fund Eisler Capital.
The case is Commodity Futures Trading Commission v. Glen Point Capital Advisors LP, 22-cv-10589, US District Court, Southern District of New York (Manhattan).
–With help from Amelia Pollard.
(Updates with complaint details from 11th paragraph. A previous version of this story corrected the rand amount in the ninth paragraph.)
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