January 31, 2023

FDI Forum

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CFTC Expenses Commodity Pool Operators and Their Co-Chief Financial commitment Officer with Deception and Manipulation in Relationship with Swaps and Supervision Failures

Washington, D.C. — The Commodity Futures Investing Fee now filed a civil enforcement action in the U.S. District Court for the Southern District of New York towards Glen Issue Money Advisors LP and Glen Place Funds LLP (collectively, Glen Point Money), two CFTC-registered commodity pool operators, and their Co-Founder and Co-Chief Financial commitment Officer, Neil Phillips, charging them with participating in a deceptive and manipulative scheme to illegally induce payouts on two big binary choice contracts. Moreover, the defendants are billed with failing to supervise the investing functions of their officers, personnel, and brokers.

In its continuing litigation, the CFTC seeks, amongst other reduction, civil monetary penalties, disgorgement of any unwell-gotten gains, long-lasting investing and registration bans, and a lasting injunction from further more violations of the Commodity Exchange Act (CEA), as charged.

“Manipulative and deceptive carry out undertaken in connection with swaps harms industry integrity and marketplace members, and we will get action to keep those people who dedicate this sort of misconduct accountable,” mentioned Acting Director of Enforcement Gretchen Lowe.

Situation Background

The criticism alleges that the option contracts at challenge, which are swaps under the CEA, were being tied to the U.S. greenback (USD) to South African rand (ZAR) trade charge. Under their conditions, if the USD/ZAR exchange charge fell below specific levels at any point all through the lifetime of the contracts, the contracts would fork out out predetermined quantities totaling $30 million to two commodity swimming pools under the joint management of Glen Point Capital. 

On two situations, in late December 2017, during a time period of very low industry liquidity (all over Xmas time), Phillips engaged in a plan to deliberately and artificially drive down the USD/ZAR exchange price to ranges that would induce payouts on the solution contracts. At that time, Phillips realized that only a number of times remained for the USD/ZAR exchange fee to hit the predetermined quantities or else the contracts would expire, rendering them worthless. Fairly than enabling totally free market forces to figure out whether the USD/ZAR trade amount would breach the predetermined quantities established by the contracts just before they expired, Phillips orchestrated the buying and selling of huge amounts of the USD/ZAR currency pair in the overseas exchange location marketplace for the categorical goal of pushing the exchange amount down to the precise levels he required to result in the contracts. Phillips’ scheme was profitable and straight resulted in $30 million in payouts for the swimming pools less than Glen Point Capital’s administration.

As further more alleged, Phillips expressed his manipulative intent in messages he sent to the financial institution that executed the spot trades. For illustration, for the duration of the first established of trades at difficulty, Phillips explicitly informed a salesperson at the financial institution his aim was to trade via the charge of 12.50 rand for every dollar — the barrier stage that would induce just one of the solution contracts — and Phillips continuously asked the salesperson how a great deal he required to sell in buy to transfer the current market beneath that level. As shortly as Phillips prompted the USD/ZAR charge to transfer underneath that level, he promptly stopped buying and selling and questioned the salesperson to send out him a process printout of the final transaction as proof that the USD/ZAR amount had breached the 12.50 rand for each dollar barrier amount.

The criticism also alleges that although Glen Stage Capital purported to have a compliance and supervision program in impact all through the appropriate period of time, and while Phillips’ buying and selling action consisted of concentrated transactions that ended up executed in short time spans and led to improvements in the USD/ZAR currency pair place selling price that should have drawn the firm’s focus, the firm’s system either failed to detect or disregarded this activity.

Linked Criminal Motion

On September 1, the U.S. Attorney’s Workplace for the Southern District of New York introduced the unsealing of an indictment from Phillips in the very same court docket alleging conduct very similar to that alleged in the CFTC’s criticism.

The CFTC appreciates the aid of the U.S. Attorney’s Business for the Southern District of New York and the Financial Authority of Singapore.

The Division of Enforcement and CFTC personnel members dependable for this case are Julia C. Colarusso, Dmitriy Vilenskiy, Lauren E. Bennett, Jonah E. McCarthy, Jennifer Blakley, Mary Lutz, Yusuf Capar, Hillary Van Tassel, Catherine Brescia, Chrystal Gonnella, A. Daniel Ullman II, and Paul G. Hayeck. 

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Misconduct in the Swaps Markets

The CFTC oversees the swaps markets, and fraud or manipulation involving swaps violates the CEA and CFTC polices. 

Current market individuals can report suspicious pursuits or details, this sort of as achievable violations of commodity trading legislation, to the CFTC Division of Enforcement through a toll-free of charge hotline 866-FON-CFTC (866-366-2382), file a tip or criticism on the web, or contact the Whistleblower Place of work. Whistleblowers are eligible to receive among 10 and 30 % of the financial sanctions gathered compensated from the CFTC Customer Defense Fund financed via monetary sanctions paid out to the CFTC by violators of the CEA.