Neil Phillips Faces Two-Year Prison Sentence for Market Manipulation, Scott Becker to Testify in Fraud Trial

Key Takeaway

• Federal prosecutors recommend a two-year prison sentence and $1 million fine for Neil Phillips, co-founder of Glen Point Capital, for manipulating the US dollar-South African rand exchange rate.
• Scott Becker, former chief risk officer at Archegos Capital Management, is set to testify against Bill Hwang in a fraud trial involving $10 billion in bank losses.
• Becker admitted to lying about Archegos' holdings to secure credit and swap transactions, leading to significant financial fallout for banks like UBS and Jefferies.

Sentencing Recommendation for Neil Phillips

Federal prosecutors have recommended a two-year prison sentence for Neil Phillips, co-founder of Glen Point Capital, for manipulating the US dollar-South African rand exchange rate. Phillips, 54, was convicted of commodities fraud in October after a weeklong trial. Prosecutors accused him of orchestrating $725 million in trades on December 26, 2017, to boost the rand's value against the dollar, triggering a $20 million option payout.

"A sentence of two years’ imprisonment, and a $1 million fine, are necessary to reflect the severity of the defendant’s crime and deter others from committing fraud through market manipulation," stated prosecutors from the US Attorney’s Office in Manhattan in a court filing. They argued that a sentence without prison time would not match the planning involved in the offense, Phillips' high-ranking role at Glen Point, and the financial gain from the fraud. "It would also send the wrong message to the industry that fraud committed through trading is a lesser offense than any other form of fraud," they added.

Phillips' defense team argued for no prison time, citing his month-long jail stint under difficult conditions and ongoing litigation in a foreign country. However, federal sentencing guidelines suggest a much harsher sentence of 78 to 97 months in prison. The case is being heard in the US District Court, Southern District of New York (Manhattan).

Key Witness Testifies

Jurors at Bill Hwang’s fraud and market manipulation trial are set to hear from Scott Becker, Archegos Capital Management’s former chief risk officer, who is expected to testify as early as Monday. Becker, who has already pleaded guilty, will serve as a cooperating witness for the prosecution. He was a primary contact for banks and has been recorded reassuring them about Archegos' stability even as the firm was collapsing. Becker is anticipated to testify that he was directed by Hwang and co-defendant Patrick Halligan, Archegos’ chief financial officer, to lie to the banks, which ultimately lost $10 billion trading with Archegos.

Becker’s testimony is crucial as it promises to provide jurors with an inside look at what prosecutors claim was a sophisticated conspiracy to defraud banks and manipulate markets. According to prosecutors, Becker was part of a “corrupt core” at Archegos, which included Hwang, Halligan, and former head trader William Tomita. Tomita, who has also pleaded guilty, is another key witness for the prosecution. Kevin O’Brien, a former federal prosecutor, noted, “Jurors want to hear the inside story of what happened, rather than have to piece together emails or recorded conversations.”

Misleading Banks

Becker’s involvement in misleading banks has been highlighted through various testimonies. Former UBS Group AG risk manager Bryan Fairbanks testified about a March 10, 2021, call in which Becker claimed that Archegos could liquidate in 30 days if necessary and reassured him that Archegos’ largest position was with UBS. However, it turned out that Archegos had similar positions with other banks, leading to a catastrophic liquidation by the end of March 2021 when margin calls were missed.

Jennifer Miranda, a managing director at Jefferies Financial Group, also testified that Becker reassured her in March 2021 that Archegos had billions in unencumbered cash and could liquidate its positions within a month if necessary. Based on this assurance, Miranda partially approved a $240 million withdrawal request from Archegos. Two days later, Archegos was insolvent, costing Jefferies $40 million.

In his April 2022 guilty plea, Becker admitted to lying to financial institutions about Archegos’ holdings to get them to extend credit or participate in swap transactions. He stated, “I falsely represented to certain financial institutions that Archegos’s largest position was approximately 35% of its net asset value when, in fact, I knew the largest position had grown to a significantly higher percentage than that.”

Defense Strategy

The defense is expected to argue that Becker is still lying and is scapegoating others for his own misconduct. Mary Mulligan, Halligan’s lawyer, described Becker as manipulative and “a very, very convincing liar” during her opening statement. Defense lawyers often try to depict cooperators as individuals who are blaming others to mitigate their own culpability.

Evidence of personal rivalries within Archegos could also complicate the prosecution’s depiction of a tight “core” at the firm. Jesse Martz, a former junior member of Archegos’ operations team, testified that Becker did not get along with Halligan and often vented about him. Martz mentioned that Becker had a “personal vendetta” against Halligan, which could be used by the defense to question Becker’s credibility.