(Bloomberg) -- The judge who sentenced Glen Point Capital co-founder Neil Phillips to probation instead of prison for manipulating an exchange rate said leniency was warranted in part because the victim in the case was Morgan Stanley.

Manhattan federal prosecutors had asked for a two-year prison sentence for Phillips, who was convicted in October of directing $700 million in trades aimed at manipulating the value of the South African rand to 12.50 against the US dollar. That was the barrier rate at which a $20 million option he bought from Morgan Stanley would pay out.

But US District Judge Lewis Liman on Tuesday instead sentenced Phillips, 53, to two years of probation and the one month he already served in a Spanish jail after his 2022 arrest. In explaining his decision, the judge said the parties in the case were all sophisticated participants in the unregulated foreign exchange spot market who knew the risks involved.

Morgan Stanley “is hardly the kind of unsuspecting victim” on whose behalf the government usually brings charges, Liman said. He noted that the bank could have taken other measures to protect against its risk from the option and didn’t request restitution from Phillips.

The bank declined to comment on the judge’s remarks.

Though Liman suggested Morgan Stanley was not a typical crime victim, federal prosecutors have been pursuing a number of cases of fraud against Wall Street banks. 

Indeed, similar words from the bench would have been welcome to Archegos Capital Management founder Bill Hwang and his former chief financial officer, Patrick Halligan, who were on trial in the same courthouse while Phillips was sentenced. They are both charged with defrauding several banks, including Morgan Stanley. 

Archegos Defense

Like Phillips, the Archegos defendants have tried to argue the counterparties that lost some $10 billion trading with Hwang’s family office were sophisticated financial players who knew the risks. Unlike Phillips, however, Hwang and Halligan are accused of lying to the banks over and over again. In fact, Phillips bought his barrier option through a third party and had no direct dealings with Morgan Stanley.

In addition to the Archegos case, Manhattan federal prosecutors also have a case against Charlie Javice, who’s accused of defrauding JPMorgan Chase & Co. when it acquired her student loan startup for $175 million. Javice, who allegedly vastly inflated the number of users of her site, is scheduled to go on trial in the fall.

Prosecutors in the Phillips case had unsuccessfully sought to keep Morgan Stanley’s identity out of the trial, expressing concern that jurors would be distracted by the bank’s own conduct and question whether it was actually hurt by Phillips. 

Phillips argued that “barrier chasing” was a standard trading practice that Morgan Stanley anticipated and moved to offset Phillips’ actions with its own trades. The bank sold more than $560 million in rand while Phillips was carrying out his “Boxing Day trades.” It was also revealed at trial that Morgan Stanley offered to buy back the Glen Point option for $13 million on Dec. 18, 2017.

The jury wasn’t convinced by such arguments, finding Phillips guilty within hours of beginning deliberations. But Liman said on Tuesday that Morgan Stanley could have taken other steps to limit its risk from the option. 

$1 Million Fine

The fact that Morgan Stanley was the victim wasn’t the only reason Liman gave for leniency. The judge noted that Phillips has sole custody of two children who would be harmed by a lengthy incarceration. Liman ruled that Phillips can spend part of his probation at residences in London and South Africa.

But though he spared him from jail, Liman imposed a $1 million fine on Phillips over his conduct, the maximum under the statute.

Phillips embraced his lawyers after the punishment was pronounced, and as he did after his trial, shook the hands of the prosecutor and FBI agent in court for his sentencing.

“He’s looking forward to being reunited with his family,” Sean Hecker, Phillips’ main lawyer, said outside court.

Lawyers for Phillips argued that prison was unnecessary because he had been punished enough by the destruction of his career, the downfall of his hedge fund and his time in Spanish jail. 

Soros Backing

Addressing the judge before his sentencing, Phillips said the case had been “an incredibly difficult experience” that he wouldn’t wish “on anyone, even my worst enemy.” He said the time spent away from his children in jail was a “greater punishment” than anything the court could impose.

Though he avoided prison, the sentence capped a fall from grace for Phillips, previously celebrated as a canny and aggressive trader. Backed by George Soros, London-based Glen Point was one of the biggest hedge fund launches of 2015. A macro fund focused on emerging markets, it at one point managed more than $2 billion for clients like the Teacher Retirement System of Texas. 

Phillips’ arrest in Ibiza in September 2022 sent shock waves through the world of macro funds, which make trades based on economic trends across a broad swath of assets such as foreign exchange. 

Glen Point was started by Phillips and his former colleague at BlueBay Asset Management, Jonathan Fayman. The fund closed in 2022 after a failed merger with rival macro fund Eisler Capital.

Phillips can still challenge his conviction to the 2nd US Circuit Court of Appeals. His lawyers have signaled they may argue that the prosecution was insufficiently connected to the US markets, as Glen Point was based in London and Phillips directed his trades from South Africa through a Singapore-based Nomura Holdings trader. 

Prosecutors have argued that jurisdiction was proper because Phillips’ trades involved the US dollar and a US bank was the victim of the crime.

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

(Updates with Morgan Stanley declining to comment.)

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