Charges Against Hedge Fund Co-Founder for FX Market Manipulation and Fraud

Prevention is better than cure, this is why it is important to download the WikiFX app. WikiFX is a forex broker inquiry app, which allows traders to verify and review brokers before they use them. WikiFX is preventing scams in the forex market, just like this one.

The chief investment officer and co-founder of the UK hedge fund Glen Point Capital was accused of defrauding and manipulating the foreign currency (FX) market on September 1, 2022. According to a news statement from the US Department of Justice, the defendant has been charged with taking part in a plan to deceptively trigger a $20 million payment under a barrier options contract by artificially manipulating the USD/ZAR currency rate.

One count of conspiracy to commit commodities fraud, which has a possible five-year jail sentence, and one count of commodities fraud, which carries a maximum 10-year sentence, have been brought against the defendant. In addition, the defendant is accused with conspiring to conduct wire fraud and committing wire fraud, each of which carries a 20-year maximum sentence.

The contract for a barrier option

A “one touch digital option” is a specific kind of transaction that offers the buyer a predetermined payout if an underlying asset crosses a certain threshold from the beginning to the end of the trading period. In October 2017, Glen Point Capital allegedly bought a one-touch digital option for the USD/ZAR currency pair, as stated in the indictment. According to the conditions of the deal, Glen Point Capital would be entitled to a payment of $20 million if the USD/ZAR exchange rate fell below the rate of 12.50 before January 2, 2018.

Christmas Day 2017, eight days before to the option's scheduled expiration, the defendant devised a plan to force the payment by purposefully and artificially manipulating the USD/ZAR exchange rate to cause the rate to go below 12.50. The defendant instructed a Singapore-based employee to sell around $725 million for about 9,070,902,750 ZAR through a series of Bloomberg chat messages, which significantly lowered the USD/ZAR exchange rate. Trading stopped after the rate fell barely below 12.50.

The defendant failed to disclose the aggressive transactions that eventually resulted in exchange rate manipulation when it notified the financial services company—through whom the option was purchased—that the $20 million one-touch option had been activated.

Forex (foreign exchange) scam

Rosa Abrantes-Metz, an economist and co-head of the Brattle Group's antitrust practice, commented on the plan, saying, “Unfortunately, this sort of behaviour happens more frequently than we would want to see.” The Commodities Futures Trading Commission (CFTC) has “witnessed a substantial increase in forex trading frauds in recent years,” as well.

For price fixing and bid rigging in the international FX market, a former currency trader at a significant multinational bank was given an eight-month prison term and was had to pay a $150,000 criminal fine in September 2020. Three men were charged in April 2021 with running a forex trading scam to defraud investors out of $30 million.

The CFTC has provided guidelines on the warning signs to look out for in order to lessen the harm posed by this fraud type, including:

promises that there is no “bear” market while trading in FX

Companies that advise against trading on the interbank market

Requests to swiftly transmit or transfer money by the internet, by mail, or in any other way

collecting background information on the individual or firm is challenging

Compliance personnel should evaluate the efficiency of their companies' trade monitoring system in light of this fraud plan. The monitoring of communications and system access times may also be necessary. The CFTC advises contacting them to inquire about the company's registration status, corporate history, and disciplinary record before engaging in forex trading.

Download the WikiFX app on the AppStore or the Playstore, to prevent such scams from happening to you in the future.