FSA decides to ban and fine hedge fund CEO

FSA decides to ban and fine hedge fund CEO – The FSA has published a decision notice indicating that it has decided to fine Alberto Micalizzi £3 million and ban him from performing any function in relation to any regulated activity.

At the relevant time, Mr Micalizzi was the CEO and director of Dynamic Decisions Capital Management Ltd (Dynamic). The FSA has also cancelled Dynamic’s Part IV Permission for failing to satisfy Threshold Condition 5 (Suitability) for not having a sound and prudent management.

Between October and December 2008, the master fund managed by Dynamic suffered losses of approximately 85 per cent of its value. The FSA is of the opinion that Mr Micalizzi deliberately concealed the losses, provided false and misleading information to new investors and entered into a number of bond contracts for a bond that he knew was not a genuine financial instrument. In the FSA’s opinion these bond contracts were used to create artificial gains for the master fund by booking purported profits from the contracts of over US $400 million in late 2008, which counterbalanced the master fund’s losses enabling them to report a modest profit each month.

In May 2009 the master fund was placed into liquidation.

The FSA believes that Mr Micalizzi has continuously provided the FSA with false and misleading information since commencement of the investigation. Dynamic’s compliance officer has also been fined (see News from November 2011 below).

Mr Micalizzi and Dynamic have referred this matter to the Upper Tribunal. Copies of Mr Micalizzi’s decision notice, Dynamic’s decision notice are available.

FSA fines hedge fund compliance officer

The FSA has fined Dr Sandradee Joseph £14,000 and banned her from performing any significant influence functions in regulated financial services for breaching Principle 6 of the FSA’s Statements of Principle for Approved Persons.

The FSA found that Dr Joseph, a compliance officer at Dynamic Decisions Capital Management (DDCM), failed to adequately investigate concerns raised by a prime broker and investors.

An investment strategy adopted by DDCM in the wake of the Lehman Brother’s collapse resulted in losses of approximately 85% of a fund’s total assets.

To conceal such losses, a senior employee at DDCM entered into a number of contracts, on behalf of an investment fund managed by DDCM, for the purchase and resale of a bond (Bond).

The senior employee booked purported profits of approximately US$ 418m to the fund and in every Contract, the fund’s acquisition of the Bond was made at a deep discount to its face value. However, when calculating the net asset value of the fund, the Bond was valued at close, to, or above its face value, which resulted in profits slightly in excess of the losses suffered by the fund such that, in each month, a modest profit was reported.

Subsequently, the prime broker of the fund resigned and raised its concerns in a termination letter.

Two institutional investors also raised concerns about the Bond in emails sent to the senior employee, with Dr Joseph copied in, and further advised that the Bond was in breach of investment restrictions and that the Bond was of doubtful provenance and legitimacy.

In the course of its investigations, the FSA found that

Dr Joseph mistakenly relied on other employees at DDCM (in particular the senior employee), and
that she failed to investigate the Bond, believing that external legal advisors would have acted on any justified concerns.

A copy of the press release and final notice are available.

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May 30, 2012 < Back