FSA bans and fines hedge fund chief £3m – Regulator hands out largest fine for an individual in a non market abuse case. – The Financial Services Authority (FSA) has today (29 May) fined Alberto Micalizzi £3m and banned him from performing any role in regulated financial services.
At the relevant time, Micalizzi was the chief executive officer and a director of Dynamic Decisions Capital Management Ltd (DDCM), a hedge fund management company based in London.
The decision notice for Micalizzi, dated 20 March 2012, states that between 1 October 2008 and 31 December 2008, the master fund managed by DDCM suffered catastrophic losses of over USD390 million (£248m), about 85 per cent of its value.
In the FSA’s opinion, in late 2008, to conceal the losses, Micalizzi lied to investors about the true position of the fund and entered into a number of contracts, on behalf of the fund, for the purchase and resale of a bond.
The FSA believes the bond was not a genuine financial instrument and that Micalizzi was aware of this when he entered into the bond contracts.
In the FSA’s view, the bond contracts were deliberately undertaken by Micalizzi to create artificial gains for the fund.
The mechanism for this deception was simple, according to the FSA.
Units of the bond were sold to the fund at a deep discount to their face value, and then valued by the fund at about their face value when reporting to investors.
The FSA believes Micalizzi used this mechanism to book purported profits from the bond contracts of more than USD400m (£255m) in late 2008, which counterbalanced the fund’s losses enabling it to report a modest profit each month.
In total, Micalizzi used at least USD7.5m (£4.8m) of the fund´s (and therefore investors’) money in relation to the bond contracts, despite knowing the bond was not a legitimate financial instrument.
Despite the losses suffered by the fund, Micalizzi continued to seek new investors.
It is the FSA’s view that by providing false and misleading information he deliberately concealed the true value of the fund from one new investor who subsequently invested USD41.8m (£26.6m) on 1 December 2008.
In May 2009 the fund was placed into liquidation.
The fund’s liquidator estimated the fund’s assets on liquidation were worth approximately USD10m (£6.4m).
To date, no payment has been made to any investor by the liquidator.
In August 2010, Micalizzi was informed the FSA had opened an investigation into his conduct.
The FSA has found that during the course of that investigation Micalizzi repeatedly provided it with false and misleading information.
Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said:
- “Those managing investments are in positions of trust and significant responsibility.
- “Although investing in hedge funds can carry greater risk than many other asset classes, investors in funds controlled by regulated hedge fund managers are entitled to be treated with exactly the same honesty and integrity as other firms.
- “Alberto Micalizzi’s conduct fell woefully short of the standards that investors should expect and behaviour like his has no place in the financial services industry and we are committed to tackling it wherever we find it.”
The FSA has also decided to cancel the permission of DDCM to conduct regulated business.
The FSA believes DDCM is failing to satisfy the threshold conditions and is not fit and proper, because it failed to ensure that its business was conducted soundly and prudently and in compliance with proper standards.
Micalizzi and DDCM have referred this matter to the Upper Tribunal, where they and the FSA will each present their case.
The tribunal will then determine the appropriate action for the FSA to take.
The tribunal may uphold, vary or cancel the FSA’s decision.
The tribunal’s decision will be made public on its website.
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