By Simon Miller
Hedge fund CEO Alberto Micalizzi is to be given the largest individual fine in a non-market abuse case in the UK and banned from financial services.
The UK's Financial Services Authority (FSA) has decided to fine Micalizzi £3m and he will be banned from any role in regulated financial services if the decision is upheld.
At the relevant time, Micalizzi was the chief executive officer and a director of Dynamic Decisions Capital Management (DDCM), a hedge fund management company based in London, whcih will also be banned from conducted regulated busienss.
The FSA beleived that DDCM failed 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".
Between 1 October 2008 and 31 December 2008, the master fund managed by DDCM suffered catastrophic losses of over $390m (£249m), approximately 85% 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 that 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: units of the bond were sold to the fund at a deep discount to their face value, and then valued by the fund at approximately their face value when reporting to investors,” said the regulator.
The FSA believed Micalizzi used this mechanism to book purported profits from the Bond Contracts of over $400m in late 2008, which counterbalanced the fund’s losses enabling it to report a modest profit each month. In total, Micalizzi used at least $7.5m of the fund´s (and therefore investors´) money in relation to the bond contracts, despite knowing that 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 $41.8m on 1 December 2008.
In May 2009 the fund was placed into liquidation. The fund’s liquidator estimated that the fund’s assets on liquidation were worth approximately $10m. To date, no payment has been made to any investor by the liquidator.
Micalizzi and DDCM have referred this matter to the Upper Tribunal (the Tribunal) where they and the FSA will each present their case