Tribunal upholds FSA ban and fine of hedge fund pair

15 August 2011 11:52 am | By Natalie Holt

The Upper Tribunal has directed the FSA to ban and fine two hedge fund directors £2.1m for engaging in market abuse.

Mercurius Capital Management chief executive Michiel Weiger Visser has been fined £2m while chief financial officer and compliance officer Oluwole Modupe Fagbulu has been fined £100,000.

Mercurius managed the hedge fund Mercurius International Fund which between July 2006 and January 2008 had approximately 20 investors and €35m under management. The fund collapsed and was placed in voluntary liquidation in January 2008. Investors have, so far, recovered nothing.

The FSA says Visser and Fagbulu’s various deceptions concealed the fund’s precarious position from investors for over a year and enabled the fund to raise €8m of new capital in the three months prior to its collapse.

Visser deliberately misled investors by disguising the fund’s performance to secure continued and increased investment in the fund.

The Mercurius International Fund was concentrated in very few illiquid stocks. Visser concealed this from investors by manipulating the net asset value of the fund by repeatedly engaging in and twice instructing Fagbulu to commit market abuse in one of those illiquid securities held by the fund, and by causing the fund to enter into seemingly highly profitable but ultimately fictitious transactions.

He deliberately made or approved communications to investors which reported the manipulated NAV and contained other false information or left out relevant information including the termination of prime brokerage arrangements by two separate prime brokers.

Fagbulu also deliberately made or approved false investor communications which omitted relevant information, and failed to ensure that the fund complied with its investment restrictions. Fagbulu also assisted Visser in manipulating the fund’s NAV.

FSA acting director of enforcement and financial crime Tracey McDermott says:”Visser and Fagbulu’s conduct fell woefully short of the standards required of approved persons. They showed a flagrant disregard for the interests of their investors and over a considerable period engaged in a sustained and deliberate course of deception to present a picture of the fund’s performance that was entirely false.

“The tribunal described Visser’s conduct as the worst it had seen. We welcome the significant penalties imposed by the tribunal in this case and its reiteration of the fundamental principles underpinning the regulatory regime - that approved persons must take responsibility for their conduct, that bans must be imposed where misconduct such as this is identified in order to protect the public and that penalties must both register disapproval of the individuals’ misconduct and be sufficient to deter others from similar actions.”

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