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FSA to ban and fine ex-hedge fund boss £3m

The FSA plans to fine former hedge fund chief executive Alberto Micalizzi £3m and ban him from performing any role in regulated financial services for not being fit and proper.

The regulator has today published a decision notice indicating it plans to ban former Dynamic Decisions Capital Management chief executive and director Micalizzi and fine him £3m, the largest FSA fine for an individual in a non-market abuse case.

The FSA has also decided to cancel the permission of DDCM to conduct regulated business. 

The FSA believes London-based DDCM is failing to satisfy the threshold conditions and is not fit and proper, because it failed to ensure that business was conducted soundly and prudently and in compliance with proper standards.

Micalizzi and DDCM have referred the 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 decision notice for Micalizzi, dated March 20, states that between October 1, 2008 and December 31, 2008, the master fund managed by DDCM suffered catastrophic losses of over $390m, approximately 85 per cent of its value.

The FSA says in late 2008, 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 to conceal the losses. The FSA believes the bond was not a genuine financial instrument and Micalizzi was aware of this when he entered into the bond contracts.

The regulator says the bond contracts were deliberately undertaken by Micalizzi to create artificial gains for the fund. It says 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.

The FSA believes 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 money in relation to the bond contracts

The FSA says despite the losses suffered by the fund, Micalizzi continued to seek new investors.

The regulator says by providing false and misleading information, Micalizzi deliberately concealed the true value of the fund from one new investor who subsequently invested $41.8m on December 1, 2008.

In May 2009, the fund was placed into liquidation. The fund’s liquidator estimated that the assets on liquidation were worth approximately $10m. To date, the liquidator has made no payments to investors.

In August 2010, Micalizzi was informed that 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.

FSA acting director of enforcement and financial crime Tracey McDermott says: “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.”

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