Hedge fund duo banned for deceiving investors
A decision by UK regulator the Financial Services Authority to ban and fine the chief executive and chief financial officer of a hedge fund manager on grounds of deceiving investors has been upheld by the Upper Tribunal.
Michiel Weiger Visser, CEO of Mercurius Capital Management, and Oluwole Modupe Fagbulu, its CFO, have been fined £2m and £100,000 respectively and banned from performing any role in regulated financial services.
Mercurius managed the hedge fund Mercurius International Fund which, between July 2006 and January 2008, had attracted some 20 investors and €35m under management.
On 11 January 2008, the fund collapsed and was placed in voluntary liquidation, with investors so far recouping none of their investment.
The FSA found Visser’s investment decisions, which were in breach of the restrictions under which he was supposed to operate, placed the fund in a precarious position.
It said Visser’s and Fagbulu’s various deceptions concealed this from investors for over a year and enabled the fund to raise €8m of new capital in the three months prior to its collapse.
Between July 2006 and January 2008, Visser deliberately misled investors by various means, including by engaging in market manipulation, to disguise the performance of the Fund and to secure continued and increased investment in the fund.
In particular, Visser intentionally breached key investment restrictions designed to limit the risks to which the fund was exposed, leaving the fund concentrated in very few illiquid stocks.
Visser concealed this from investors by actively manipulating the NAV 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 ostensibly 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 was responsible for compliance oversight at Mercurius. He deliberately made or approved communications to investors which contained false information and omitted relevant information, and failed to ensure the fund complied with its investment restrictions.
Fagbulu also assisted Visser in manipulating the NAV of the Fund and committing market abuse and by entering into financing transactions which were detrimental to the Fund.
Tracey McDermott, acting director of enforcement and financial crime, said: “The Tribunal described Visser’s conduct as the worst it had seen.
“Visser and Fagbulu’s conduct fell woefully short of the standards required of approved persons.”
The Tribunal determined that Fagbulu’s behaviour merited a fine of £350,000 but reduced the amount payable, deeming that level of fine would cause serious financial hardship.