Saturday, March 09, 2013

Corruption: Fugitive Hedge Fund Manager Arrested in Italy in U.S. Case Alleging $200 Million Market Manipulation Scam

U.S. Attorney’s Office 
Central District of California

LOS ANGELES—Florian Wilhelm Jürgen Homm, a German hedge fund manager who was on the run for more than five years, has been arrested in Italy on federal fraud charges that accuse him of orchestrating a market manipulation scheme designed to artificially improve the performance of his funds, a fraud that led to at least $200 million in losses to investors around the world.

Homm, 53, was arrested at the Uffizi Gallery in Florence, Italy, at approximately 12:30 p.m. on Friday (local time). Federal prosecutors in Los Angeles obtained an arrest warrant on Wednesday, March 6, after filing a criminal complaint that charges Homm with four felony charges: conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud. Homm was arrested by Italian authorities after the United States submitted a request for a provisional arrest with officials in Rome.

Homm was the founder and chief investment officer of Absolute Capital Management Holdings Limited, a Cayman Islands-based investment advisor that managed nine hedge funds from 2004 until September 2007. The criminal complaint filed in United States District Court in Los Angeles alleges that Homm directed the hedge funds to buy billions of shares of thinly traded, United States-based “penny stocks.” Homm caused many of the purchases of penny stocks to be made through Hunter World Markets Inc., a broker-dealer in Los Angeles that Homm co-owned. Homm also allegedly obtained shares of the penny stock companies through various businesses he controlled.

After the hedge funds invested hundreds of millions of dollars in the illiquid penny stocks, Homm caused the hedge funds to trade the stocks among themselves in “cross-trades” made through the Los Angeles-based broker dealer. As part of the stock manipulation scheme, Homm and others allegedly sold their own shares of the penny stocks to the hedge funds managed by Homm. The cross-trades served to increase the trading prices of the previously illiquid stocks and, in turn, to boost the net asset values and apparent performance of the hedge funds. This apparent performance improvement at the hedge funds generated additional fees for Homm and Absolute Capital, as well as boosting Absolute Capital’s stock price on the London Stock Exchange, Alternative Investment Market.

Folllowing allegations made by a “whistleblower” in 2006, Homm also dumped tens of millions of dollars’ worth of his own shares in Absolute Capital prior to resigning from the firm in the middle of the night on September 18, 2007. The allegedly fraudulent conduct caused at least $200 million in losses to investors in the hedge funds. The scheme allegedly netted Homm and his co-schemers more than $53 million via trades made through Hunter World Markets alone.

A complaint contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.

The wire fraud conspiracy charge carries a statutory maximum penalty of five years in federal prison. The wire fraud count carries a maximum penalty of 20 years in prison. The two charges related to securities fraud each carry a maximum penalty of 25 years in prison.

The case against Homm is the product of an ongoing investigation by the Federal Bureau of Investigation. Agents in the FBI’s Los Angeles Field Office worked with the FBI’s Legal Attaché Office in Rome and its sub-office in Milan, where agents worked collaboratively with Italian authorities to secure the apprehension of Homm. The U.S. Department of Justice Attaché in Rome provided substantial assistance.

The Securities and Exchange Commission provided assistance to the FBI’s investigation.

Two years ago, the United States Securities and Exchange Commission filed a civil lawsuit in Los Angeles federal court against Homm and four other defendants, alleging a microcap stock manipulation scheme as part of “portfolio pumping” plot to increase the value of Absolute Capital (see:

Homm recently published a book that was translated into English under the title, Rogue Financier: The Adventures of an Estranged Capitalist.