PRESS RELEASE: Wilhelm Jürgen Homm, Former Hedge Fund Manager Recently Arrested in Italy After Being on Run for Five Years Named in Grand Jury Indictment, That Alleges Market Manipulation Scam That Caused $200 Million in Losses

U.S. Attorney’s Office
March 20, 2013

Central District of California
(213) 894-2434

Former Hedge Fund Manager Recently Arrested in Italy After Being on Run for Five Years Named in Grand Jury Indictment That Alleges Market Manipulation Scam That Caused $200 Million in Losses

LOS ANGELES—A German national who managed a series of hedge funds based in the Cayman Islands has been indicted on federal fraud charges alleging that he oversaw a stock manipulation scheme designed to “pump up” the reported returns of his hedge funds, while self-dealing for his own benefit to the detriment of the funds, in a fraud that caused investors to loss approximately $200 million.

Florian Wilhelm Jürgen Homm, 53, was named in a 10-count indictment that was returned late Tuesday afternoon by a federal grand jury in Los Angeles.

The indictment specifically charges Homm with one count of conspiracy to commit securities fraud, eight counts of securities fraud, and one count of wire fraud. The indictment also contains a forfeiture allegation that would cause Homm, if he is convicted of any of the 10 counts in the indictment, to forfeit to the United States “any and all property, real and personal, which constitutes or is derived from proceeds traceable to” any crime to which he is found guilty.

Homm is currently in custody in Italy after being arrested on March 8 at the Uffizi Gallery in Florence. Homm was arrested pursuant to the United States’ request for his provisional arrest pending extradition, based on a criminal complaint relating to the alleged fraud that had been filed by federal prosecutors in Los Angeles. The indictment filed yesterday in Los Angeles replaces the criminal complaint as the charging document.

Homm was the founder and chief investment officer of Absolute Capital Management Holdings Limited, a Cayman Islands-based investment advisor that managed eight hedge funds from 2004 until September 2007. As part of the alleged scheme, Homm bragged to investors that Absolute Capital was named overall winner for 2006 of the European Hedge Fund Group, by the publication Hedge Fund Review.

Court documents filed in United States District Court in Los Angeles—specifically, the indictment and the affidavit in support of the criminal complaint—allege that Homm directed the hedge funds to buy billions of shares of thinly traded, United States-based “penny stocks.” Homm caused most 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, who at the time of the alleged scheme resided in Palma de Majorca, Spain, 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’s co-conspirators used a secret instant messaging system to avoid the scrutiny of regulators and caused the hedge funds to trade the stocks among themselves in “cross-trades” made through the Los Angeles-based broker dealer. 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, in a practice called “portfolio pumping.” This apparent performance improvement at the hedge funds generated additional fees for Homm and Absolute Capital. It also boosted Absolute Capital’s stock price on the London Stock Exchange, Alternative Investment Market, from which Homm profited by selling shares. As part of the stock manipulation scheme, Homm and others also allegedly sold their own shares of the penny stocks to the hedge funds managed by Homm.

The indictment alleges that Homm and several co-conspirators who have not been indicted at this time “fraudulently manipulated these stocks to inflate and/or artificially prop up their prices to exaggerate the purported profitability of the hedge funds holding them.

“This enabled the co-conspirators to sell their own shares of the penny stocks at the inflated prices to the hedge funds. The stock price inflation also served to fraudulently overstate the performance of the hedge funds which, in turn, generated substantial performance fees and other compensation for defendant Homm and his co-conspirators,” according to the indictment.

Folllowing allegations made by a “whistleblower” in 2006, Homm dumped tens of millions of dollars worth of his own shares in Absolute Capital and resigned from the firm in the middle of the night on September 18, 2007. The scheme allegedly netted Homm and his co-schemers more than $53 million via trades made through Hunter World Markets alone.

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

Each charge of conspiracy to commit securities fraud and securities fraud carry a statutory maximum penalty of 25 years in federal prison. The wire fraud count carries a maximum penalty of 20 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.

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

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21865 / February 25, 2011

Securities and Exchange Commission v. Todd M. Ficeto, Florian Homm, Colin Heatherington, Hunter World Markets, Inc., and Hunter Advisors, LLC, et al., Case No. CV-11-1637 GHK (RZx) (C.D. Cal. February 24, 2011)

SEC CHARGES SECURITIES PROFESSIONALS AND TRADERS IN INTERNATIONAL HEDGE FUND PORTFOLIO PUMPING SCHEME

The Securities and Exchange Commission charged two securities professionals, a hedge fund trader, and two firms involved in a scheme that manipulated several U.S. microcap stocks and generated more than $63 million in illicit proceeds through stock sales, commissions and sales credits.

The SEC alleges that Florian Homm of Spain and Todd M. Ficeto of Malibu, Calif., conducted the scheme through their Beverly Hills, Calif.-based broker-dealer Hunter World Markets Inc. (HWM) with the assistance of Homm’s close associate Colin Heatherington, a trader who lives in Canada. They brought microcap companies public through reverse mergers and manipulated upwards the stock prices of these thinly-traded stocks before selling their shares at inflated prices to eight offshore hedge funds controlled by Homm. Their manipulation of the stock prices allowed Homm to materially overstate by at least $440 million the hedge funds’ performance and net asset values (NAVs) in a fraudulent practice known as “portfolio pumping.”

The SEC additionally brought administrative proceedings against HWM’s trader and chief compliance officer, who each agreed to settle the SEC’s charges against them.

According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, Homm along with Ficeto and Heatherington conducted the scheme from September 2005 to September 2007. Homm misused the assets of the hedge funds to allow him, Ficeto, Heatherington and HWM to manipulate upward the prices of the U.S. microcap stocks in which the hedge funds held a position. They used a number of classic manipulative techniques such as placing matched orders, placing orders that marked the close or otherwise set the closing price for the day, and conducting wash sales. This manipulation enabled Ficeto, Homm and Heatherington to generate enormous profits through Ficeto’s and Homm’s co-ownership of HWM and their sale of the microcap stock shares to the hedge funds at inflated prices. Ficeto garnered further illicit profits through his control of Hunter Advisors, LLC, which directed the investment activities of a “fund of funds” that also participated in the stock manipulation.

The SEC’s complaint alleges that the principal traders at HWM and the London-based hedge funds manager Absolute Capital Management Holdings Limited (ACMH) exchanged hundreds of instant messages (IMs) that were recorded on a secret, alternate messaging system that allowed them to communicate freely without fear that their scheme would be detected by the SEC. As reflected in those secret IM messages, ACMH’s trader (typically Heatherington) under Homm’s direction would instruct Ficeto or HWM’s trader (Tony Ahn) acting under Ficeto’s direction to place matched orders, transactions that marked the close, or wash sales for the purpose of artificially raising or stabilizing the microcap stock prices.

The SEC’s complaint charges Ficeto, Homm, Heatherington, and HWM with violating, or aiding and abetting violations of, Sections 10(b) and 15(c)(1) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940 (Advisers Act), and additionally charges Ficeto with violating Section 17(a) of the Securities Act of 1933, and Hunter Advisors with violating Section 206(1) and (2) of the Advisers Act. The SEC’s complaint also charges HWM and Ficeto with recordkeeping violations of Section 17(a) of the Exchange Act, and Rules 17a-4(b)(4) and 17a-8 (HWM only) thereunder. The SEC seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties. The SEC also seeks an order permanently barring Ficeto from participating in any penny stock offering or from serving as an officer or director of a public company.

The SEC instituted separate but related administrative proceedings against Ahn and HWM’s former chief compliance officer Elizabeth Pagliarini, who each agreed to settle their cases without admitting or denying the SEC’s findings. Ahn agreed to pay a $40,000 penalty, comply with certain undertakings, and be barred from association with a broker and dealer for five years. Pagliarini agreed to a $20,000 penalty and one-year suspension as a supervisor with a broker or dealer.

The SEC acknowledges the assistance of the British Columbia Securities Commission as well as the Financial Industry Regulatory Authority.