The Financial Services Authority announced this morning that it intends to fine Alberto Micalizzi £3 million and ban him from any role in regulated financial services. This would be the largest fine ever imposed on an individual in a non-market abuse case. Mr Micalizzi has referred the matter to the Upper Tribunal, which may uphold, vary or cancel the FSA’s decision.
The FSA also intends to cancel the permission of Dynamic Decisions Capital Management (DDCM) to conduct regulated business. Mr Micalizzi was the CEO of DDC.
Between October and December 2008 the master fund managed by DDCM lost over $390 million, some 85% of its value. The FSA alleges that to conceal these losses, in late 2008 Mr 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 (the Bond contracts). The FSA believes that the bond was not a genuine financial instrument and that Micalizzi was aware of this when he entered into the Bond contracts.
In the FSA’s view, the Bond contracts were deliberately undertaken by Micalizzi to create artificial gains for the Fund. The mechanism for this deception was simple: 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 that Micalizzi used this mechanism to book purported profits from the Bond Contracts of over USD400 million in late 2008, which counterbalanced the Fund’s losses enabling it to report a modest profit each month. In total, Micalizzi used at least USD 7.5 million of the Fund´s (and therefore investors´) money in relation to the Bond contracts, despite knowing that the Bond was not a legitimate financial instrument.”
The FSA also alleges that despite these losses, Mr Micalizzi continued to seek new investors, with one new investor investing $41.8 million on 1 December 2008.
In May 2009 the fund was placed into liquidation and its assets were discovered to be worth approximately $10 million. No payment has yet been made to any investor out of the fund.
The FSA found that during the course of its investigation Mr Micalizzi “repeatedly provided it with false and misleading information”.
The Serious Fraud Office also briefly investigated in 2009, but did not find sufficient evidence of wrongdoing to bring a criminal case.