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
(see: http://www.sec.gov/litigation/litreleases/2011/lr21865.htm).
Homm recently published a book that was translated into English under the title Rogue Financier: The Adventures of an Estranged Capitalist.
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