Florian Homm, German hedge fund manager was arrested at Uffizi Gallery in Florence, Italy on US fraud charges.
Florian Wilhelm Jurgen Homm, 53, allegedly caused at least $200 million in losses to investors in hedge funds operated by Absolute Capital Management Holdings Ltd., according to a statement by the U.S. attorney’s office in Los Angeles. Homm was arrested yesterday by Italian authorities following a U.S. request, according to the statement.
Federal prosecutors in Los Angeles filed a criminal complaint March 6, charging Homm with conspiracy and fraud. The founder and former chief investment officer of Absolute Capital is accused of “cross trading” hundreds of millions of shares of penny stocks between the company’s funds to boost the value of the otherwise illiquid stocks.
The trades, through a Los Angeles-based broker-dealer that Homm co-owned, generated fees for Homm and Absolute Capital and also inflated the price of Absolute Capital on the London Stock Exchange, Alternative Investment Market, according to the statement. Homm “dumped” his shares and resigned from Absolute Capital on Sept. 18, 2007, “in the middle of the night,” according to the statement.
Homm and his co-conspirators made more than $53 million from the scheme, prosecutors said.
Adam Kravitz, a Miami lawyer who represents Homm in a civil lawsuit brought by the U.S. Securities and Exchange Commission, declined to comment on the criminal charges.
Absolute Capital managed as much as $2.1 billion in September 2007, when Homm quit the fund business he ran from Mallorca, Spain, leaving a portfolio of hard-to-trade assets.
Homm recently published a book in German called “Rogue Financier: The Adventures of an Estranged Capitalist,” according to an affidavit by a Federal Bureau of Investigation agent filed in support of the arrest warrant.
In the book, Homm, who is about 6 foot, 6 inches (2 meters) tall, wrote that he had “$500,000 stashed in my underwear, my briefcase and my cigar box,” when he left Palma de Mallorca on a private plane Sept. 18, 2007. His “mule and friend Giorgio” was carrying another $700,000, according to the translation in the affidavit.
“As the jet climbed I was profoundly unsettled, my mind in a dense fog,” Homm said in the book, according to the court filing. “I was breaking all connections to my former existence: colleagues, clients, acquaintances, friends, bimbos, dogs, family and children, and annihilating my fast fortune in the process.”
According the FBI affidavit, Homm’s alleged scheme first started to unravel in April 2006 when an unidentified former Absolute Capital employee sent an anonymous e-mail to media outlets and investors, providing details of stock manipulation by the hedge funds.
Homm and Absolute Capital’s chief executive officer, Sean Ewing, traced the e-mail to the sender in the U.S., identified only as D.P.P. in the affidavit, who felt intimidated into writing a retraction letter to the recipients of his e-mail. D.P.P. felt threatened because, when he still worked at Absolute Capital, Homm had told D.P.P. that he had ties to a mob family in Frankfurt and would kill him if he ever betrayed him, according to the affidavit.
Chief U.S. District Judge George King in Los Angeles last month denied Homm’s request to dismiss the SEC’s claims against him. In his Dec. 19 request, Homm had argued that the SEC couldn’t sue him on basis of foreign transactions between foreign funds.
In a declaration filed with his request to dismiss the SEC’s claims, Homm said he lived in the U.S. for extended periods until the early 1990s and has only visited the U.S. sporadically since then.
“All of my activities were conducted in the good faith performance of my job, which was to increase the value of the relevant ACMH funds to the benefit of the ACMH funds’ investors,” Homm said in the declaration.
The SEC in February 2011 accused Homm and the other co- owner of Beverly Hills-based Hunter World Markets Inc., the broker-dealer through which the funds controlled by Homm bought the microcap companies’ shares, of “portfolio pumping.”
The SEC alleged Homm and his co-defendants in the lawsuit brought microcap companies public through reverse mergers and manipulated the companies’ share prices upward before selling the shares to eight Absolute Capital hedge funds. Homm ran the alleged scheme from September 2005 to September 2007, according to the SEC.
The case is U.S. v. Homm, U.S. District Court, Central District of California (Los Angeles). The SEC case is Securities and Exchange Commission v. Ficeto, 11-cv-01637, U.S. District Court, Central District of California (Los Angeles).
Read More: Bloomberg