Hedge Fund Manager Charged With 'Portfolio Pumping'

Feb 25 2011 | 9:14am ET

The Securities and Exchange Commission has charged a prominent former hedge fund manager and four others with manipulating markets in U.S. micro-cap stocks.

Florian Homm, the founder and former chief investment officer of Absolute Capital Management, and Todd Ficeto earned some $63 million in illegal profits through their California brokerage, Hunter World Markets, the agency alleges, as part of a "portfolio pumping" scam. The price manipulation allegedly allowed Homm to overstate AbCap's performance by at least $440 million.

Homm and Ficeto, with the help of  Homm associate Colin Heatherington and HWM's trader and chief compliance officer, employed "a number of classic manipulative techniques such as placing matched orders, placing orders that market the close or otherwise set the closing price for the day and conducting wash sales."

Among the SEC's evidence are hundreds of instant messages between HWM and AbCap, collected through a system that the agency said was designed to avoid detection.

The SEC is seeking injunctive relief, disgorgement of allegedly ill-gotten gains, prejudgment interest and fines, as well as several bans against Ficeto. The HWM trader and CCO have settled the charges against them.

Homm made news in 2006 when he was shot by a robber in Venezuela. He returned to work at AbCap a few weeks, before quitting in September 2007 over compensation issues. Since then, both he and AbCap have been dogged by litigation filed by angry investors, including one suit over HWM.

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