Canadian Colin Heatherington, a former trader for Absolute Capital Management, has been sentenced to three-and-a-half years in federal prison for his involvement in a scheme to manipulate penny stock prices, aimed at inflating the hedge fund’s reported profits, according to CIO.com.
The report cites the US Attorney’s Office for the Central District of California as stating that the fraud generated millions in management and performance fees and led to investor losses exceeding $215m when the funds collapsed.
Heatherington admitted to overseeing the purchase of billions of shares of US-based penny stocks, employing manipulative tactics such as cross trading to artificially inflate stock values and, consequently, the value of the eight hedge funds managed by the Cayman Islands-based firm. This so-called “portfolio pumping,” allowed the hedge funds to overstate their performance and net asset values by at least $440m.
The scheme allegedly involved taking microcap companies public through reverse mergers and manipulating the thinly traded shares’ prices to sell them at inflated values to the firm’s offshore hedge funds, allowing them to falsely present a robust performance record.
Heatherington worked closely with German financier Florian Homm, the founder and CIO of ACM who was indicted in 2013 on securities fraud and wire fraud charges. Having been arrested in Italy, Homm subsequently fled to Germany, where he remains a fugitive, according to the federal prosecutor’s office.
In addition to his prison sentence, Heatherington was ordered to pay over $215.8m in restitution, jointly and severally, with co-defendant Todd Ficeto, a former stockbroker and president of Hunter World Markets – the Beverly Hills-based broker/dealer he co-owned with Homm – who was sentenced to six years in prison in 2020 after being found guilty of 18 felonies related to the scheme.
