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Tribunal upholds FSA decision to ban and fine hedge fund CEO and CFO GBP2.1m for deceiving investors and market abuse

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The Upper Tribunal (Tax and Chancery Chamber) has directed the Financial Services Authority (FSA) to fine Michiel Weiger Visser GBP2 million and Oluwole Modupe Fagbulu GBP100,000 and ban them both from performing any role in regulated financial services for breaching Principle 1 of the FSA’s Statements of Principle for Approved Persons and for engaging in market abuse.

The Tribunal determined that Fagbulu’s behaviour merited a fine of GBP350,000 but reduced the amount payable because this level of fine would cause serious financial hardship. Visser has applied to have the Tribunal’s decision set aside.

Visser was the CEO and Fagbulu CFO and compliance officer of Mercurius Capital Management Limited (Mercurius). Mercurius managed the hedge fund Mercurius International Fund (the Fund) which during the relevant period of July 2006 to January 2008 had approximately 20 investors and EUR35 million under management. The Fund collapsed and was placed in voluntary liquidation on 11 January 2008. Investors have, so far, recovered nothing.

Visser’s investment decisions, in breach of the restrictions under which he was supposed to operate, placed the Fund in a precarious position. Visser and Fagbulu’s various deceptions concealed this from investors for over a year and enabled the Fund to raise EUR8 million of new capital in the three months prior to its collapse.

During the period Visser deliberately misled investors by various means, including by engaging in market manipulation, to disguise the performance of the Fund and to secure continued and increased investment in the Fund.

In particular Visser intentionally breached key investment restrictions designed to limit the risks to which the Fund was exposed, leaving the Fund concentrated in very few illiquid stocks.

Visser concealed this from investors by actively manipulating the Net Asset Value (NAV) of the Fund by repeatedly engaging in and twice instructing Fagbulu to commit market abuse in one of those illiquid securities held by the Fund, and by causing the Fund to enter into ostensibly highly profitable but ultimately fictitious transactions. He deliberately made or approved communications to investors which reported the manipulated NAV and contained other false information or left out relevant information including the termination of prime brokerage arrangements by two separate prime brokers.

Fagbulu was not involved in making investment decisions but was responsible for compliance oversight at Mercurius. He deliberately made or approved communications to investors which contained false information and omitted relevant information, and failed to ensure that the Fund complied with its investment restrictions. Fagbulu also assisted Visser in manipulating the NAV of the Fund and committing market abuse and by entering into financing transactions which were detrimental to the Fund.

Tracey McDermott, acting director of enforcement and financial crime, says: “Visser and Fagbulu’s conduct fell woefully short of the standards required of approved persons. They showed a flagrant disregard for the interests of their investors and over a considerable period engaged in a sustained and deliberate course of deception to present a picture of the fund’s performance that was entirely false.

“The Tribunal described Visser’s conduct as the worst it had seen. We welcome the significant penalties imposed by the Tribunal in this case and its reiteration of the fundamental principles underpinning the regulatory regime – that approved persons must take responsibility for their conduct, that bans must be imposed where misconduct such as this is identified in order to protect the public and that penalties must both register disapproval of the individuals’ misconduct and be sufficient to deter others from similar actions.”

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