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Former BlueCrest Capital Fund Manager Banned by FSA

Date: Thursday, April 30, 2009
Author: James Lumley, Bloomberg

A former BlueCrest Capital Management Ltd. hedge fund manager was fined and banned by the U.K. financial regulator over claims he deliberately overvalued positions to avoid losing his job over trading losses.

The Financial Services Authority in London fined Loic Albert Antoine Montserret 35,000 pounds ($52,000), the regulator said in a statement. Between November and May last year Montserret was responsible for managing $60 million in BlueCrest’s Multi-Strategy Credit fund, the FSA said.

It’s the first time the FSA has banned and fined someone for mismarking trading positions. BlueCrest, founded in 2000 by Michael Platt and Bill Reeves, was ranked Europe’s fifth-largest hedge fund firm with $13 billion in assets at the end of 2008, according to a ranking by The Hedge Fund Journal.

“Market professionals cannot resort to mismarking whatever the circumstances,” Margaret Cole, the FSA’s enforcement director, said in the statement. “Montserret’s behavior fell short of the standards expected from approved persons and showed a lack of integrity and honesty.”

A change in market conditions last April led to a large fall in the value of Montserret’s trading book, the FSA said. Because his job was at risk Montserret deliberately overvalued four equity index options, the statement said. After ten days he admitted the overvaluation to the head of his trading desk.

“The aggravating factor is that he sat on the problem for ten days,” Ian Mason, a former FSA lawyer now with Barlow Lyde & Gilbert in London, said in a telephone interview. “The lesson is that if you are faced with this sort of situation, you should fess up on day one.”

Montserret didn’t immediately respond to an e-mail seeking comment. He agreed to settle the case early and qualified for a 30 percent reduction in the penalty, the FSA said.

No Harm

“We are fully supportive of the FSA in this case, which makes no criticism of BlueCrest,” said BlueCrest spokesman Ed Orelebar. “It is also important to note that investors were not impacted by Mr. Montserret’s actions.”

The BlueCrest Multi-Strategy Credit fund was among finalists for industry publication EuroHedge’s award for credit, distressed and emerging market debt fund of the year, though it didn’t win the award.

Montserret confirmed on April 7 that he won’t be referring the matter to the Financial Services and Markets Tribunal, which considers appeals of FSA enforcement actions, the FSA said.

To contact the reporter on this story: James Lumley in London at jlumley1@bloomberg.net.