Florian Homm, a German hedge fund manager on the run for more than five years, has been arrested in Italy on U.S. federal fraud charges, says the Federal Bureau of Investigation.
The charges accuse him of orchestrating a scheme to artificially improve the performance of his funds. This fraud led to $200 million in losses to investors around the world.
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Homm, 53, was arrested at the Uffizi Gallery in Florence, Italy. He has been charged with four felonies: conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud.
From 2004 to 2007, Homm was the founder and chief investment officer of Absolute Capital Management Holdings Limited, a Cayman Islands-based investment advisor that managed nine hedge funds.
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A criminal complaint alleges he directed the hedge funds to buy billions of shares of thinly traded, U.S.-based penny stocks. Many of these purchases were made through Hunter World Markets Inc., a broker-dealer in Los Angeles that Homm co-owned. He also allegedly obtained shares of penny stock companies through various businesses he controlled.
After the funds invested hundreds of millions of dollars in the illiquid penny stocks, Homm traded the stocks among themselves in cross-trades made through the Los Angeles-based broker dealer. As part of the stock manipulation scheme, he allegedly sold their own shares of the penny stocks to funds he managed.
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The cross-trades increased the trading prices of the previously illiquid stocks and, in turn, boosted the net asset values and performance. This generated additional fees for Homm and Absolute Capital, and boosted its stock price on the London Stock Exchange, Alternative Investment Market.
Following allegations made by a whistleblower in 2006, Homm dumped millions of dollars of his own shares in Absolute Capital before resigning in the middle of the night in September 2007. This caused at least $200 million in losses to investors. The scheme netted Homm and his co-schemers more than $53 million via trades made through Hunter World Markets alone.
The wire fraud conspiracy charge carries a maximum penalty of five years in federal prison; the wire fraud count 20 years; and the two charges related to securities fraud 25 years.