Business World

Saturday 23 September 2017

Fund chief finally faces law after five years on lam

German former hedge fund manager Florian Homm made up to $53m from fraud while with Donegal man Sean's Ewing's firm, Edvard Pettersson and Nick Webb report

Florian Homm at a Borussia Dortmund football match in the Bundesliga
Florian Homm at a Borussia Dortmund football match in the Bundesliga

Having made a fortune in the 1990s through the sale of a group of financial services companies, Donegal man Sean Ewing co-founded the Absolute Capital hedge fund.

It soared as markets rose and Ewing retired off to the sun and other business interests in the early days of the financial crisis in 2007.

Last week one of his former partners – who carried an Irish passport – was arrested in the Uffizi Gallery in Florence and faces criminal charges in the US over his activities at the hedge fund which imploded during banking carnage of autumn 2007

Florian Homm, a fugitive German hedge fund manager who more than five years ago fled the Spanish island of Mallorca with $500,000 (€382,000) hidden in his underwear and luggage, was taken into custody by Italian police at 12.30pm on March 8 at the world-famous museum that houses Sandro Botticelli's 'Birth of Venus' and Leonardo da Vinci's 'Annunciation'. He appeared in court there on Monday.

Speaking in September 2007, soon after Homm's departure from Absolute Capital, Ewing said: "It's madness. This is a great business and one that could easily recover, except for the reputational damage. The business and wealth we created over three years has just gone down the toilet with one crazy action from Florian. I feel bitter."

He did not respond to queries last week.

The arrest, by Homm's own account as well as that of US prosecutors, followed his 2007 decision to leave behind a life of wealth, castles and "bimbos". While on the lam, he held a Liberian diplomatic passport as well as German and Irish passports, according to the Federal Bureau of Investigation.

Homm is accused, in a criminal complaint filed on March 6 in a US federal court in Los Angeles, of defrauding investors in hedge funds he controlled, causing $200m in losses. He is charged with four counts of conspiracy, wire fraud and securities fraud – and faces as much as 75 years in prison if convicted on all counts.

The former chief investment officer of Absolute Capital Management Holdings is accused of "cross trading" billions of shares of penny stocks between the company's funds to boost the value of the otherwise illiquid securities.

The trades, through an LA-based broker-dealer that Homm co-owned, generated fees for Homm and Absolute Capital and also inflated the price of Absolute Capital's shares, prosecutors said. Homm "dumped" his shares and resigned from Absolute Capital on September 18, 2007, "in the middle of the night", according to the US.

Homm made more than $53m from the scheme, prosecutors said. He wrote a book in German called Rogue Financier: The Adventures of an Estranged Capitalist. It was published on November 15, according to Amazon.com.

After Homm started to appear in public to promote his book, the FBI began tracking him, Assistant US Attorney Stephen Cazares in Los Angeles said. Before then, US authorities didn't know where he was, Cazares said.

Homm appeared on German TV on March 3 to talk about the book, Cazares said. When his American ex-wife flew to Florence on March 6, investigators guessed that Homm would meet up with her there, he said.

Absolute Capital was the investment manager for 16 funds based in the Cayman Islands, according to an affidavit by an FBI agent filed in support of the arrest warrant. The firm managed as much as $2.1bn in September 2007, when Homm quit and ran from Mallorca, leaving behind a portfolio of hard-to-trade assets.

In his book, Homm – who is 6 foot, 6 inches tall –wrote that he had "$500,000 stashed in my underwear, my briefcase and my cigar box," when he left Palma de Mallorca in a private plane on September 18, 2007. His "mule and friend Giorgio" was carrying another $700,000, according to the translation in the affidavit.

"As the jet climbed I was profoundly unsettled, my mind in a dense fog," Homm said in the book, according to the court filing. "I was breaking all connections to my former existence: colleagues, clients, acquaintances, friends, bimbos, dogs, family and children, and annihilating my fast fortune in the process."

Homm was convicted in 2004 in Germany of a minor trading violation and received a suspended fine, the lowest sentence possible under German law, Doris Moeller-Scheu, spokeswoman for Frankfurt prosecutors, said last week. Her office isn't investigating him now, she said.

According to the FBI affidavit, Homm's scheme began unraveling in April 2006 when an unidentified former Absolute Capital employee sent an anonymous email to media and investors providing details of stock manipulation by the hedge funds.

Homm had started to unload his Absolute Capital shares at an inflated price, before he left in 2007 and the share price plummeted, according to the FBI. He collected about $40m from the sale of his stock, the FBI said.

According to the SEC's lawsuit filed in February 2011, Homm and the other co-owner of Beverly Hills, California-based Hunter World Markets, the broker-dealer through which funds controlled by Homm bought the microcap companies' shares, engaged in "portfolio pumping". There is no suggestion that Ewing was aware of the scheme.

Homm is alleged to have brought microcap companies public through reverse mergers and manipulated the companies' share prices upward before selling the shares to eight Absolute Capital funds, according to the SEC. Homm ran the alleged scheme from September 2005 to September 2007, the agency said.

Pro Elite, an organiser and promoter of mixed martial arts matches, was one stock prosecutors allege Homm manipulated.

In September 2006, Homm had Absolute Capital funds buy $10m worth of shares and warrants issued by the company in a private offering.

Pro Elite also issued shares to Hunter World that were later sold to Absolute Capital's funds for inflated prices, according to the prosecutors.

That October, Pro Elite initially traded for 10c a share on the Pink Sheets. Through cross trading between Homm's hedge funds, the price of the shares was driven to as high as $12 in April 2007. Based on the inflated share price, one of Homm's hedge funds reported an unrealised gain of $25m from investments in Pro Elite, according to prosecutors.

Homm's co-owned broker-dealer made $6.4m from selling its Pro Elite shares at an inflated price in May of 2007 to an Absolute Capital fund, with $4m of it wired to Homm's Swiss account, according to US prosecutors.

Homm flew to Panama in 2007 using an Irish passport under the name Colin Trainor, according to the affidavit, which cites an interview with a German bounty hunter published in the Frankfurt edition of the Financial Times last year. The FBI found that there was a "strong resemblance" between Homm's picture in his German passport and a picture of Trainor in the Irish passport.

The German, who had planned his departure with what the FBI termed "Prussian precision", intended to eventually go to ground in Colombia when he fled Mallorca, according to his book.

"We were heading to Valencia where everybody would lose our trail," Homm wrote. "Thereafter, moving the cash to Colombia would get a bit sketchier."

In excerpts from the German original of his book, Kopf Geld Jagd, posted on Amazon's German website, Homm describes himself as a "baby magnate" whose net worth was estimated by Germany's Manager Magazin at about half a billion dollars. He said that he owned castles and a nightclub on Palma de Mallorca's promenade and rubbed shoulders with celebrities including Michael Douglas and Boris Becker.

Homm helped rescue publicly listed German soccer club Borussia Dortmund from bankruptcy. The team won Germany's league championship last year and currently ranks second after Bayern Munich in the Bundesliga, the country's top-tier competition.

In 2007, Absolute Capital was also invested in German companies TUI and Freenet.

When he left Mallorca, Homm wrote, he packed the cash around his waist in the very tight Calvin Klein underwear he was wearing and on both sides of his genitals. The money added about 5cm to his waist size, making him look like the "Michelin man", Homm said, referring to the tire company's advertising cartoon figure.

Additional reporting by Bloomberg

Irish Independent

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