(Bloomberg) -- The UK’s financial regulator resumed a legal dispute with Michael Platt’s investment firm BlueCrest Capital Management following a damaging court loss over a $700 million demand for investor compensation.
At a tribunal last year BlueCrest successfully knocked out a demand by the Financial Conduct Authority to pay investors over allegations that it favored partners in an internal fund. The ruling was an embarrassment to the regulator after the judge said the FCA had no power to impose such a requirement on a single firm and criticized the “muddled thinking” from the agency.
On Tuesday, lawyers for the FCA appealed the finding, saying that the judge had imposed on it “complex and unnecessary” conditions. The case stems from the regulator’s investigation that alleged that BlueCrest allocated portfolio managers to an internal fund, open only to its employees, creating conflicts of interest. BlueCrest denies those findings.
In its provisional report, the FCA argued that BlueCrest’s failure to manage the conflict resulted in a “sub-standard” service being provided to the external fund and its investors who paid “excessive” management and performance fees. It also imposed a £40 million ($51.6 million) fine on the firm.
The case was unusual in that BlueCrest skipped the FCA’s own internal regulatory panel to challenge the findings directly to court. BlueCrest was earlier seeking to challenge the the full penalty in court and the firm said previously it “will continue to defend its position vigorously in this matter.”
In December 2021, the FCA outlined how BlueCrest moved its traders from the main client fund to the internal one. They were in part replaced with an under performing algorithm, which generated significantly less profit and more volatility. It said investors ought to get back a proportion of management and performance fees.
In the US, BlueCrest agreed to pay $170 million to ex-clients — one of the largest penalties the Securities and Exchange Commission ever levied against a hedge fund. The regulator said at the time that the London-based firm failed to act in the best interests of its investors.
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