Hedge Fund Manager Found and Jailed in Fraud

FRANKFURT — Florian Homm, a flamboyant former hedge fund manager who spent the last five years in hiding, was arrested in Italy and faces extradition to the United States on securities fraud charges which could expose him to a lengthy prison sentence, the Federal Bureau of Investigation said.

The Italian police arrested Mr. Homm, a 53-year-old German who holds undergraduate and graduate degrees from Harvard University, on Friday at the Uffizi Gallery in Florence, the F.B.I. said. Mr. Homm is accused of defrauding investors of at least $200 million, the F.B.I. said. The most serious of the four felony charges carry maximum sentences of 25 years in prison.

Mr. Homm was one of Germany’s best-known financiers before he disappeared in 2007 as his portfolio of hedge funds, Absolute Capital Management Holdings, was collapsing.

Until then, Mr. Homm had been a symbol of predatory capitalism in Germany. In 2004, he bought 26 percent of Borussia Dortmund, a beloved but nearly bankrupt soccer team, and forced management changes. Mr. Homm seemed to relish his role as a so-called locust — the label one German politician gave to buyout firms — appearing on German television talk shows holding a fat Cuban cigar or posing for photographs in front of his villa on the Spanish island of Majorca.

Since 2011, Mr. Homm has been the target of a civil suit by the U.S. Securities and Exchange Commission, which accused him of manipulating share prices by buying and selling thinly traded shares between entities he controlled. Last week, prosecutors in Los Angeles filed criminal charges against Mr. Homm based on the same circumstances. The Italian police arrested Mr. Homm at the request of the U.S. authorities.

According to the F.B.I., Mr. Homm earned commissions as a result of trades between a broker in which he owned a stake and the hedge fund. The trades inflated the prices of penny stocks and made Absolute Capital Management look more valuable than it was, the F.B.I. said in a statement, in a practice known as “portfolio pumping.” Mr. Homm and people he worked with are accused of earning $53 million through the scheme.

Mr. Homm faces charges of conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud.

In a telephone interview in November, Mr. Homm admitted he had behaved badly and committed many sins. “I’ve always said I’ve been a rogue operator in much of my life,” he said.

But he said his fund, which at one point had $2 billion under management, was highly profitable for investors most of the time. The charges against him were based on lies told by former associates, Mr. Homm said. Prior to his arrest he had been contesting the civil suit filed by the S.E.C.

Mr. Homm resigned as head of Absolute Capital in the middle of the night on Sept. 18, 2007. By his own account, he boarded a private plane in Majorca, his Calvin Klein underwear stuffed with cash, and made his way to Colombia, where he lived under an assumed name.

But Mr. Homm said he was never a fugitive. He said he dropped from view because he wanted to find himself, and also because some dubious people with whom he had done business were trying to kill him. Mr. Homm reappeared in November when he gave clandestine media interviews to promote a book he wrote, “Rogue Financier: The Adventures of an Estranged Capitalist.”

The book was intended as a cautionary tale, Mr. Homm said in a November telephone interview. “The pursuit of happiness is not correlated with the pursuit of money,” he said. In the book and interview, Mr. Homm insisted he was no longer the same person who once owned a stake in a Berlin brothel and lived in a $5 million residence on Majorca with a Russian table dancer. He said he prayed daily and was devoting his energy to charity work.

Given Mr. Homm’s flair for drama, it was perhaps fitting that he was arrested at the Uffizi Gallery, famous for an exquisite collection that includes works by Michelangelo, Rubens, Tintoretto and Rembrandt. At the time, he was accompanied by his ex-wife and son, according to the Italian news agency ANSA.

But it is unclear why Mr. Homm, who is 201 centimeters, or 6 feet 7 inches, tall and something of a celebrity in Germany, would appear in a place where there are many German tourists and he was likely to be recognized. Mr. Homm’s lawyer could not be reached for comment.

Article source: http://www.nytimes.com/2013/03/11/business/global/hedge-fund-manager-found-and-jailed-in-fraud.html?partner=rss&emc=rss