(Bloomberg) -- Michael Platt’s investment firm BlueCrest Capital Management is back on the hook for $700 million in compensation to investors for favoring its staff in an internal fund, after losing a court fight with the UK’s financial regulator.
London appeal judges on Tuesday overturned a lower court finding that the Financial Conduct Authority had no power to impose such a requirement on a single firm, paving the way for the regulator to assert the compensation demand. A tribunal will now decide whether the $700 million should be paid out based on the watchdog’s consumer protection rules.
The ruling is a boost to the FCA, which previously faced criticism for its “muddled thinking” on the issue. The long-running case stems from the watchdog’s investigation, which alleged that BlueCrest allocated portfolio managers to an internal fund, open only to its employees, creating conflicts of interest.
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 ($53.1 million) fine on the firm. BlueCrest rejects the findings.
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. The FCA 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 US agency said at the time that the London-based firm failed to act in the best interests of its investors.
BlueCrest declined to comment. The FCA said the ruling has important wider implications for its ability to secure compensation for consumers.
(Updates with FCA comment in final paragraph.)
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