(Updates with Balboa’s lawyer in eighth paragraph.)
Dec. 1 (Bloomberg) -- Ex-Millennium Global Investments Ltd. portfolio manager Michael Balboa was charged with fraud and sued by U.S. regulators for allegedly participating in a scheme involving Nigerian sovereign debt.
A criminal complaint unsealed today in federal court in Manhattan alleges that Balboa and two unidentified co- conspirators sent “phony mark-to-market quotes” to an independent valuation agent who inflated month-end market prices for Nigerian warrants.
In a related lawsuit, the Securities and Exchange Commission today claimed that Balboa, 42, of Surrey, England, and Gilles De Charsonville, 49, of Madrid and a broker at BCP Securities LLC, used the overvalued securities positions to “generate millions of dollars in illegitimate management and performance fees.”
“The scheme caused the fund to drastically overvalue the securities holdings by as much as $163 million in August 2008, which in turn allowed the fund to report inflated and falsely- positive monthly returns,” the SEC alleged.
Balboa, who worked at Millennium from December 2006 to October 2008, is accused in the criminal complaint of committing securities and wire fraud with two unnamed co-conspirators during an eight-month period in 2008.
20 Year Sentence
Balboa, arrested this morning, faces as long as 20 years in prison if convicted of the securities fraud, Manhattan U.S. Attorney Preet Bharara said in a statement.
At Balboa’s initial court appearance, U.S. Magistrate Judge Gabriel Gorenstein agreed with Assistant U.S. Attorney Chris LaVigne that he should be held pending a bail package that satisfied prosecutors. Balboa is a U.K. citizen, Gorenstein noted. He is scheduled to return to court on Jan. 3.
His lawyer, Joseph Tacopina, said in a phone interview that Balboa will plead not guilty and “intends to defend the charges.”
It couldn’t be immediately determined who is representing De Charsonville.
The SEC case is part of an agency initiative to combat fraud by hedge funds through scrutinizing abnormal investment performance, Bruce Karpati, co-chief of the SEC Civil Divisions’s Asset Management Unit, said in a phone interview.
The SEC claims that Balboa, De Charsonville and an unidentified third person conspired to inflate the fund’s reported monthly returns and net asset value by manipulating its supposedly independent valuation process.
Balboa would “surreptitiously” provide fictional prices for two of the fund’s illiquid securities holdings which would be passed on to the fund’s outside valuation agent and its auditor, the SEC said.
“By overstating the returns and overall net asset value, Balboa was able to attract at least $410 million in new investments,” according to regulators. Bharara’s office said Balboa overstated assets by more than $80 million. Balboa was also able to deter about $210 million in eligible redemptions and generate millions of dollars in inflated management and performance fees, the U.S. said.
His fund, which bought emerging-market debt, was liquidated by London-based Millennium Global after lenders withdrew credit in the wake of the credit crisis, two people familiar with the situation said in October 2008. His portfolio suffered almost $1 billion in losses, the SEC said in court papers.
Millennium Global was founded by former Goldman Sachs Group Inc. executive Michael Huttman in 1994.
“Michael Balboa ran our emerging market credit fund until its closure in October 2008,” said Louise Beeson, a spokeswoman for Millennium Global, said in an e-mailed statement. “He left the firm in early 2009.”
“The matters in today’s U.S. filings do not involve any current Millennium employees, investors, counterparties, funds under management or systems/controls,” Beeson said. “We continue to cooperate fully with the regulators in bringing Mr. Balboa’s unauthorized behavior to light in a former area of our business.”
The criminal case is U.S. v. Balboa, 11-mag-3038, and the civil case is SEC v. Balboa, 11-cv-8731, U.S. District Court, Southern District of New York (Manhattan).
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