BlueCrest Capital Management has agreed to pay $101mn in redress to investors to end a drawn-out legal battle with the UK financial regulator that included a public censure for the hedge fund.
The settlement announced on Tuesday between the firm co-founded by billionaire Michael Platt and the Financial Conduct Authority draws to a close years-long challenges and appeals to a £41mn fine the watchdog decided to levy in 2021 over BlueCrest’s alleged reckless conduct.
As part of the agreement, BlueCrest has withdrawn its appeal to the Supreme Court against the UK’s enforcement action, while the regulator dropped its demand for the company to pay the penalty. The regulator also accepted less customer redress than the $707mn it originally demanded.
The FCA said that between October 2011 and December 2015 the hedge fund “failed to manage fairly a conflict of interest” in moving some of its UK-based managers to a fund for the benefit of its employees, from another available to external investors.
Therese Chambers, joint executive director of enforcement and market oversight, said: “BlueCrest put its own interest ahead of the external fund and provided a substandard service, which meant that investors lost out.”
In late 2021 the FCA fined BlueCrest more than £40mn for “reckless” conduct, but the former hedge fund took the case to the Upper Tribunal, which hears legal challenges to the regulator’s decisions.
In return for BlueCrest agreeing to pay $101mn redress to non-US investors, the FCA dropped its planned fine.
The settlement of the dispute between BlueCrest and the UK regulator came almost five years after the hedge fund agreed to pay $170mn to the Securities and Exchange Commission that the US market watchdog used to compensate to American investors.
BlueCrest said: “Given the significant amount of time that has elapsed since the events at issue and in order to draw a line under the matter, BlueCrest has agreed a settlement with the FCA. BlueCrest does not accept the findings set out in the Final Notice issued by the FCA.”
The FCA said: “Disclosures to investors were insufficient and, at times, misleading. Investors were not told that a significant number of traders were moved to work on the internal fund. This affected investors’ ability to make informed decisions.
“Asset managers are trusted to make decisions for their clients. It is vital they have appropriate systems and controls in place to ensure conflicts of interest are managed fairly,” it added.
The new redress scheme will be overseen by BlueCrest and affected investors will be contacted on next steps by it or a scheme administrator if it appoints one.
BlueCrest was once one of the world’s biggest macro hedge funds and at its peak ran about $36bn in assets. But after a period of poor performance and investor withdrawals in the early 2010s, it announced in December 2015 that it would return capital to investors and stop managing money for outside clients.
The company — co-founded by Platt, a Preston-born former JPMorgan trader — converted to a family office following a drop in assets and a period of weak returns. Since then, it has frequently notched up big gains from the about $5bn of capital it invests using leverage to magnify returns on bonds, currencies, commodities and systematic strategies.
