SEC target Homm loses motion to dismiss charges
2013-02-12 14:24 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-LGSL) Logistical Support Inc
Also Street Wire (U-MMCO) MicroMed Cardiovascular Inc
Also Street Wire (U-NUXP) NuRx Pharmaceuticals Inc
Also Street Wire (U-PELE) ProElite Inc
by Mike Caswell
German hedge fund manager Florian Homm has lost his bid to have civil charges dropped that he faces in California for a $63-million market manipulation. (All figures are in U.S. dollars.) Mr. Homm had contended that the U.S. courts had no jurisdiction to hear the case, given that the alleged manipulation took place entirely outside the United States. A California judge has disagreed, however, finding that the manipulation occurred on U.S. markets.
The ruling is part of a civil suit that Mr. Homm faces from the U.S. Securities and Exchange Commission for manipulating six OTC Bulletin Board and pink sheets companies between 2005 and 2007. The SEC claims that he and others, including Victoria resident Colin Heatherington, boosted the companies with wash trades. In one instance they sent a stock to $12.99 to $3.20 in minutes, the SEC says.
 | | GETTY IMAGES | | Florian Homm |
Mr. Homm had sought to have the case dismissed on mostly jurisdictional grounds. In a motion filed on Dec. 19, 2012, he had argued that the trades in question took place entirely between entities located outside the U.S. If there were any losses inflicted on investors, those losses took place outside the U.S. He also said it would be difficult for him to defend the case in the U.S., as many of trading records are located in other jurisdictions.
The judge, however, has found that there are sufficient U.S. connections for the case to go forward. Mr. Homm was part owner of a California brokerage, Hunter World Markets Inc., that participated in some of the trading. There is evidence that he used Hunter World Markets, along with offshore hedge funds, to manipulate the stocks, the judge found. Moreover, the stocks were all listed in the U.S., either on the OTC-BB or the pink sheets.
The decision comes almost two years after the SEC filed a civil complaint charging Mr. Homm and others for the manipulations. The complaint, filed in the Central District of California on Feb. 24, 2011, claimed that Mr. Homm used hedge funds he controlled under the name Absolute Capital to drive up the prices of six thinly traded stocks. The scheme left the hedge funds with between $440-million and $530-million in illiquid holdings, according to the SEC.
One of the manipulations the complaint cited was that of ProElite Inc., a California company that promoted mixed martial arts. According to the SEC, Mr. Homm and his co-defendants boosted the company to $12.99 from $3.20 in a span of minutes on May 15, 2007. The stock subsequently fell, and was last at 0.01 cent.
ProElite's rapid rise, as described by the complaint, was fuelled by a series of wash trades between Absolute funds and other accounts that Mr. Homm and his associates controlled. Over a two-minute span, the men traded five million shares of the otherwise thinly traded stock, the SEC said. There were no announcements or any other factors that would have accounted for the rapid rise.
The SEC claimed that Mr. Homm and his co-defendants repeated similar patterns with five other companies, which the complaint listed as: Berman Center Inc., NuRx Pharmaceuticals Inc., MicroMed Cardiovascular Inc., Java Detour Inc. and Logistical Support Inc. The personal profits of the men, as listed in the complaint, were $11.6-million for Mr. Heatherington and $33.6-million for Mr. Homm and another defendant, Todd Ficeto. Combined with additional gains the men realized through companies they controlled, they made $63-million, the SEC claimed.
The scheme, as described in the complaint, came to an end in September, 2007, when Mr. Homm resigned from Absolute Capital. The day he left he had been scheduled to meet with the firm's chief executive officer to discuss more oversight of his investment decisions. After his departure, the funds were left holding hundreds of millions of dollars worth of illiquid stocks, most of which represented shares of the six companies the men had manipulated, the SEC claimed.
The SEC sought disgorgement of ill-gotten gains and appropriate civil penalties for all three men. In filing the case, the SEC acknowledged the assistance of the B.C. Securities Commission.
Mr. Heatherington and Mr. Ficeto previously filed answers to the complaint in which they generally denied any wrongdoing.
Mr. Homm has not filed an answer, but in a memorandum filed on Dec. 19, 2012, he too denied any wrongdoing. He said that all of the shares his hedge funds acquired were disclosed to investors through monthly reports. Since he made no effort to deceive the investors, there was no fraud, he contended. He also said that he had a "good faith belief" that the value of the companies the funds invested in were higher than their quoted market value.
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