Michael
Balboa inflated the value of illiquid warrants tied to Nigerian debt,
in an effort to increase the apparent performance of the fund and boost
his compensation
A former London-based portfolio manager
was sentenced to four years in prison on Monday for inflating his hedge
fund’s assets by manipulating the value of Nigerian debt.
Michael Balboa, a former portfolio manager at Millennium Global Investments Ltd,
was also ordered by U.S. District Judge Paul Crotty in New York to
forfeit $2.2 million prosecutors say he earned in the scheme and pay
$390 million in restitution over investor losses.
A jury in December found Balboa, 45,
guilty of securities fraud, wire fraud, investment adviser fraud and two
counts of conspiracy, after an earlier trial ended in a mistrial.
Due to the losses involved, Crotty said
advisory federal sentencing guidelines called for a life term. The judge
said the guidelines “vastly overstates the seriousness of the offense.”
Joseph Tacopina, Balboa’s lawyer, said
prosecutors had said as part of a proposed plea deal his client did not
accept they would recommend a sentence of five years in prison. Tacopina
said Balboa would appeal.
“He personally didn’t cause an investor to lose one dollar,” Tacopina said in court.
The case centered on Millennium Global
Emerging Credit Fund, which invested in emerging markets corporate and
sovereign debt. The fund once reported $844 million in assets, according
to the U.S. Securities and Exchange Commission.
Prosecutors said Balboa, who ran the
emerging credit fund from December 2006 to October 2008, inflated the
value of illiquid warrants tied to Nigerian debt, in an effort to
increase the apparent performance of the fund and boost his
compensation.
As part of the scheme, which began in
January 2008, Balboa instructed two co-conspirators to provide inflated
values for the warrants to an independent valuation agent used by
Millennium, prosecutors said.
While the warrants in 2008 traded for no
higher than $239, Balboa instructed his co-conspirators to give the
agent values of $525 to $3,500, prosecutors said.
The inflated valuations resulted in the
emerging credit fund’s own value to be overstated by about $80 million
as of August 2008, prosecutors said.
Balboa that year earned $8.14 million,
$2.2 million derived directly from the scheme, the government said in a
court filing last week.
The emerging credit fund shut down in October 2008. Charges by the U.S. Justice Department and SEC were announced in 2011.
The case is U.S. v. Balboa, U.S. District Court, Southern District of New York, No. 12-cr-00196
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