The UK regulator, the Financial Services Authority, has fined Alberto Micalizzi £3 million (about $5 million) and banned him from performing any role in regulated financial services for not being a "fit and proper" person. Micalizzi and his London-based hedge fund management company Dynamic Decisions Capital Management have referred the decision to the Upper Tribunal.

Micalizzi was the chief executive officer and a director of DDCM. In the FSA’s opinion, in late 2008, to conceal “catastrophic” losses of $390 million, approximately 85 per cent of its value, Micalizzi lied to investors about the true position of the fund and entered into a number of contracts, on behalf of the fund, for the purchase and resale of a bond to create artificial gains. The FSA believes that the bond was not a genuine financial instrument and that Micalizzi was aware of this when he entered into the bond contracts.

In May 2009 the fund was placed into liquidation. The liquidator estimated that the assets on liquidation were about $10 million and, to date, no payment has been made to any investor by the liquidator. But some analysts are asking why the case was not handled by the Serious Fraud Office.

Eversheds, the law firm, explained the significance of the fine and ruling yesterday.

“This is the largest fine imposed by the FSA on an individual to date for breaching its rules where market abuse is not involved.  A cursory analysis of the decision notice explains why. The FSA seems to have reached the view that Micalizzi orchestrated a fraud in order to conceal from his investors the massive losses that were being incurred by his hedge fund following the collapse of Lehman in the last quarter of 2008. The FSA is not a fraud prosecutor and has therefore taken steps to discipline Micalizzi in accordance with its statutory powers. But it all rather begs the question why Micalizzi was not prosecuted for fraud by the SFO, because this has all the hallmarks of a classic Ponzi-type scam," Jonathan Crook, partner in the Financial Services Dispute Resolution group at Eversheds, said.

“It is another good result for the FSA, but people will rightly ask why Micalizzi is not going to jail. Interestingly, [he] has decided to ‘roll the dice’ by referring the FSA’s decision to the Upper Tribunal. It will probably be at least a year before the Tribunal rules on the case, but this looks like a slam-dunk for the FSA. It will be interesting to see whether the Tribunal shows any inclination to increase Micalizzi’s fine, if it decides that the reference was wholly unmeritorious. If it doesn’t do so in this case, it is unlikely that it ever will,” he said.

Meanwhile, Jerome Lussan, chief executive of Laven Partners, a consultancy, said: “We
think that this case should be treated as a watershed moment for the
global hedge fund industry. It clearly highlights the damage that a
total disregard for the rules and conduct of business can cause both to
investors and to the hedge fund industry as a whole, not to mention the
individuals involved in the firm.”

“As we know, a strict adherence to compliance rules does not
automatically lead to a better performance for a particular investment
strategy. However, many of these rules are there to ensure that hedge
fund managers and compliance officers can monitor and perhaps even
prevent losses before events escalate beyond control. For the greater
good of the hedge fund industry, it would be beneficial if the companies
would begin to see compliance procedures as an integral part of hedge
fund operations and risk management. Regulations are a help not a
hindrance if used within the operations of any hedge fund business.”