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BlueCrest Capital Management will pay $170 million to investors after the hedge fund settled with the U.S. Securities and Exchange Commission over charges that it misled clients about the existence of an internal fund used to invest company insiders’ wealth which was managed by the the firm’s best traders, the SEC said Tuesday.
The fund, owned by British billionaire Michael Platt, has in recent years bucked the trend of hedge funds underperforming the broader market. According to the Financial Times, In 2019 it produced gains of 50%, compared to an average hedge fund return of 7% and the S&P 500’s SPX, -0.18% gain of 28.9%.
According to the SEC’s order, BlueCrest created a separate fund called BSMA to trade the personal wealth of firm insiders “using primary trading strategies that overlapped with” the flagship client-facing fund, called BCI.
“BlueCrest transferred a majority of its highest-performing traders from BCI to BSMA, and assigned many of its most promising newly hired traders … to BSMA,” the SEC said in a press release.
For more than four years, investors in the client fund were not adequately informed about the existence of BSMA or the transfer of top traders to that fund. Meanwhile, client money was increasingly managed by an “underperforming algorithm,” the SEC said.
“BlueCrest repeatedly failed to act in the best interests of its investors, including by not disclosing that it was transferring its highest-performing traders to a fund that benefitted its own personnel to the detriment of its fund investors,” said Stephanie Avakian, Director of the SEC’s Division of Enforcement. “This settlement holds BlueCrest responsible for its conduct and furthers the SEC’s goal of returning funds to harmed investors.”
