BlueCrest Capital Management, the investment firm led by Michael Platt, has won a court battle against the Financial Conduct Authority, preventing the watchdog from demanding over $700 million in compensation for investors. This comes after BlueCrest was fined $51 million earlier in the year for allegedly prioritizing partners over external investors in an internal fund.
The FCA had hoped to demand that the fund pay compensation calculated at more than $700 million. However, BlueCrest disagreed with the findings and challenged the demand in court. The judge ruled in favor of BlueCrest, stating that the FCA had no freestanding power to impose such a requirement.
In December 2021, the FCA found that BlueCrest had moved its traders from the main client fund to the internal one, partially replacing them with an underperforming algorithm. This generated significantly less profit and more volatility, leading the FCA to argue that investors should receive a proportion of management and performance fees.
One notable aspect of the case was that BlueCrest decided to challenge the FCA's findings directly in court, bypassing the FCA's internal regulatory panel. Although the FCA themselves said that the findings were provisional, BlueCrest has yet to challenge the full penalty in court and has stated that it will continue to defend its position vigorously in this matter.
BlueCrest says that the conduct in question relates to a previous business model that is no longer relevant to its operations. Meanwhile, the judge has criticized the FCA's formal notice of penalty, stating that it demonstrates a considerable amount of muddled thinking on the part of the authority.
In the US, BlueCrest has already agreed to pay $170 million to ex-clients, one of the largest penalties ever levied against a hedge fund by the Securities and Exchange Commission. At the time, the regulator claimed that the London-based firm had failed to act in the best interests of its investors.