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The UK’s financial conduct regulator is fighting to resurrect a $700mn redress scheme that it wants to impose on billionaire Michael Platt’s BlueCrest Capital over allegations of “reckless” conduct.
Three senior judges in London on Tuesday heard a legal challenge brought by the Financial Conduct Authority after a tribunal last year found the regulator had demonstrated “a considerable amount of muddled thinking” and blocked the regulator’s redress plan.
The FCA fined BlueCrest, once one of the world’s best known macro hedge funds, £41mn and proposed the client-redress scheme in 2021 over an alleged conflict of interest.
The regulator said the firm failed to manage the risk that moving managers of a fund for external investors, to a fund that invested money on behalf of partners and employees, could disadvantage the outside clients.
BlueCrest, which denies the findings, launched a legal challenge. The tax and chancery chamber ruled last year that the regulator lacked powers to impose the redress scheme.
The two tribunal judges, Timothy Herrington and Rupert Jones, criticised the regulator for a “lack of clarity” that made it “difficult to identify the essence of the authority’s thinking”. They called the FCA’s decision notice “not an impressive document”.
The FCA is in turn challenging the tribunal’s decision, and Lord Justice Popplewell, Lord Justice Nugee and Lady Justice Falk in the Court of Appeal heard the case on Tuesday.
Andrew George KC, representing the regulator, told the appeals court that the tribunal judges had made errors in reaching their decision.
George said the legislation “clearly and expressly” grants the FCA powers to secure an “appropriate” degree of protection for consumers. The tribunal, he argued, had wrongly placed “complex and unnecessary” constraints on the regulator’s powers.
However, Javan Herberg KC, representing BlueCrest, said the tribunal’s decision to block the $700mn redress scheme had been correct, and called on the court to dismiss the FCA’s appeal.
Herberg said the regulator’s penalty had been “disproportionate and excessive” as the regulator had “not sought to assess the loss actually caused” nor “shown that any loss was caused by the firm’s wrongdoing”.
The FCA, in its original decision, claimed BlueCrest’s disclosures to investors had been “entirely insufficient and, at times, misleading”.
Decisions about allocating traders to the internal fund were made by senior managers who also invested in that fund, which “placed them in a situation where they stood to benefit” personally, the FCA said at the time.
The regulator found that a BlueCrest algorithm called Rates Management Trading, designed to replicate trades made by the firm’s traders working on the internal fund for the external fund, at times underperformed.
The regulator, whose decision covered the period from October 1 2011 to December 31 2015, described the firm’s conduct as “reckless rather than deliberate”.
BlueCrest, which at its peak ran about $36bn in assets, announced at the start of December 2015 that it would stop managing money for outside clients.
The firm, co-founded by Platt, 56, converted to a family office following a drop in assets and a period of weak returns.