A hedge fund manager accused by the Financial Services Authority of lying to investors about "catastrophic losses" has been fined a record £3m by the watchdog.
Alberto Micalizzi, 43, whose $500m (£318m) Dynamic Decisions London hedge fund collapsed in 2009, has also been banned for life from working in regulated financial services.
The FSA alleges that, following more than $390m of losses in Dynamic's fund after the collapse of Lehman Brothers, Micalizzi lied about the deficit and, in late 2008, launched a bond on which he booked a profit for the fund of more than $400m.
But the FSA claims the bond was phoney, or, in regulatory parlance, "not a genuine financial instrument" – set up purely to cover up the fund's losses.
Specifically, the FSA claims units of the bond were sold to the loss-making fund at a deep discount, then re-stated at their face value in the fund's accounts, creating a huge artificial profit.
That gave the impression that the fund remained in healthy condition, enabling Micalizzi to keep seeking new investors. One put in $41.8m in December 2008. The fund was liquidated five months later and the bonds have proved impossible to sell, according to Reuters.
Tracey McDermott, the FSA's acting enforcement director, said: "Alberto Micalizzi's conduct fell woefully short of the standards investors should expect and behaviour like this has no place in the financial services industry."
The FSA also said Micalizzi repeatedly provided it with false and misleading information.
He is appealing against the finding and seeking to get it overturned at a tribunal. In a lengthy rebuttal statement condemning the "desperate" regulator, his lawyers said: "The picture painted by the FSA... is artificial." It said Mr Micalizzi may have been the victim of fraud.
The FSA referred the case to the Serious Fraud Office but it was later dropped by the police, leading the City watchdog to pick up the matter once again.