In a cease-and-desist order issued in its own private court, the US Securities and Exchange Commission has induced Bluecrest Capital Management to pay disgorgement of $107,560,200, prejudgment interest of $25,154,306 and a civil penalty of $37,285,494.
Guernsey-based Bluecrest is paying these amounts to settle charges arising from (in the SEC's words) inadequate disclosures, material misstatements and misleading omissions. The Bluecrest empire had AuM of nearly $60 billion in 2016.
The fine arises from the management of a proprietary hedge fund, BSMA Ltd, by previously registered investment adviser BlueCrest Capital Management Ltd. Between October 2011 and December 2015, according to the SEC, BlueCrest's management of BSMA was detrimental to investors in BlueCrest’s flagship client hedge fund, BlueCrest Capital International.
In 2011, BlueCrest created a debt-ridden proprietary fund, BSMA, to trade the personal capital of BlueCrest personnel. Like BlueCrest Capital International, BSMA’s largest capital allocations were always to Rates and Relative Value (RV) strategies. BlueCrest transferred Rates and RV traders, who had been trading for BlueCrest Capital International, to BSMA, and hired new traders who were eligible to trade for either fund to trade for BSMA only. During the period of 2011-15, most of BlueCrest’s highest-performing Rates and RV traders were allocated to BSMA.
Next, BlueCrest replaced the capital allocations of the transferred traders by allocating a substantial amount of BlueCrest Capital International's capital to a semi-systematic trading system called Rates Management Trading, which tracked some of the trading activity of a subset of BlueCrest’s live Rates and RV traders but generally underperformed against those traders. Between 2012 and 2015, BCI’s capital allocations to Rates Management Trading ranged from 17-52% of BlueCrest Capital’s total allocated capital.
This done, BlueCrest failed to do enough to disclose, and made misstatements and did not state facts "necessary to not render other statements misleading" concerning, BSMA’s existence, the movement of traders, RMT and related conflicts of interest, to BCI investors and/or prospective investors. BlueCrest also failed to disclose certain material facts about RMT to BCI’s "independent directors," a possible SEC refence to non-executive directors.
BlueCrest also failed adequately to implement policies and procedures reasonably designed to obey the Advisors Act (and rules issued under it) in relation to all this. The SEC says that BlueCrest broke ss17(a)(2) and (3) Securities Act and ss206(2) and 206(4) Advisors Act and Rules 206(4)-7 and 206(4)-8 issued thereunder.