There will be a delay with regard to the $170 million distribution plan the Securities and Exchange Commission (SEC) has proposed in its case against BlueCrest Capital Management Limited.
As FX News Group has reported, BlueCrest agreed to the payment of $170 million last year in order to settle charges arising from inadequate disclosures, material misstatements, and misleading omissions concerning its transfer of top traders from its flagship client fund, BlueCrest Capital International (BCI), to a proprietary fund, BSMA Limited, and replacement of those traders with an underperforming algorithm.
On November 2, 2021, the SEC published a Notice of Proposed Plan of Distribution and Opportunity to Comment for the distribution of monies placed into a Fair Fund in the matter. The Notice invited public comment on the proposed plan of distribution through December 2, 2021. The Commission has received public comments on the Plan.
Today, the SEC confirmed that a good cause exists to extend the 30-day time period, provided in Rule 1104 of the Commission’s Rules, with entry of an order extending time to approve, approve with modification, or disapprove the Plan until March 31, 2022. Accordingly, the time to enter such an order is extended until the end of March 2022.
BlueCrest created BSMA to trade the personal capital of BlueCrest personnel using primary trading strategies that overlapped with BCI’s. Members of BlueCrest’s governing body, which made the relevant decisions regarding BSMA, had a 93% ownership interest in BSMA that peaked at $1.79 billion compared to its ownership interest of approximately $619 million in BCI.
During a period of more than four years, BlueCrest made inadequate and misleading disclosures concerning BSMA’s existence, the movement of traders from BCI to BSMA, the use of the algorithm in BCI, and associated conflicts of interest. BlueCrest transferred a majority of its highest-performing traders from BCI to BSMA, and assigned many of its most promising newly hired traders, eligible to trade for either fund, to BSMA.
BlueCrest failed to disclose that it reallocated the transferred traders’ capital allocations in BCI to a semi-systematic trading system, which was essentially a replication algorithm that tracked certain trading activity of a subset of BlueCrest’s live traders.
In addition, BlueCrest did not disclose certain material facts about the algorithm to BCI’s independent directors. The algorithm generated significantly less profit with greater volatility than the live traders. The order finds that BlueCrest was able to keep more of any performance fees generated by the algorithm than by live traders.
BlueCrest willfully violated antifraud provisions of the Securities Act of 1933 and Investment Advisers Act of 1940 as well as the Advisers Act’s compliance rule.
Without admitting or denying the SEC’s findings, BlueCrest agreed to a cease-and-desist order imposing a censure, and must pay disgorgement and prejudgment interest of $132,714,506 and a penalty of $37,285,494, all of which will be returned to investors.