(Corrects seventh paragraph of story published Nov. 12 to reflect that Dynamic Decisions said the liquidation was “avoidable.”)

Nov. 12 (Bloomberg) -- The U.K. Serious Fraud Office opened a criminal investigation into hedge fund firm Dynamic Decisions Capital Management Ltd. after receiving complaints about its investment activities.

The SFO, which prosecutes white-collar crime, opened the probe into the Dynamic Decisions fund after the matter was referred to it by the U.K. Financial Services Authority. Both offices had received complaints, the SFO said today in a statement.

Dynamic Decisions’ main hedge fund is being liquidated by court-appointed administrators in the Cayman Islands after investors raised questions about some of its holdings. The fund’s liquidators said it was separately investigating corporate bonds purchased late last year.

“The FSA would refer a case to the SFO where there were broader concerns than just insider trading or market abuse, where there are concerns about fraud,” said Ian Mason, a former enforcement official at the FSA who is now a partner at London- based Barlow Lyde & Gilbert. Mason isn’t involved in the case.

Grant Thornton LLP said it was named the fund’s official liquidator by the Grand Court of the Cayman Islands in May. The unaudited net asset value of the master fund was $550 million as of Dec. 31, Grant Thornton said.

Dynamic Decisions and its founder, Alberto Micalizzi, were “taken by surprise” by the SFO investigation and are unaware of any “trigger for the timing of this action,” the company said in an e-mailed statement.

Brief Conversation

Micalizzi has had an “initial brief conversation with the SFO,” the statement said. The last time the firm was asked to provide information to the FSA was the middle of the year.

“This investigation will result in the same conclusion that other third parties have reached in the last eight months, that the sequence of events that led to the liquidation of the Cayman funds was a reasonable response to unprecedented conditions, and indeed that the liquidation itself was avoidable,” according to the statement.

Grant Thornton said that its investigations into the financial position of the fund and its affairs have been ongoing. A key asset of the fund is corporate bonds purchased late last year.

“Allegations have been made that these bonds not only fell outside the parameters of the mandated investment strategy of the fund, but that the bonds had no real value,” Grant Thornton said in an e-mailed statement. “Interest has been expressed by an interested party in acquiring the bonds at a substantial proportion of face value, but negotiations have not completed.”

DD Growth Premium

Dynamic’s DD Growth Premium and DD Growth Premium 2X funds, which invest in the Cayman Islands-incorporated master fund, were put into provisional liquidation in March at the request of London-based Strathmore Capital LLP and Cadogan Management LLC in New York.

SFO spokesman David Jones declined to comment beyond the press release.

Dynamic Decisions was started in 2005 by Micalizzi, a professor of finance at Bocconi University in Milan, according to the firm’s marketing documents. He previously ran the research firm Real Options Group, which had offices in France and the U.S. Micalizzi received a doctorate in finance from Imperial College London.

To contact the reporter for this story: Lindsay Fortado in London at lfortado@bloomberg.net. To contact the reporter for this story: James Lumley in London at jlumley1@bloomberg.net.

Last Updated: November 13, 2009 03:34 EST