Ex-Millennium Global Investments Ltd. portfolio manager Michael Balboa participated in a fraud scheme that involved marking up the value of Nigerian sovereign debt in funds he managed, a prosecutor told jurors at the start of a trial in New York.
Balboa, who was based in London, and three unnamed co-conspirators participated in a 10-month scheme in 2008 in which he sent “phony mark-to-market quotes” to an independent valuation agent who inflated month-end market prices for Nigerian warrants, prosecutors said. Balboa also overstated the value of the fund’s illiquid securities and securities positions, allowing him to generate illegitimate management and performance fees, the U.S. said.
Balboa “was not honest with his investors how his funds were actually doing,” Assistant U.S. Attorney Steve Kwok told jurors in opening arguments yesterday in federal court. “He lied to them over and over again. Balboa raked in millions of dollars in fees for himself by marking up and inflating the value of the funds he was managing.”
The fund manager, who worked at Millennium from December 2006 to October 2008, was named in an indictment unsealed in March. He is charged with five counts including two counts of conspiracy and one count each of securities fraud, wire fraud and investment adviser fraud, U.S. District Judge Paul Crotty said.
Joseph Tacopina, a lawyer for Balboa, said his client had developed an expertise in setting valuations for illiquid assets such as Nigerian bonds and that literature from his fund informed investors that he was authorized to make changes in valuations.
“It’s just shocking that we’re sitting here with these allegations,” Tacopina said in his opening argument. “The evidence is not even close.”
The defense lawyer disputed Kwok’s assertion that Balboa’s clients were “ordinary” investors. Tacopina said they were sophisticated institutional investors who understood the market and couldn’t be duped.
“There’s not one authority, there’s no one place to look for these valuations,” Tacopina said. “That’s why people looked to someone who had a lifetime of experience like him. It’s not like he’s some yo-yo. He was one of the go-to guys.”
Balboa earned about $6.5 million for his services to the fund, which was based on his fund’s performance, prosecutors said. As a result of the scheme, the fund was able to increase its total valuation for the Nigerian warrants from more than $12 million in January 2008 to more than $84 million in August 2008, the U.S. said.
Fearing that the U.S. was investigating him in 2010, Balboa reached out to those who aided him in the scheme and attempted to get them to help him cover up his crimes, Kwok said yesterday.
Kwok said that Balboa enlisted the help of BCP Securities LLC broker Gilles De Charsonville of Madrid, and two other men, whom Kwok told jurors were Sam Pratt and Leonardo Nesti.
Kwok told jurors the three men are cooperating with prosecutors, will testify for the U.S. and haven’t been charged with wrongdoing.
The U.S. Securities and Exchange Commission filed a related lawsuit in December 2011, claiming that Balboa, of Surrey, England and De Charsonville, used the overvalued securities positions to “generate millions of dollars in illegitimate management and performance fees.”
Balboa faces as long as 20 years in prison if convicted of securities fraud, Manhattan U.S. Attorney Preet Bharara said at the time of Balboa’s arrest in December.
Balboa’s fund, which bought emerging-market debt, was liquidated by London-based Millennium Global after lenders withdrew credit in the wake of the financial crisis, two people familiar with the situation said in October 2008. His portfolio suffered almost $1 billion in losses, the SEC said in court papers.
The criminal case is U.S. v. Balboa, 12-cr-00196, and the civil case is SEC v. Balboa, 11-cv-08731, U.S. District Court, Southern District of New York (Manhattan).