LOS ANGELES – A trader for a group of hedge funds pleaded guilty this afternoon to participating in a scheme that manipulated penny stock prices to inflate the hedge fund’s reported profits – fraudulent gains that generated millions of dollars in management and performance fees – and caused investors to lose more than $215 million when the funds collapsed.
Colin Heatherington, 49, of Vancouver, Canada, pleaded guilty to one count of conspiring to commit securities fraud and wire fraud and admitted his role in the scheme run out of Absolute Capital Management Holdings (Absolute Funds), a Cayman Island-based company that managed eight hedge funds from offices in Mallorca, Spain.
Heatherington was a securities trader who worked closely with the founder and chief investment officer of Absolute Funds, Florian Wilhelm Jürgen Homm, 64, a German financier who was indicted in March 2013 and is currently a fugitive from justice.
As part of the scheme, Heatherington oversaw the purchase of billions of shares of United States-based penny stocks, which were then traded using various manipulative practices, such as cross trading, which fraudulently inflated the value of the stocks and, in turn, the value of the Absolute Funds.
Heatherington and others in the scheme also reaped profits through self-dealing trades in which they sold their own shares of artificially inflated penny stocks to the Absolute Funds.
After this case was indicted, Heatherington was in Canada, and the United States sought his extradition. After fighting extradition, Heatherington agreed last year to come to the United States.
Another defendant in this case – Todd Michael Ficeto, 57, a former Beverly Hills stockbroker – was sentenced to six years in federal prison after being convicted of 18 felonies relating to his managerial role in the scheme to manipulate penny stock prices, which garnered him many millions of dollars from fees and commissions and self-dealing trades. Ficeto also allowed members of the conspiracy to trade the manipulated penny stocks through his company, among other fraudulent acts.
Heatherington pleaded guilty before United States District Judge John A. Kronstadt, who scheduled a sentencing hearing for May 9, at which time, Heatherington will face a statutory maximum sentence of 25 years in federal prison.
The FBI investigated this matter. The Department of Justice’s Criminal Division’s Office of International Affairs, IRS Criminal Investigation, the United States Securities and Exchange Commission, and the Financial Industry Regulatory Authority (FINRA) provided assistance.
Assistant United States Attorneys Cassie D. Palmer of the Public Corruption and Civil Rights Section, Scott Paetty of the Major Frauds Section, and Ian V. Yanniello of the General Crimes Section are prosecuting this case.