Former CEO of Investment Firm with Main Office in Spain to Pay $8 Million as Part of Agreement to Resolve Criminal Allegations
LOS ANGELES – The former chief executive officer of Absolute Capital Holdings Ltd., which had its primary office in Palma on the Spanish island of Majorca, has entered into an agreement with federal prosecutors in which he will forfeit $8 million that federal prosecutors contend was derived from a fraud scheme conducted by fugitive hedge fund manager Florian Homm, who is accused of overseeing a stock manipulation scheme that caused investors to lose approximately $200 million.
Sean Ewing, 51, a resident of Dubai in the United Arab Emirates, has agreed to forfeit $8 million in a civil settlement, and he has agreed to appear in United States District Court on a criminal case that charges him with books and records violations under the Investment Advisers Act of 1940.
Prosecutors filed a criminal information and a Deferred Prosecution Agreement against Ewing on May 5, and those documents became publicly available today. Prosecutors entered into the agreement, in part, because Ewing, who resides in the United Arab Emirates, has agreed to voluntarily travel to the United States to resolve this matter, and he is taking responsibility for the actions alleged in the criminal case.
According to government filings, Ewing, who along with Homm was a co-founder of Absolute Capital, was the company’s chief executive officer and chairman. Ewing was also a substantial shareholder of Absolute Capital, which traded on the Alternative Investment Market in the London Stock Exchange. From January 30, 2006 through September 10, 2007, Absolute Capital was a registered investment adviser with the United States Securities and Exchange Commission, and Ewing was listed on SEC filings as chief compliance officer. Absolute Capital managed eight hedge funds (the Absolute Funds) involved in an alleged stock manipulation scheme that was designed to artificially prop up the value of the Absolute Funds and Absolute Capital’s stock price.
The Deferred Prosecution Agreement, which resolves the government’s investigation as to Ewing, provides that the government will not pursue Ewing in the stock manipulation scheme. The criminal information filed last week charges Ewing with causing Absolute Capital to fail to keep certain records required by the SEC, namely certain annual securities holdings reports and quarterly transaction reports from persons within the company who had access to confidential information, as well as records of pre-approval of securities trades by such access persons. These records were meant to identify material conflicts of interest between Absolute Capital access persons and Absolute Capital clients, which including the Absolute Funds operated by the company.
In the Deferred Prosecution Agreement, Ewing admits that he was named as the Absolute Capital’s chief compliance officer in SEC filings, but he failed to adequately discharge responsibilities of that position. Among other things, Ewing failed to require Homm and other senior executives at Absolute Capital who had access to confidential information to provide annual holdings reports and quarterly transaction reports, and he did not ensure that they secured pre-approval of securities trades in order to identify any material conflicts of interest with the Absolute Funds raised by such securities trading.
“The United States is continuing to pursue justice and restitution for investors who suffered from the collapse of Absolute Capital,” said United States Attorney Eileen M. Decker. “Mr. Ewing has admitted that he failed to fulfill duties prescribed by U.S. securities laws that are designed to protect investors, and he has agreed to forfeit the monies we believe he obtained as a result.”
Homm was arrested in Italy in 2013 at the request of the United States, and he was subsequently named in an indictment that accused him of orchestrating a stock manipulation scheme designed to “pump up” the reported returns of his hedge funds, while self-dealing for his own benefit and to the detriment of the funds. The United States sought Homm’s extradition to the United States. Homm was ordered extradited by the Italian Ministry of Justice, but he was released from custody and is believed to have fled to Germany, where he remains a fugitive.
In December 2015, a federal grand jury returned a superseding indictment against Homm and three additional defendants. The superseding indictment outlines a penny stock manipulation scheme designed to pump up the reported returns of the eight Absolute Funds and alleges that the fraud caused investors to lose approximately $200 million. The superseding indictment also charges Homm and the other defendants with money laundering.
As part of a Deferred Prosecution Agreement, Ewing will pay the settlement, but will not admit any criminal liability or concede knowledge of any allegedly illegal acts by Homm and others at Absolute Capital.
The Deferred Prosecution Agreement requires Ewing to appear in federal court in Los Angeles soon after he pays the $8 million settlement. In return, the government will dismiss certain seizure warrants filed to restrain Ewing-related assets in the Bailiwick of Guernsey and – if Ewing abides by all of the terms of the agreement, which includes cooperating truthfully with the FBI’s ongoing investigation – will dismiss the criminal case within one year.
The case against Ewing is the product of an investigation by the Federal Bureau of Investigation. The Bailiwick of Guernsey Law Enforcement and the United Kingdom Financial Conduct Authority provided assistance to the FBI’s investigation.