Michael R. Balboa, a former London-based portfolio manager at Millennium Global Investments Limited, was ordered by United States District Judge Paul Crotty to forfeit $2.2 million and pay more than $390 million in restitution for fraudulently overvaluing his hedge fund’s assets.  Balboa was found guilty of securities fraud, wire fraud, investment adviser fraud, and two counts of conspiracy.  According to the evidence presented at trial, Balboa conspired with co-workers to manipulate Nigerian oil warrant values, which then increased the performance of the hedge fund.  The hedge fund’s strategy was to invest in corporate and sovereign debt instruments in emerging countries before it was shut down in October 2008.  As part of the scheme, Balboa instructed his co-workers to value the warrants at $525 to $3,500, when the true trading price was no higher than $239.  As a result, the inflated values were overstated by about $80 million as of August 2008.

That year, Balboa earned $8.14 million.  According to prosecutors, $2.2 million of Balboa’s earnings came directly from the scheme.

Under the Federal Sentencing Guidelines (“Guidelines”), Balboa would have been sentenced to a life term because of the losses involved.  The Guidelines are a set of rules created to set out uniform sentencing policies for individuals and organizations.  The Guidelines are primarily based on a defendant’s offense conduct and criminal history.  Additional adjustments, including the loss amount and the number of victims involved, may also be warranted.  These adjustments can significantly increase a defendant’s sentence.

While a federal judge must consider the Guidelines when determining the sentence, the Guidelines are not mandatory.  Judge Crotty commented that in the Balboa case, the Guidelines “vastly overstates the seriousness of the offence.”  Instead of sentencing Balboa to a life term as per the Guidelines, Judge Crotty sentenced Balboa to four years in prison.

While this was a significant departure from the Guidelines, Joseph Tacopina, Balboa’s lawyer, said that the former hedge fund portfolio manager will still appeal the decision.  In court, Tacopina stated that Balboa “personally didn’t cause an investor to lose one dollar.”