UPDATE 1-U.S. jury convicts ex-Millennium Global manager of fraud

Wed Dec 18, 2013 2:05pm EST

By Jonathan Stempel

NEW YORK Dec 18 (Reuters) - A U.S. jury on Wednesday found former London-based portfolio manager Michael Balboa guilty of fraud over a scheme to inflate his hedge fund's assets and management fees by manipulating the value of Nigerian debt.

Jurors issued their verdict on the former Millennium Global Investments Ltd manager after less than four hours of deliberation, following a two-week trial before U.S. District Judge Paul Crotty in Manhattan.

Balboa was convicted on all five counts he faced - securities fraud, wire fraud, investment adviser fraud and two counts of conspiracy.

He faces up to 20 years in prison for fraud, and will have home confinement with electronic monitoring before he is sentenced. An earlier trial ended in July in a mistrial.

Balboa's lawyer, Joseph Tacopina, did not immediately respond to requests for comment.

The case centered on the Millennium Global Emerging Credit Fund, which invested in emerging markets corporate and sovereign debt, and according to investigators once reported $844 million of assets.

According to the U.S. Department of Justice, Balboa inflated the value of illiquid warrants tied to Nigerian debt, in which payments were based on the price of oil, to boost his fund's apparent performance and the fees he could collect.

Prosecutors said Balboa instructed two co-conspirators to tell an independent valuation agent used by Millennium that the warrants were valued at $500 to $3,500 each, when in fact they traded between $145 and $258.

The government said this allowed Balboa to value the warrants at $84 million in August 2008, up from $12.2 million just seven months earlier, and collect $6.5 million of fees that were based in part on the fund's performance.

Balboa ran the global emerging credit fund from December 2006 until October 2008, when the fund shut down, the government said.

During his closing argument on Tuesday, Tacopina said the illiquid nature of the securities had given his client some discretion in setting valuations.

"There was no scheme to defraud anyone, and there was no crime," he told jurors.

The U.S. Securities and Exchange Commission filed a related civil lawsuit against Balboa.

The case is U.S. v. Balboa, U.S. District Court, Southern District of New York, No. 12-cr-00196.

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