Florian Homm, a flamboyant hedge fund manager who was arrested in Italy this month after five years on the run, has been indicted by a federal grand jury in Los Angeles for running what prosecutors called a fraud that caused investors to lose $200 million.
Homm, 53, was charged in an indictment made public on Wednesday with eight counts of securities fraud, one count of wire fraud, and one count of conspiracy.
Homm, the founder of Absolute Capital Management Holdings Ltd, which claimed to oversee $2.1 billion of assets as of August 31, 2007, has been in Italian custody since his March 8 arrest at the Uffizi Gallery in Florence.
Italy is expected to extradite Homm to the United States, where the self-described "rogue financier" faces as much as 25 years in prison on each of the securities fraud and conspiracy charges, and up to 20 years on the wire fraud charge.
Prosecutors accused the German native of causing hedge funds he controlled to buy and sell thinly traded penny stocks among themselves, with many trades being funneled through Hunter World Markets Inc, a Los Angeles broker-dealer he co-owned.
They said these "cross-trades" created artificial demand that boosted the stocks' prices and inflated the hedge funds' returns in a practice known as "portfolio pumping."
Prosecutors said this enabled Homm to attract new investor cash and collect higher fees, including from Hunter World.
According to the indictment, the scheme began to collapse after a former Absolute Capital employee sent an anonymous email in April 2006 to banks and media detailing Homm's activities.
On September 18, 2007, Homm disappeared from his luxury villa on the Mediterranean island of Majorca under cover of night after dumping tens of millions of dollars of Absolute Capital shares, and leaving his investors with big losses, prosecutors said.
He was caught after Italian police, acting on an FBI tip, followed Homm's former wife and son to the Uffizi, where they met up with him. Police said they arrested Homm "very discreetly" as the trio was admiring classical Greek sculptures.
Homm, a cigar smoker nicknamed "Steamroller" who stands 6 feet, 7 inches tall, had become something of a celebrity in his native Germany, both as a symbol of greed and for saving the soccer team Borussia Dortmund from bankruptcy.
In his recent autobiography "The Rogue Financier: Adventures of an Estranged Capitalist," Homm, a Harvard Business School graduate, told of having fled Majorca for Colombia in his private plane, with cash stuffed into his underwear. He gave occasional interviews to promote the book while he remained in hiding.
Homm has been contesting a related U.S. Securities and Exchange Commission civil lawsuit over Hunter's activities. A lawyer for Homm in that case did not immediately respond to a request for comment.
The criminal case is U.S. v. Homm, U.S. District Court, Central District of California, No. 13-cr-00183. The SEC case is SEC v. Ficeto et al in the same court, No. 11-01637.
(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)