Sunday, July 15, 2012
Liberia, Diplomatic Immunity and Bounty Money - Facts and Fiction
Wednesday, February 22, 2012
Darius Parsi, the “Star witness” for the US Securities and Exchange Commission complaint against Florian Homm and others. Joke of the year?
I must say I am quite fascinated by the Florian Homm saga. It beats any soap opera or “wall street” flic hands down for entertainment and educational value. The one sided portrayal of events drama is also remarkable. When his company ACMH, Florian’s company, was booming success had many fathers. But when it disintegrated, there was only one culprit, Florian. Does that make sense? Following is my little contribution to lateral thinking and fair reporting.
Florian Homm and others are charged with portfolio pumping by the SEC in a civil complaint (I must admit I do not really understand what that is) and other bad things. For years now Florian has been crucified by the media. He is allegedly wanted and a fugitive from law enforcement. I checked with Interpol and Europol and other law enforcement agencies. This perception is totally false. Florian is 100 percent a free man and can travel and live wherever he wants. He may actually prefer to stay under the radar because he made legendary enemies during his career as a raider and short seller. I am certain a few people would like to settle old scores with him employing shady characters and detectives to locate him. Another unknown fact is that Florian has won a major lawsuit (Cascade, Federal Court of Colorado, the appeal failed and the case is closed) and another one by his former employer ACMH has been dismissed (Federal court of Manhattan, currently under appeal). He lost a small case in California state court, but is overall legal record is pretty good at 2:1. I have no clue about the merits of the last remaining lawsuit, but I do know the “star witness” better than almost anyone else including the SEC.
I have known the Homm family, Florian’s business operations and Darius very well, almost intimately for over a decade. Darius considered me one of his closest friends. I never considered him one of mine. Darius was only really ever interested in Darius. He lacked compassion frequently insulting women in night clubs. He was often depressed and full of self-pity. At other times he thought himself the smartest of all of us. He was miserly and too self-involved to ever become a true friend.
Florian hired me years ago and gave me my start in business. For that I am grateful, especially since I had zero experience. Florian tutored me in finance and took a personal interest in my professional development. I stayed in touch with Florian for professional and personal reasons and have been with Darius and Florian on numerous occasions during his time in Mallorca. Florian gave Darius an even better opportunity than me: the opportunity of a life time.
Darius is anything but a “star witness”. Let me explain why:
Darius earned over 1 Million dollars while working for Florian basically tax free over three years (in cash and large transfers into his Swiss bank account at Banque SCS Alliance in Zurich, capital gains..) which is now called Compagnie Bancaire Helvetique and made another USD 1.3 Million flipping his ACMH shares. He never disclosed his full earnings while working in Mallorca, Spain for ACMH (I saw his tax returns) and benefits to the Internal Revenue Service. He blatantly violated Spanish law never filling a tax return in that country, owing the Spanish tax authorities hundreds of thousands of Dollars in back taxes.
Ever since I have known Darius has been a habitual marijuana and hashish user. When he lived and worked in Amsterdam he bought a lot of pot and hashish in coffee shops and was smoked almost daily. He even planted pot plants openly in the estate’s garden. Much to Darius’ chagrin the attentive gardener familiar with the cannabis plant discovered Darius’ mini-plantation and elegantly destroyed the “criminal” evidence on instructions of the lady of the manor.
Darius lived for free on the Homm estate, had a BMW 3 series convertible at his sole disposal, had a rent free 110 meter apartment with a 110 meter ocean view roof terrace cleaned by the Homm staff, all utilities paid and regular meals with the family. The maid even did his laundry. Other privileges were the unlimited use of tennis and basketball court, swimming pool etc. His parents, Doctor Parsi of Waco, Texas and his mother, also benefited staying on the estate for weeks as guests of Florian. Darius worked at ACMH from the beginning of the company for little more three years.
Darius was jobless, heavily in debt and with no immediate prospects when Florian hired him. He was an Editor of a dotcom magazine which went out of business in the dotcom crash. Florian was a regular contributor to the magazine had stayed in touch with Darius, who had worked at another one of Florian’s companies in Germany’s years earlier. When Darius left ACMH he had several million dollars and was debt free.
In 2004, Florian was subject to a criminal investigation in Germany for a Sell Short recommendation where he accurately predicted the demise of a major company (WCM AG). Darius co-authored this report and distributed it. He even published it on Bloomberg. WCM went bust. However, Florian was charged with insider dealing and market manipulation by the Frankfurt, Germany district attorney. Darius had major roles writing, publishing and disseminating this report. He was profoundly involved. Yet Florian insisted on having been the sole perpetrator (research, writing, editing, electronic publishing, media dissemination\; in short a lot of things of which he was totally incapable of…) to the Frankfurt District Attorney, covering for Darius’ back 100 percent. Darius was looking at 1-3 years of prison time and a 7 figure fine at the time for his involvement but Florian covered for him. In the end there was a lot of noise about nothing after Florian had spent two hundred thousand Euros on defense and Darius did not contribute a dime. Florian got 18 months of probation and paid a 40,000 euro fine and the matter was settled. Darius got off scot free.
Late in 2004 Darius’ performance began to slouch noticeably. By then he smoked pot and hashish almost every day, consumed hard liquor frequently and used cocaine occasionally. During the last year of his employment Darius was a severe drag on the organization (mid/late 2005), working less than anybody else while getting paid very well and making outrageous demands. He told everyone who would listen he was underpaid and deserved the number two spot since he had been with the organization from the start. By this time the organization had grown from a boutique operation of three people into a medium sized asset manager with more than dozen highly capable professionals as well as support personnel with offices in Palma de Mallorca, the Cayman Islands and Zurich. The best jobs went to the best performers and not to those with the most seniority. ACMH was an enterprise, a meritocracy not a decadent dynasty. He also wanted to move to Iran to get closer to his roots and maybe invest there. He talked about an arranged marriage to an Iranian virgin. He was increasingly enamored by Muslim fundamentalism and critical of our western ways.
During his descent, Darius falsified Florian’s signature to enable a USD 300,000 wire transfer to his brother to fund his male personal care product line while Florian was traveling. Florian almost jumped out of his pants when he discovered the fraud. Darius’ brother had to come to Mallorca to explain himself. Florian decided not to go after Darius and expose his actions. That was probably a major error. This brotherly act turned out to be a total write-off and loss for ACMH fund holders.
A plot to defraud ACMH funds by millions of dollars by Darius and his roommate and boyfriend Petr Ondrusek, (a Czech and former journalist and colleague in Amsterdam also working for ACMH), was uncovered by before his departure and confirmed by Sylvester Walczak, a senior portfolio manager from Poland. Sylvester liked his job and did not want to engage in major fraud. He refused to join the attempted multi-million dollar fraud scheme and blew the whistle. This was more serious. Petr Ondrusek, literally disappeared from one day to the next after the discovery and could not be contacted even with the help of detectives from there on.
Unlike Petr, Darius stayed on a little longer in spite of the failed fraud attempt believing his credit with Florian for his early critical work would suffice to keep him away from the law or being fired right away. Darius also applied for jobs elsewhere and was told by an extremely successful Spanish fund manager he would have to take a 75 percent pay cut if he wanted to apply. Darius’ assumptions about Florian’s reaction were only partially right. The Parsi/Ondrusek fraud attempt was discussed amongst personnel and management and it was decided it was best if Darius left or resigned from ACMH. If he did not leave of his own accord he would have to be fired. For Florian it was difficult to hold on to an employee who had shown criminal intent. Moreover, Darius was disruptive, wanted to be the undisputed number two while working only half as much as any other senior executive at the firm. He was setting a horrible example through his laziness and negativism. But how does one fire someone who is seriously ill (addiction, heavy medication, personality issues) and who had been at one stage an important contributor during the early development stage of the company? Florian made his second error.
Darius underwent a risky operation and a lengthy recovery period. While his body recovered I was less sure about his mind. He was under heavy medication for quite a while. However, the operation and the recovery went well affirming Darius’ faith in Allah and the teachings of the Koran. Florian told me he was rather concerned how Darius could reconcile the almost usurious distress loan rates ACMH charged its risker clients in light of Sharia law which does not allow charging interest at all. I think he was kidding at the time.
During his hospitalization Florian visited Darius regularly and offered to pay the considerable medical bill in spite of Darius’ destructive attitude and deplorable actions. Darius eventually got the message and resigned from ACMH. Allah had given him strength. He was no longer addicted and was now abstinent. He stopped drinking and using drugs and returned to Waco, Texas. He did not look for a job, doing very little living at home. All this time Darius thought ACMH would collapse immediately after he left. The heavy pain medication and effect of years of drug addiction had clouded his judgment. He was suffering from delusions of all sorts and no longer needed to work for a living. The ACMH organization became much more professional and productive, when a top ranked and accomplished analyst (Peter Berg, a Swede) replaced Darius, who had been a failure as head of research. The new CEO, Sean Ewing, bought Darius’ shares for about USD 1.3 Million a few months before the listing on the London Stock Exchange. When Darius was back in Texas he asked Florian for a recommendation. Florian complied, wrote him a glowing one (another Florian error) and wished him well in his future endeavors. In Florian’s mind the failed fraud attempt and the destructive, fraudulent behavior was an anomaly caused by too many drugs and heavy medication. After all Darius’ fraud scheme was uncovered just in time unable to cause serious damage. Both Petr and Darius were replaced with more competent staff and productivity and team spirit had returned to high levels. Florian thought, “let bygones be bygones” . After all, Darius had given two full years of his life to launch ACMH. Why not help him?
After returning to the US Darius realized, had he held on to his shares for only a few more months more, he would have made about ten million dollars instead of 1.3 million. Had he sold near the top and waited less than a year he would have grossed over twenty million dollars on his stake. Nobody had forced him to sell the shares. It was entirely his choice. He was incredibly upset though.
During this period I spoke with Darius several times. He was bitter. He could not believe ACMH was listed and trading not only on the London but also on the Frankfurt Stock Exchange. In the months following the listing, the shares appreciated seven hundred percent. Darius had sold his shares at a huge discount to the listing price (about 70 percent) and missed out on another 700 percent in capital appreciation. Darius had made the mistake of his life, leaving ten to twenty million dollars on the table. But others were going to pay for his stupidity. He blamed Sean Ewing for stealing his shares and began inventing lies about Sean. But Sean was simply a more rational less confused buyer. Darius could have kept some shares. Instead he sold all of his holdings at about one times earnings and a thirty percent dividend yield. He was disappointed because rather than collapse; the organization prospered and became much more effective without him. He had two choices. Be grateful for becoming a millionaire after two years of hard work and move on with life or enjoy retirement in his mid-thirties. Or he could blame and destroy others for his failure. He preferred to blame others and was presenting various vengeance schemes to me seeking to impact maximum financial, reputational and emotional carnage.
I told him he was off his rocker, tried to dissuade him and told him as an experienced capital markets professional he only had himself to blame. I was not surprised by his preferred choice. In the decade I had known Darius he had never assumed responsibility for any of his own actions and mistakes. Everyone else was to blame always, never Darius himself. After all Darius the Great was similarly infallible.
Darius went on a ballistic hate mission. I guess in his confused mind he was Islamic seeking blood revenge, an eye for an eye. He wrote about twenty letters to regulators, brokers, bankers and clients of ACMH under a false identity using emails sent from a mock account from yahoo.com. He actually sent these emails from his computer at his parent’s house. He made completely false and malicious claims against Sean Ewing, insulted Florian’s then wife personally and railed into trading and valuation practices at ACMH and its funds, which were audited and monitored some of the best firms in the world. He said Florian took drugs during work. That is possibly true. I would not rule out Florian smoking a joint during lunch about ten times a year. The aim was to demolish Florian who had not given him the position of power, personal and corporate prominence he “rightfully deserved in his mind. As the company grew Florian spent less and less time with the underperforming Darius, an insult Darius would never forgive him. Darius hated him Florian for neglecting him.
He wanted to punish Sean Ewing as well, who had “cheated” him out of his shares for a pittance. He wanted to destroy the company which employed dozens of people he disliked and who he considered undeserving and less brilliant. He also insulted Florian’s then wife truing to injure her emotionally for treating him poorly,” like a vassal”. This claim is as absurd as most of the others. Darius was only partially successful. Several important clients redeemed their funds after the Darius hate mails, Sean Ewing was pissed off and threatened legal action, Florian was completely disappointed but life went on and the organization continued to evolve.
In 2006 I told Florian Darius had committed this vengeful act. I told him Darius was single mindedly focusing his energies on destroying anything and anybody associated with ACMH, Florian and Sean. Florian considered Darius’ behavior the greatest personal disappointment in his life.
I am not defending any of Florian’s actions while at ACMH. Florian is generous and had been a great mentor and always supportive. On a personal level I like him. But he lives in grey zones and his actions towards the end of his career are unethical if not worse. On the other hand, Darius Parsi as a star witness for the SEC, is a pathetic character. As an American citizen he committed, tax fraud in at least two jurisdictions, a felony. He sold and used drugs another felony offense. He filed his income records with the IRS each year but avoided taxes by understating hundreds of thousands of Dollars of income and benefits. While at ACMH he routinely front ran investment recommendations to benefit from insider information, another felony according to US securities law. He was actively involved in all facets of the WCM report and should have been subject to criminal charges just like Florian. The pot Florian was smoking at the time, he smoked mostly with Darius and Petr, was supplied exclusively by Darius and Petr. This is like the dope dealer accusing his clients of usage in a court of law. Under US law you are still guilty of felony drug charges even if you sell and consume drugs even in non-US jurisdictions such as Spain and Holland. Darius’ libel assaults on Sean Ewing were malicious and totally false, another serious offense. His parents stayed at the Homm estate for weeks. Darius was a guest for three years. As a fundamental Muslim he turned on his host family and violated the most basic pillars of Islam: hospitality, gratitude and respect
His motivation to work with the SEC is based on revenge, greed, ingratitude and hatred. His hatred has not yet been fully ventilated. The SEC complaint is the perfect outlet for his bile. Darius had lost his position and credibility within the organization, made a monumentally stupid financial decision. He never accomplished anything of note after leaving ACMH 5 years ago. He left before he was forced to leave being regarded by all senior executives as problematic and unproductive. And as usual everybody else was to blame. Florian had given Darius, who was unemployed and heavily in debt, a great career opportunity, adopted him into his home and helped him become millionaire. He covered his ass from criminal prosecution in Germany. Darius was basically a member of the Homm family for three years, playing tennis with Florian, swimming with the children and dining with them regularly. Then Darius goes on this psychotic, single minded man hunt. If you have friends like Darius, who needs enemies?
Darius sees it differently. He sees himself as a victim of greed and disrespect; the faultless and righteous profoundly ethical man who has been persecuted and abused. In his twisted mind he firmly believed he would make the world a better, more just place if he destroyed dozens of families and lives. Once again, He is now the defender of the law, the avenger and an all important witness for an agency of the US government, without doubt a very important, righteous person. He will right the wrongs of portfolio pumpers and self-dealers. Darius is probably unable to see the hypocrisy, absurdity, maliciousness, duplicity and true motives behind his own actions: greed, delusion, vanity and vengeance. Just for once, Darius should look at his hand as he points his finger at others. While one finger points at the object of disdain, feeding his religious zealotry and self-righteousness, three fingers are pointing at him.
Make up your own mind.
I would not use precious time to write all this if I did not believe Darius is a malevolent, pernicious hypocrite who needs to be exposed for what he is. I would also not write this if the allegations were not so easy to prove. There are at least half a dozen witnesses who can support several of these claims. The falsified documents and the illegal USD 300,000 transfer to his brother are part of the investment records at ACMH or its prime banker, administrator and auditor. Document falsification combined with the transfer of large sums is a criminal offense in Spain. The front running and dealing on insider information (positioning his personal portfolio before mammoth ACMH orders which by themselves would drive up the market price or placing orders for his portfolio in shares before the issuance of research reports which would certainly have an impact on price) can be traced through his Swiss bank accounts and the timing of ACMH research releases and large buy orders violate insider trading laws in several European countries. His complicity on the WCM report is verifiable through Bloomberg, basic interviews and trading records of his Swiss bank accounts. Bank and trading records are routinely stored for at least ten years. His libelous accusations against Sean Ewing and Homm’s ex-wife are available through Glen Kennedy (legal counsel and Director of ACMH), the SEC, Sean Ewing and other former ACMH executives. The most basic cash flow calculations, showing uses of funds (expenditures) compared to officially declared income would show Darius spent far more money than he ever declared. Tax evasion and trading on insider knowledge and using the proceeds thereof is considered money laundering, a criminal offense in Switzerland, the US and Spain.
Darius’s cannot deny he also received six figure benefits he never disclosed to the IRS, another potential felony and never paid any taxes in Spain even though he lived and worked there permanently without a formal residency permit for years. Not disclosing all his offshore and unreported accounts would constitute another felony under current law, not counting all all the wire and mail fraud offenses. Under oath, former ACMH personnel or Sylvester Walczak, would not lie about Darius’ and Petr’s multi-million dollar fraud attempt.
Darius has left a huge trail of deception, fraud, greed based on deranged motives and exhibiting criminal behavior. He has no credibility. That does not inherently make Florian a better man. But it shows us the other side of the coin in this bizarre melodrama. I wonder how Darius would stand up under professional cross-examination as a star witness in court. Maybe he should reflect on his own actions and behavior before he seeks to destroy others in the future. And, maybe he needs to be more forthright with the SEC (which cannot know everything and is just trying to do its job). The SEC must be completely misinformed about the machinations and history of their “star”. They would not be the first ones tricked and fooled by Darius. Maybe they have offered him civil and criminal immunity from prosecution in the US, Switzerland and Spain. I doubt it.
Actions have consequences. What goes around comes around.
Saturday, April 3, 2010
Florian Homm's Biography
I found this on Wikipedia. It seems to go a long way to counteract the terrible press he's gotten. It also makes sense. How could ACMH have functioned as an audited fund and calculated NAV's every month if they didn't know what their holdings were? And anyone can go on Edgar at www.sec.gov and look at the filings of these companies and see that Florian and Hunter World Markets are always listed and their relationship is disclosed. It looks like ACMH just pushed Florian way too far through their incompetence and then blamed everything on him. The most amazing thing is that he lost the most money because of ACMH's decisions because he was the biggest ACMH shareholder when he left (not to mention the money that he put directly into the funds in August 2007)!
Florian Wilhelm Juergen Homm
1. Family background and early years
2. Sports career
3. Academic career
4. Civil and charitable activities
5. Professional career
6. Homm’s resignation from ACMH
7. Controversies
8. Misconceptions
8.1 ACMH says that it was completely unaware that Homm had large positions in illiquid US OTC and pink sheet stocks when he resigned.
8.2 ACMH says they were not aware that Homm held a significant equity interest in Hunter World Markets.
8.3 ACMH says that Homm’s U.S. microcap investments generated huge losses for fund holders:
8.4 Why the ACMH share price declined by 88% on the day Homm announced his resignation.
Homm was a prominent and highly successful financier, proprietary trader, investment manager, investment banker, venture capitalist and serial entrepreneur from 1987 until 2007 when he became embroiled in several lawsuits. He is well known for his last second bailout and the successful restructuring of nearly bankrupt German Champions League Winner Borussia Dortmund. He was one of the most outspoken and aggressive European activist investors from the early nineties until 2007. He has been featured in numerous national and international financial and mainstream newspapers, television programs and magazines. He has led a reclusive existence since his resignation from Absolute Capital Management Holdings PLC as Chief Investment Officer in September of 2007. A former professional basketball player, he is suffering from multiple sclerosis.
1. Family background and early years
Florian Wilhelm Juergen Homm was born in Bad Homburg vor der Hoehe near Frankfurt, Germany on October 7th, 1959. He is the son of Joachim Homm, a construction entrepreneur and Maria Barbara Homm, housewife. He has one Brother, Hajo Homm, and a sister, Barbara, who died of pneumonia related to progressive multiple sclerosis. Homm is divorced and has two children. He attended Frankfurt International School where he was an honors student prior to receiving his American High School Diploma as an American Field Service Scholarship student (AFS) from Bentley High School, Livonia Michigan with an A average in 1976. Homm is the great nephew of Josef Neckermann, one of the defining figures in Germany’s post World War II ”Wirtschaftswunder” (economic miracle).
2. Sports Career
In high school, Homm lettered in Varsity Soccer, Basketball, and Track and Field. He competed in league competitions in both tennis and skiing. While a Senior at Livonia Bentley High School, he was elected to the Michigan All State Basketball team (honorable mention) by journalists and started with Magic Jonson on the Michigan Suburban All Star team. He received several scholarship offers in 1976. He played three games for the German Junior National Basketball team against Belgium, Luxemburg and the German Military National Team.[1] Homm qualified for the Harvard University Men’s Varsity Basketball Team as a freshman but soon joined BC Giants Osnabruck, a professional German Basketball Club, thereafter commuting between Boston and Germany during College. He played professional and amateur basketball in France, USA, England and Germany.
3. Academic Career
Prior to attending Harvard College in the fall of 1978, Homm spent one year at the American College in Paris majoring in Political Science. He was also Player and Coach of the ACP basketball team which went undefeated in French University Basketball competition. Homm graduated from Harvard College with a Bachelors degree cum laude in Economics in 1982 and from the Harvard Business School with a Master Degree in Business Administration in 1987. He received an honorary Doctorate (PHD) from Methodist University in Liberia, Monrovia for his life time achievements, and contributions to Liberia in the area of education and culture. While at Harvard Business School, Homm was the President of the Investment Club and the Vice President of the Venture Capital Club. He was the Secretary of the Harvard University International Students Organization (HUISA), the largest international organization at Harvard University at that time. He is fluent or conversant in five languages.
Homm started his first business venture, a Massachusetts Investment Trust, called Intervest, with a fellow student, Michael Kagan, during his freshman year at Harvard. He was also an elected and paid Director of the Harvard Cooperative Society (“HCS”), a regional retailing cooperative with sales of about USD 70 million for two years. Professor Michael Porter and Homm were both Directors of the HCS at the same time. Although Homm never took classes from Dr. Porter, both were also members of the Investment and Committee and met regularly. Homm also visited Dr. Porter at his office at Harvard Business School to present analytical work.
4. Civil and Charitable Activities
Homm was a volunteer in 1978 and 1979 for the Phyllis Brooks House, where he counseled inmates at the Walpole Maximum Security prison in Walpole, Massachusetts. He has contributed to the Catholic Church in Mallorca, Spain and Luxemburg. He solicited over USD 800,000 in donations for the Liberia Renaissance Foundation to further education in Liberia. He is arguably the largest private donor in Liberia since 2002 with personal contributions exceeding USD 1 million.[2] He has been the Cultural Attaché for the Liberian Delegation to UNESCO since 2004[3] and was a Board Member of the Frankfurt International School. Homm was the President of the Spee Club, a Finals Club in Cambridge, Massachusetts. Homm was a founding shareholder and Board member of EASD/EASDAQ in Brussels and served on the Deutsche Börse task force which formulated the establishment of Germany’s Neuer Markt.
5. Professional Career
Upon graduation from Harvard College, Homm joined the Merrill Lynch International Management Training Program. After internships in sales, investment banking, commodities and trading he became an international securities analyst covering South African and Australian companies. He also worked for the Merrill Lynch FO office covering HNW and institutional clients in Latin America. Upon joining FMR in September of 1987, he was assigned sole responsibility for managing the Fidelity Broadcast & Media Fund, which he managed until early 1989. The fund received the award as the top Sector Fund in its category by Lipper in 1988 while outperforming its benchmark and the broad market indices by vast margins during his tenure.
When he left Fidelity, Homm received a recommendation from Peter Lynch. The recommendation was initially formulated by Homm and then edited by Senior Fidelity Portfolio Manager Ernest Wiggins before being given to Lynch for final review. Lynch made several edits and returned the final signed version to Homm. Neither Peter Lynch, nor Fidelity, ever denied the existence or validity of this recommendation, although they did object to its broad use.
After three years with Fidelity, Homm joined Bank Julius Baer (Deutschland) AG as Senior Vice President heading the Institutional Asset Management Division. In 2001 Homm became Managing Partner of Tweedy Browne Europe GmbH. In 1993 he started his own company, Value Management & Research GmbH in 1993, which experienced substantial growth under his leadership and was listed on the Frankfurt Stock Exchange in 1998 reaching a peak market valuation exceeding USD 500 million. As Senior Portfolio Manager and/or Co-Manager of several funds he received several prestigious investment awards during his tenure.
In 1999, Homm was diagnosed and treated for Multiple Sclerosis by Professor Martin, a leading neurologist, from Frankfurt University, Germany. Based on his medical condition, he resigned from VMR AG, sold his equity stake and went into early retirement in Mallorca, Spain at the age of 41. Further MRIs and medical reviews in Florida, Minnesota and the Bay Area confirmed the initial MS diagnosis but, fortunately, his case was less severe than his sister’s. However, blood tests and medical reviews disqualified Homm from obtaining key man insurance while at ACMH. Homm continues to suffer from sporadic incontinence and numbness in his hands, arms and feet.
Being reasonably healthy after a one year hiatus from capital markets, Homm launched the Absolute Europe Fund, a long short Equity Fund, with his own money and those of his Swiss based German partners in 2002. This fund returned 29% in 2002, making it the best or second best performer among all European long and short equity funds according to independent industry performance trackers. Continuing good performance in the following years resulted in the launch of several other funds. Investor appetite for uncorrelated, high return-low volatility funds increased assets under management and ultimately lead to a listing of ACMH on the AIM market of the London Stock Exchange. Add on acquisitions were made in emerging debt and equity markets (Argos) and property investments. The organization initially based in Spain and Switzerland later also had further offices in Asia, the UK, Poland and Latin America. The shares reached a peak market valuation exceeding USD 700 million. In 2006 Absolute Capital Management Holdings received the honor of Europe’s number one Hedge Fund Organization from one of the larger publications covering the sector.
6. Homm’s resignation from ACMH
By mid 2006, Homm’s marriage was in a state of disrepair. Known as a workaholic, Homm had failed to miss all of his children’s birthdays and would frequently spend all nighters analyzing stocks when he was not traveling. Increasingly out of touch with his family, he commented to a friend, “even our neighbors have better and more intimate rapport with my children”. At the time of his resignation, he was separated from his family which had been residing in Florida for over a year.
In November 2006, Homm was shot in the chest in an armed robbery in Caracas, Venezuela.[4] During a six-hour life or death operation he lost part of his lung and his spleen completely. The bullet is still logged in his 12th vertebrae and cannot be removed due to the risk of causing paralysis. This incident left physical and emotional scars. There were several ill fated attempts to get his wife to move back to Europe but she refused. He invested privately in a Palma de Mallorca nightclub and moved in with his girlfriend.
Once the prospect of a family reconciliation became impossible, his wife reopened the divorce case to obtain a fairer settlement. The acrimonious and emotionally charged negotiations involving lawyers, accountants, bankers trustees and relatives resulted in substantial concessions in shares, cash, options, property and other assets for his ex-wife.
Meanwhile at ACMH, substantial internal disagreements and infighting were the order of the day. Homm was hamstrung by the fact that he was not on ACMH’s Board of Directors and was shut out of key decisions. His head trader, Guillermo Hernandez, was fired while Homm was traveling and his personal assistant, Daniela Schaefer, was not allowed to work from ACMH’s premises. Another senior investment professional was harassed and resigned from ACMH. A successful and harmonious marketing partnership was terminated via legal proceedings. A badly needed partnership agreement with experienced Zurich based partners, headed by Clifford zur Nieden, which added much needed turnaround, restructuring and management expertise on US and European activist investments, was also terminated. Investment professionals fired by Homm were rehired by management later. Others, such as Milan Le Hockey and Paul Walton were placed in unsuitable investment management positions. There were massive disagreements over ACMH share sales with Jonathan Treacher, a board memmber. In short, Homm’s position within ACMH was severely undermined and weakened. Constant infighting and family disagreements left Homm with less time and fewer resources to dedicate to the actual management and supervision of ACMH funds.
In the summer of 2007, Homm parted with about 30% of his ACMH share holding which he gifted to three ACMH funds in order to stabilize losses resulting from market disintermediation from small capitalization stocks into larger and more defensive companies. This grant constituted a market value of about Euro 37 million at market prices at the time. His second divorce settlement and related options grants further substantially diminished his ownership position in ACMH below 10%.
No other director or senior management shareholder contributed even one share to this fund stabilization effort. Worse, not one single ACMH insider expressed gratitude for this effort. At the time of the semi-annual bonus reviews in August of 2007, usually conducted by the CEO, CFO and the CIO, management was conspicuously absent. Not known to Homm or the public at the time, ACMH had guaranteed the new ACMH shareholders from the Argos acquisition (Argos, an emerging market debt specialist was purchased by ACMH for shares and cash in 2006) that no more than 20% of performance fee income would be used for the compensation of investment professionals. This figure was ludicrously low as most hedge funds pay between 40% and 50% of their performance fee income to their investment professionals.
ACMH’s own performance attribution records show, that if Homm had been treated like all other ACMH fund managers, his theoretical mid-year bonus payment would have exceeded Euro 8 million in August of 2007. Given his share position, substantial, albeit rapidly dwindling, wealth, and role as founder of ACMH, he settled for a 75% discount and used six million Euros to incentivize and retain investment personnel. He expected to keep the remaining Euro 2 million.
However, by the time bonus discussions were finalized and submitted by Homm, the Board of Directors rejected Homm’s compensation plan. Only then did The Board of Directors inform Homm about the compensation restrictions imposed by the Argos acquisition. Employees could be paid acceptable performance compensation only if Homm rescinded his entire, already deeply discounted Euro 2 million bonus; effectively a Euro 8 million concession to the employees off ACMH that should have been paid by ACMH and not Homm.
The Board’s one sided recommendation brought the situation to the boiling point. Clearly, the well paid management staff could easily have accepted a haircut in their compensation in order to retain the true assets of the firm, namely the key investment professionals. It could have attempted to renegotiate the utterly unrealistic Argos contract clauses. Homm was expected to pay for the errors made by the Board of Directors upon acquiring Argos. Not one single managing shareholder, board member, portfolio manager or senior employee participated or took the slightest haircut in their own compensation to assure personnel continuity. The foundation of the Argos acquisition was based on two extremely shaky assumptions: Homm would need to indefinitely produce massive, outstanding returns thereby generating substantial performance fees while accepting zero incentive compensation or other investment professionals at ACMH would continue to work there at less than half of the industry standard compensation.
The entire burden was carried solely by Homm. At that time many talented professionals had multiple employment offers from competitors. Given the choice to lose key personnel or forego his bonus, Homm agreed to forsake his remaining Euro two million bonus in favor of the investment professionals. After that he simply sat back and awaited responses. There was not one single expression of gratitude from anyone at ACMH. Indeed, there were several calls from disgruntled employees complaining that their compensation was vastly inadequate and unfair.
After serious reflection, Homm made up his mind to resign and contacted his lawyer to prepare a press release citing irreconcilable differences. Given that his personal and business life was in shambles, given that his share position had declined substantially, given 100 hour work weeks with zero incentive compensation, given that critically important staff had either been fired or had left the firm, given that senior management had made fundamental errors when acquiring Argos for which he alone was expected to pay, his decision to resign was not irrational. He stayed in contact with ACMH for several weeks offering a further thirty percent of his remaining holdings to retain key staff as he had promised at one point and to identify buyers for some of the less liquid positions. When both offers were declined he terminated contact with ACMH and became a recluse. ACMH was fully aware of Homm’s reasons for resigning from ACMH.
7. Controversies
Since the late eighties Homm was always known as risk taker and shareholder activist in Europe, the Americas and Asia. These higher risks often meant higher returns. The uncovering of accounting frauds, aggressive short selling practices and equally energetic company promotions naturally resulted in market turbulence. The companies and managers he challenged frequently became agitated and sometimes fought back with full vigor. However, Homm always ended up getting significant returns for his clients.
He was at odds with his senior partners at Tweedy Browne for a lack of coordination when pursuing an asset rich Swiss food manufacturer Galactina AG in a hostile manner. At Merrill Lynch International he performed well as a trainee, yet disappointed the Head of Research with his laissez faire attitude while later ranking among the top young brokers in terms of commissions generated on behalf of the firm.
He was at odds with Fidelity over the continued management of family trusts, yet his fund management record was unquestionably stellar. While CEO of Value Management and Research AG he built a substantial business in only five years, but vetoed a friendly takeover at the last minute while rejecting an agreed merger with a venture capital company the following year. One of his hedge funds experienced substantial losses in 1994 based on overly concentrated portfolio positions, yet within eighteen months the fund exceeded its high water mark and performed well thereafter.
He has paid civil fines to settle both civil and criminal charges levied against him in Germany but has made charitable contributions well in excess of seven figures.
His former employer, ACMH, has portrayed him as the major culprit in a scheme to defraud the funds he managed. MWZ AG was ACMH’s largest single investment in 2007, valued at over eighty million Euros. The position had to be sold due to fraudulent activity by ACMH’s co-investor in this transaction. The buyers refused to honor the severance package of the CEO and the deal almost fell apart. Homm therefore personally funded the CEO’s severance package worth 480,000 Euros to avoid ACMH funds experiencing a full loss on their investment. The stake was sold profitably, yet Homm never asked to be reimbursed for the CEO’s severance payment.
He also never claimed several hundred of thousand of Euros in travel and entertainment expenses during his tenure at ACMH. In order to stabilize three funds, he transferred ACMH shares valued at Euro 37 million free of payment. He also rescinded Euro 8 million in entitled bonus compensation to ACMH employees completely forsaking his own compensation in the process. This is certainly not the behavioral pattern associated with alleged fraudsters.
8. Misconceptions
The following sections address some of the inaccuracies made by ACMH about Homm.
8.1 ACMH says that it was completely unaware that Homm had large positions in illiquid US OTC and pink sheet stocks when he resigned.
Anybody who has ever visited the investment and trading operations of ACMH in Palma de Mallorca knows the office is open plan. It was almost impossible to hold a private conversation without anyone else overhearing it. With over twenty professionals on just 200 square meters of net office space, secrets were hard if not impossible to keep. ACMH employed its own full time risk manager, namely Duncan Greenwood, an experienced risk management expert. Duncan Greenwood’s job was to track and report on portfolio changes, concentration and liquidity risks, geographic and sector overweighting as well as other risk parameters to the CEO (Sean Ewing), CFO (Darren Sisk) and thereby to the Board of Directors and the funds themselves. Indeed Duncan Greenwood reported directly to the CEO and not to Homm, the portfolio managers or the trading desk. The purpose of this reporting structure was to assure continuous and objective oversight of the investment professionals and their portfolios by the management team and the Board of Directors.
Therefore every ACMH fund’s portfolio holdings, geographic and industry structure was available to senior management and the Board of Directors all of the time. The funds’ auditors produced fully audited annual reports which often listed U.S. microcap holdings by name. Indeed the auditors would verify the validity of the valuation assumptions of each fund on a regular basis. Likewise the funds’ administrators, BNY and Fortis, would verify whether the investments were in accordance with the fund prospectuses on a regular basis as well. All these reports were reviewed by the Directors of ACMH. Moreover, neither the trading desk nor individual portfolio managers could directly authorize wire transfers outside of the funds without management review, approval and final authorization. This fact is especially relevant regarding Hunter World Market (“HMW”) Initial Public Offerings in U.S. microcaps. Wire transfers instructions included names of the companies, the brokers and other intermediaries involved. Sean Ewing and Darren Sisk authorized several of these subscriptions. Homm was simply not able instruct the wiring of funds.
In addition many of these U.S. holdings involved regular regulatory filings. Glenn Kennedy, ACMH’s General Counsel had responsibility for making these filings. Dozens of filings show the full extent of the fund’s investment in all sorts of securities, especially the concentrated holdings in U.S. microcap companies where equity positions frequently exceeded five percent and therefore required 13D filings. These filings were also fully available for public scrutiny. Ewing and Sisk signed off on these transactions and received regular risk management reports. They also received copies of the funds’ annual reports, or were in regular contact with ACMH’s trading and investment professionals.
Moreover, ACMH’s internal risk reports showed concentration by geography, industry and market capitalization clearly evidencing the large positions in U.S. listed securities. Indeed Homm’s bias to American and European smaller, higher return but also higher risk companies was well known throughout his career and a matter of public record. His flops were also well known. Many investors would shy away from ACMH funds because the underlying positions did not have sufficient liquidity from their perspective and were simply not European enough based on publically available material. This frequently cited reason by potential investors for not investing in ACMH funds was the principal reason for launching the Absolute Capital European Large Cap Fund. Because some investors did not wish to invest in funds with significant microcap and small cap exposure, ACMH decided to create a product which invests only into large, very liquid European companies. ACMH Directors always had full access to all fund holdings and information all of the time. Moreover fund co-managers professionals were placed on the Boards of at least two larger U.S. microcap company holdings. ACMH knew that significant assets were invested in U.S. microcaps.
8.2 ACMH says they were not aware that Homm held a significant equity interest in Hunter World Markets.
Homm’s equity position in Hunter World Markets was a matter of public record in NASD/FINRA filings as early as 2005. From 2005 to 2008, Homm was listed personally as the owner of 50% of HWM in easily accesible NASD/FINRA records. Public SEC filings relating to HWM IPOs also show Homm as beneficial owner of Hunter World Markets. Todd Ficeto, the CEO of Hunter World Markets, made frequent visits to ACMH offices in Spain and London and met with Board members, portfolio managers and traders. He even brought management teams from companies HWM was clients to ACMH offices. He also encouraged ACMH subsidiaries such as Argos and Andreas Rialas to do business with him based on Homm’s ownership position in HWM. Indeed, all Hunter World Markets corporate clients were informed about the relationship between the firm’s shareholders and the latter’s role as significant shareholder and CIO of ACMH.
Because of the NASD/FINRA regulations, there was never any possibility that Homm could conceal his stake in HWM. Furthermore, during his entire seven years at ACMH, Homm never even owned or used a personal and private computer. ACMH had 100% access Homm’s private and company emails and communications. Without a doubt, the Board of Directors and most of the senior ACMH investment and trading professionals were aware of Homm’s ownership position and trading relationship with HWM. In fact, one prominent investor sold their position in ACMH funds in 2006 because of this relationship. Many of these U.S. microcap holdings were discussed by Homm and Andreas Rialas, also a Board Member in telephone conferences. ACMH knew that Homm held a significant equity interest in Hunter World Markets. ACMH knew about and agreed to the compensation he received from HWM.
8.3 ACMH says that Homm’s U.S. microcap investments generated huge losses for fund holders:
Homm’s most successful investment with HWM was ID Biomedical, a Canadian biotechnology company. HMW’s investment banking sponsorship, not only saved the company, but the company’s market value ultimately increased from about USD 15 million to USD 2 billion when the company was sold to Baxter. Pro Elite was initially funded by the American TV network CBS and ACMH as an alternative to the highly profitable United Fight Club. The venture appeared promising and the market cap rose to USD 1.3 billion. ACMH sold its shares into the market move, rather than prop up shares as alleged. Pro Elite Fight Night was the first ever mixed martial arts event ever hosted by a national TV broadcaster (CBS) during prime time. Pro Elite Fight Night scored an astonishing 25% national market share in its key demographic segment. Homm’s departure from ACMH, however, effectively removed Pro Elite’s principal financial funding source for further events, broadcasts and corporate development.
Some investments had long term potential, but suffered because of ACMH’s public announcements after Homm’s resignation, such as Java Detour. In some cases reasonable positions were sold poorly (LGSL) or to former insiders (ID Biomedical) at unsatisfactory prices. Certain companies could not develop a sustainable business model (Berman) or failed to reach relevant milestones to justify further investments (Duravest) and declined well before Homm left the company. However, no investment was made without a detailed rationale. After Homm resigned, an entire portfolio of ACMH assets was sold, in one lot, to Rene Müller, a Swiss financier. He financed the purchase exclusively with bank debt (which would not have been possible if they were worthless) and then sold only one portfolio holding immediately to a trade buyer (Hiller Schwab). Proceeds from this sale alone were sufficient to repay the bank loan in full. Thereafter, he retained all other assets free and clear.
Perhaps most tellingly, Kevin Bone, ACMH’s CIO after Homm, considered taking the U.S. microcap investments and forming a new “Phoenix Fund” around them. In any event, ACMH invested $2 million into Penthouse, one of the illiquid microcaps, after Homm left.
It is worth noting that other ACMH funds, where Homm had almost no involvement, also invested in illiquid microcaps. The manager of the East-West fund lost approximately USD 40 million in Columbia Gold Fields, a microcap.
An overlooked point is that ACMH was able to meet redemptions much faster than many hedge funds in a similar situation. Homm can neither be blamed for the market’s collapse, nor the poor results in managing the ACMH portfolios after his departure. The market itself was entering its most profound crisis since the Great Depression eighty years ago. With GM, Bear Stearns, Lehman and AIG collapsing and Citigroup declining more than 95%, it is natural that the same, or worse, would happen to small growth companies without financial or governmental backing.
Stripping out all illiquid U.S. microcap investments held by funds managed by Homm and valuing them at zero would have resulted in less than a twenty percent decline in ACMH group equity assets in September 2007. According to performance trackers, European long/short equity hedge funds declined on average more than thirty percent from peak to trough during the recent financial crisis and European equity indices lost approximately sixty percent overall during the same period. Virtually all ACMH equity fund losses are now attributed to Homm, when the simple truth is that fund performance really declined after his departure and many losses had absolutely nothing to do with investment decisions taken during his tenure.
8.4 Why the ACMH share price declined by 88% on the day Homm announced his resignation.
There were approximately seventy other professionals at ACMH when Homm resigned, several with outstanding management and investment credentials. Surely, others would be able to pick up the slack in such a widely spread organization. Moreover, even the funds managed directly by Homm had co-managers assigned to them. The company had no debt and was generating massive cash flows, was paying a high dividend, over a dozen accomplished portfolio managers who could pick up the slack, and a substantial amount of unencumbered cash to fund operations for years even without any performance fee income.
The market and fund investors were largely aware of the risks involving ACMH, its positions and involvements in less liquid securities. Independent hedge fund analysts even alluded to these risk factors in their reports. A former disgruntled employee had mailed out over twenty notifications to clients, the media and regulators alluding to the HMW ownership by Homm, self dealing and share price propping at ACMH in March 2006. Glenn Kennedy and Sean Ewing were fully aware of this letter and its contents. Both devised strategies on how to deal with this hostile effort. Several clients were also aware of this letter. One made a major redemption as noted above. Very critical analyst reports relating to legal and other ACMH risks were also available and on the internet at that time.
Many investors shied away due to these obvious and well documented risks. Some investors may have been unaware of the potential risks, but largely for a lack of professional due diligence. The broad market knew full well that Homm’s investment style was riskier than most; that while obviously successful, he also had a colorful history in U.S. microcaps. Even the most junior investment analyst could determine that leveraged small cap investments would suffer in a market favoring larger more defensive companies. As long as Homm oversaw the investment process and held his team together, these risks appeared manageable assuming a friendly market. While Homm managed or co-managed less than 20% of group assets at the time of his departure, he actually generated half of all attributable performance profits during the first half of 2007. He made substantial personal sacrifices to keep the investment team together and the funds in neutral or positive territory. Once he departed the company it was certainly possible that many of its funds would be negatively affected, the organization would become unglued and the key employees would leave, unless ACMH’s directors and executives properly managed his departure. Instead, they panicked, made allegations which defy rational analysis, and generally applied the same principles of mismanagement that caused Homm to resign in the first place. The market, at least, sometimes reads between the lines.
[1] Martin Schimke, former teammate now a prominent lawyer in Dusseldorf, Germany. Mr. Schimke obtained statistical records from the German Basketball Federation
[3] http://erc.unesco.org/portal/PermanentDelegations.asp?language=en#L
[4] http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article650008.ece