Law EnforcementJuly 15, 2024

Former Hedge Fund Trader Sentenced for Role in Stock Manipulation Scheme

Canadian Colin Heatherington and a co-defendant were also ordered to pay a combined total of more than $215.8 million in restitution.

Reported by Michael Katz

A former trader for a group of hedge funds was sentenced to 3 1/2 years in federal prison for participating in a scheme that manipulated penny stock prices in order to inflate the hedge fund’s reported profits.

The fraud generated millions of dollars in management and performance fees and caused investors to lose more than $215 million when the funds collapsed, according to the U.S. Attorney’s Office for the Central District of California.

Canadian Colin Heatherington, a former trader for Absolute Capital Management, a Cayman Islands-based firm that managed eight hedge funds, admitted to overseeing the purchase of billions of shares of U.S.-based penny stocks, which were then traded using manipulative practices. The practices included cross trading, which fraudulently inflates the value of the stocks and, in turn, the value of the fund of funds.

As part of the scam, the co-conspirators allegedly brought microcap companies public through reverse mergers and manipulated the stock prices of the thinly traded shares to drive them higher. They then sold the shares at inflated prices to the firm’s eight offshore hedge funds, which allowed the hedge funds to overstate their performance and net asset values by at least $440 million in a fraudulent method known as “portfolio pumping.”

According to the U.S. attorney’s office, Heatherington also worked closely with German financier Florian Homm, the founder and CIO of Absolute Capital Management, who was indicted in 2013 on securities fraud and wire fraud charges. Homm was arrested in Italy but later fled to Germany, where he remains a fugitive, per the federal prosecutor’s office.

In addition to the sentence, Heatherington was ordered to pay more than $215.8 million in restitution jointly and severally with co-defendant Todd Ficeto, a former stockbroker who also was convicted in the case. Ficeto was sentenced to six years in prison in 2020 after being found guilty of 18 felonies relating to his role in the scam. Ficeto was also the president of Hunter World Markets, a Beverly Hills, California-based broker/dealer he co-owned with Homm.

According to the U.S. attorney’s office, Heatherington fought extradition from Canada before agreeing to come to the U.S. in 2021.