It isn’t a surprise that some hedge funds keep their best strategies to themselves, and it certainly hasn’t kept investors away. Except when it is a surprise. Then it can both drive investors away, and cause all sorts of other problems, as well, because even if Michael Platt tried to pass it all off as a joke, the Securities and Exchange Commission is not laughing.

The Securities and Exchange Commission (SEC) alleged that in 2011 BlueCrest created the hedge fund to invest staff capital, to which it transferred top-performing traders from its flagship client fund. The company replaced those traders in the client fund with an algorithm which “generally underperformed” the traders, the SEC alleged.

BlueCrest failed to adequately disclose, and made misstatements and omitted facts concerning, the proprietary fund’s existence, the movement of traders, and related conflicts of interest, the SEC alleged. The $170 million will be distributed to investors, the agency said.

One day, perhaps, the robots will be as good or better than the best humans at managing hedge funds. One day they will perhaps be the ones front-running the flesh-and-blood traders. But since that day is not today, BlueCrest is happy that it’s not in the business of managing money for people the SEC says it can’t lie to anymore.

The algorithm failed to perfectly replicate the human traders’ decisions because it followed their moves one day later, the SEC said. That delay caused “slippage,” particularly during volatile markets because the algorithm waited too long to respond to sudden market moves, the order said.

“During the 15 years we operated as a client-facing hedge fund manager, we generated returns of more than $22 billion for our investors,” she added, while noting that in 2015, BlueCrest stopped managing the assets of outside investors.

U.S. SEC orders UK’s BlueCrest to pay $170 million to harmed investors [Reuters]
Hedge fund BlueCrest ordered to pay $170 million after ‘misleading’ investors [MarketWatch]
BlueCrest Capital Management to Pay $170 Million to Settle SEC Claims [WSJ]

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