Senior judges in London are hearing an attempt by the FCA to revive a $700m financial redress scheme it tried to impose on Bluecrest Capital in 2021.

The scheme was blocked last year when a tribunal ruled that the regulator had demonstrated “a considerable amount of muddled thinking”. The FCA is arguing the tribunal judges made errors in reaching their decision.

Bluecrest is a hedge fund launched by British billionaire Michael Platt and US businessman William Reeves, both former JPMorgan traders. It was fined £41m ($52.91m) by the FCA in 2020 over an alleged conflict of interest arising from events that occurred between October 1, 2011, and December 31, 2015.

The FCA said that the firm had engaged in “reckless conduct”, and that it was seeking to impose a client-redress scheme as a result. The tribunal ruled that the FCA did not have the power to impose such a scheme.

Conflict of interest

At the heart of the case is a decision by Bluecrest to move the managers of a fund for external investors to a fund that invested money for partners and employees (internal fund). The FCA argued such a personnel move could disadvantage outside clients. And it said that decisions on which traders to allocate to the internal fund were made by senior managers who also invested in the fund – something it argued was a conflict of interest as those managers stood to benefit personally from the performance of those traders.

The regulator also found that a trading algorithm, which was designed to replicate trades made by those working on the internal fund for the external fund, underperformed at times.

It described the firm’s actions as “reckless rather than deliberate,” although it also said disclosures to investors had been “entirely insufficient and, at times, misleading.”

Protection for consumers

Tribunal judges, however, described the FCA’s decision document as “not impressive” and said a “lack of clarity” had “made it difficult to identify the essence of the authority’s thinking.” Their decision is now being challenged, with lawyers for the FCA arguing that legislation “clearly and expressly” grants it powers to secure appropriate protection for consumers, and that the tribunal had imposed “complex and unnecessary constraints” on those powers.

At its peak, Bluecrest ran about $36 billion of assets. It stopped managing money for outside clients in 2015 and converted to a family office.