Man Financial, the US brokerage arm of UK-based Man Group Plc has said that it will "vigorously" defend itself against "spurious" allegations that it helped to disguise a large trading loss in a Cayman-registered hedge fund.
Man Financial's strong words of denial of wrongdoing came after US court-appointed receiver Clark Hodgson wrote in a complaint filed Monday in the US District Court in Philadelphia that the firm and its employees "enabled and facilitated the wrongful conduct" which led to the concealment from investors of huge trading losses in Philadelphia Alternative Asset Management (PAAM).
Hodgson also accused the company of engaging in "a pattern of racketeering activity, which included numerous acts of fraud," and in doing so violated the Commodity Exchange Act and the Racketeer Influenced and Corrupt Organizations Act, or RICO.
Man Financial, which acted as broker to the now defunct hedge fund, was first accused in a contempt motion filed in a Pennsylvania court last September by Hodgson of complicity in helping PAAM to disguise the fund's true investment performance by hiding $175 million in trading losses in a secret account.
Cayman-registered PAAM, set up and managed by former trader Paul Eustace, was launched in 2004 and raised some $300 million from investors. The fund collapsed in June 2005. Last month, Eustace reached a settlement with the US Commodities Futures Trading Commission over his role in the collapse of the fund.
In December, Man was ordered to hand over documents and other information, including telephone records and audio recordings to the receiver of PAAM.
Man Group has strenuously denied allegations that it failed to cooperate with the US authorities in the investigation, and has stressed that it has handed over thousands of pages of documentation to assist the receiver.
In a statement quoted by Reuters, Man Financial said that it will "vigorously defend itself" against the "outrageous and spurious" allegations, and the firm accused Hodgson of "courting publicity" by bringing a claim under RICO.
Experts believe that the prospect of facing RICO charges could pre-empt an early settlement of the case because damages could escalate if the defendants lost.
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