H2O Asset Management was fined a record of €75 million ($79 million) in France over accusations the London-based fund harmed investors by making unauthorized investments in illiquid securities owned by controversial German financier Lars Windhorst.
(Bloomberg) — H2O Asset Management was fined a record of €75 million ($79 million) in France over accusations the London-based fund harmed investors by making unauthorized investments in illiquid securities owned by controversial German financier Lars Windhorst.
The enforcement committee of France’s Autorité des Marchés Financiers criticized H2O’s “deliberate choice” to select illiquid investments for its suite of funds “in breach of many rules,” ultimately compromising investors’ ability to exit at any time.
Co-founders Bruno Crastes and Vincent Chailley were respectively fined €15 million — the maximum penalty for a single person — and €3 million, according to a decision released late Tuesday. Crastes also got a five-year management ban.
H2O said on Wednesday that it “vigorously contests” the decision and plans to lodge an appeal with France’s highest administrative court. The company said no intentional error had been committed by H2O, Crastes or Chailley and that the penalty is disproportionate.
In the meantime, the fund managed by Crastes will be handed over to Thomas Delabre and Philippine Watteaux. Crastes will remain with H2O as group corporate and market strategy director, while Loic Guilloux takes over as chief executive officer.
The French probe was part of the fallout from a crisis of confidence among H2O clients after the Financial Times wrote in 2019 about the scale of illiquid investments in companies linked to Windhorst. As the crisis deepened with the start of the coronavirus pandemic, H2O was forced by the AMF to freeze some of its funds. Since then, clients have been unable to access holdings that were valued at €1.6 billion in 2020 and which are still in vehicles known as side pockets.
November Hearing
At a hearing in November, the AMF’s prosecuting body also blamed H2O for buy-and-sell back operations carried out after the publication of the FT article. Officials specifically put the spotlight on valuation concerns regarding Tennor Finance notes issued by a company controlled by Windhorst.
The largest previous AMF penalty for a single company was levied against Amundi Asset Management in 2021, when it was fined €25 million for wash trades and harming the interests of a client fund.
Separately, investors in a group called “Collectif Porteurs H2O” have initiated litigation in France with the ultimate goal of seeking compensation for their losses. The UK’s Financial Conduct Authority is also investigating H2O for compliance breaches.
(Updates with H2O reaction from fourth paragraph)
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