Michael Balboa, portfolio manager of Millennium Global Emerging Credit Master Fund, Ltd., not only hid losses, but also inflated the net asset value of the Fund by $163 million price manipulation of his funds’ holdings. GlobeOp was a valuation agent and independently priced the fund’s NAV, while Deloitte conducted its annual audit and issued an unqualified opinion despite the ongoing misconduct. How did Balboa successfully elude such reputable service providers?

Case Profile

Fund Name Millennium Global Emerging Credit Master Fund, Ltd., et al
Investment Managers Millennium Global Investments, Ltd.
Portfolio Managers Michael Balboa
Other Notable Parties Gilles T. de Charsonville
Investment Strategy Emerging market debt
Founded 2006 (fund), 1994 (investment manager)
Estimated AUM $844 million (funds, as of August 2008)
Estimated Losses $163 million (from price manipulation)
$1 billion (total losses at liquidation)
Fraud Causal Factors – Misvaluation of Fund Assets
– Fictitious Service Providers


In 2006, Michael Balboa (“Balboa”), an experienced credit trader, joined Millennium Global Investments, Ltd., a reputable hedge fund manager with over $15 billion assets, after his 3-year stint at Rainbow Advisory Services, Ltd., another London-based hedge fund. He became a portfolio manager of newly launched Millennium Global Emerging Credit Master Fund, Ltd. (the “Fund”). Balboa attracted many investors with his impressive +25% annualized returns and managed $844 million. The Fund’s primary investments were emerging market credit instruments.

GlobeOp Financial Services, Ltd. (“GlobeOp”) was the Fund’s independent administrator and Deloitte & Touche (Bermuda), Ltd. was the Fund’s independent auditor. Both are top-tier service providers in the hedge fund industry. Balboa arranged for GlobeOp to serve as the Fund’s independent “valuation agent.” In this capacity, GlobeOp was described in the Fund’s offering memoranda as being “responsible for the calculation of the [Fund’s] Net Asset Value” and that, “wherever practicable, [would] use independent sources” for this purpose. The Fund’s DDQ reassured investors that “there are no assets valued in house,” that “manager marks are not used to price the portfolio” and that “GlobeOp values 100% of the [Fund’s] portfolio.”

As the financial crisis intensified in the summer of 2008, emerging markets were hit particularly hard. However, the Fund’s 180 investors were relieved as they received monthly statements indicating Balboa’s Fund was successfully weathering the turbulence, though returns were not as robust as before.

Unfortunately, the rosy reports were far from reality. Balboa had two large investments, representing roughly 20% of NAV, in the Nigerian payment adjustment warrants and Uruguayan value recovery rights whose real value fell rapidly during the summer. In order to save his fund from catastrophe, Balboa artificially inflated the values of both securities, so that investors will not notice what was really happening inside the portfolio. According to the court documents, the valuations for the Warrants collectively increased thirteen-fold by $157 million while the rest of the Fund’s portfolio experienced nearly $200 million in losses (Exhibit 4.1).

In October 2008, the Fund petitioned the Supreme Court of Bermuda for voluntary liquidation and was placed under the control of three court-appointed joint provisional liquidators after the portfolio suffered nearly $1 billion in losses.

Exhibit 4.1: Reported vs. Actual Growth

Source: SEC v. Balboa



In order to hide massive losses on his two largest positions, Balboa asked an independent broker, Gilles De Charsonville (“Charsonville”), and another broker (“Broker A”) for help. Although GlobeOp conducted a full valuation of the Fund’s portfolio on a monthly basis, Balboa knew that GlobeOp still relied on broker-supplied quotes to value less liquid securities, which were traded over-the-counter, including the two warrants. Balboa instructed GlobeOp to obtain independent quotes from various sources, including Charsonville and Broker A, who in fact received kickbacks from Balboa. An independent fund administrator collects directly from each broker an electronic file which contains quotes of securities the broker is dealing with. As a best practice, an administrator usually collects more than one quote per security, so that they can use average price to minimize irregular pricing activity.

Balboa’s scheme was successful because these warrants were so thinly traded that Charsonville and Broker A were eventually the only brokers who provided the quotes to GlobeOp. In addition, GlobeOp’s operating policy permitted the calculation of fund NAV with even a single broker quote. Deloitte also believed the valuation of these securities at the annual audit for 2007, conducted early 2008. Neither GlobeOp nor Deloitte reported any wrongdoing until the collapse of the Fund in Oct 2008.


Ask a fund administrator to explain details of valuation policy and monthly valuation process, especially for those illiquid positions, and confirm there is adequate check-and-balance system in place

  • Request a list of brokers that provide month-end quotes from both the fund administrator and investment manager; make sure the listed names match
  • Contact brokers and review their background and policies especially if they are smaller firms
  • Confirm that the brokers listed provide quotes directly to the administrator
  • Check that the administrator receives the quotes directly from brokers
  • Confirm that the administrator is legally responsible for the monthly valuation
  • Request a copy of duly executed administration agreement
  • Ask the administrator to provide the number of quotes used for valuation for top 5 positions
  • Ask the administrator to provide breakdown of portfolio by the number of quotes (no quote/1 quote/2 quotes…)
  • Ask whether the administrator cross-checks valuation of securities with the same or similar securities owned by other clients; if the answer is no, ask why



U.S. Securities and Exchange Commission v. Michael R. Balboa and Gilles T. De Charsonville (2011). U.S. District Court for the Southern District of New York

One Response to Case N.4 Millennium

  1. Jack Samson says:

    Incredible! GlobeOp and Deloitte should be ashamed, if not prosecuted as well! When will the financial industry wake up to the abuses being promulgated every day by so-called “independent” players! It is ridiculous to believe that GlobeOp was ever “independent”! You cannot be an administrator and the independent “valuation agent” without a massive conflict of interest!

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