The German fugitive hedge fund manager who more than five years ago fled the Spanish island of Mallorca with $500,000 hidden in his underwear and luggage faces U.S. charges after his arrest at the Uffizi Gallery in Florence.

Florian Homm, 53, was taken into custody by Italian police at 12:30 p.m. on March 8 at the world-famous museum that houses Sandro Botticelli’s Birth of Venus and Leonardo da Vinci’s Annunciation.

The arrest, by Homm’s own account as well as that of U.S. prosecutors, followed his 2007 decision to leave behind a life of wealth, castles and “bimbos.” During his escape, he held a Liberian diplomatic passport as well as German and Irish passports, according to the Federal Bureau of Investigation.

Homm is accused in a criminal complaint filed March 6 in federal court in Los Angeles of defrauding investors in hedge funds he controlled, causing $200 million in losses. He is charged with four counts of conspiracy, wire fraud and securities fraud. He faces as long as 75 years in prison if convicted on all counts.

The founder and former chief investment officer of Absolute Capital Management Holdings Ltd. is accused of “cross trading” billions of shares of penny stocks between the company’s funds to boost the value of the otherwise illiquid securities.

The trades, through a Los Angeles-based broker-dealer that Homm co-owned, generated fees for Homm and Absolute Capital and also inflated the price of Absolute Capital’s shares, U.S. prosecutors said. Homm “dumped” his shares and resigned from Absolute Capital on Sept. 18, 2007, “in the middle of the night,” according to the U.S.

$53 Million

Homm and his co-conspirators made more than $53 million from the scheme, prosecutors said. Thom Mrozek, a spokesman for the U.S. Attorney’s Office in Los Angeles, didn’t return phone and e-mail messages yesterday seeking comment on the case.

Adam Kravitz, a Miami lawyer who represents Homm in a lawsuit brought by the U.S. Securities and Exchange Commission, declined to comment on the criminal charges.

Beginning in about 2003, Absolute Capital was the investment manager for 16 funds based in the Cayman Islands, according to an affidavit by a FBI agent filed in support of the arrest warrant. Absolute Capital managed as much as $2.1 billion in September 2007, when Homm quit and ran from Mallorca, leaving behind a portfolio of hard-to-trade assets.

Homm recently published a book in German called “Rogue Financier: The Adventures of an Estranged Capitalist,” according to the affidavit.

‘Bimbos, Dogs’

In the book, Homm, who is about 6 foot, 6 inches (2 meters) tall, wrote that he had “$500,000 stashed in my underwear, my briefcase and my cigar box,” when he left Palma de Mallorca on a private plane Sept. 18, 2007. His “mule and friend Giorgio” was carrying another $700,000, according to the translation in the affidavit.

“As the jet climbed I was profoundly unsettled, my mind in a dense fog,” Homm said in the book, according to the court filing. “I was breaking all connections to my former existence: colleagues, clients, acquaintances, friends, bimbos, dogs, family and children, and annihilating my fast fortune in the process.”

Chief U.S. District Judge George King last month denied Homm’s request to dismiss the SEC’s claims against him. In his Dec. 19 request, Homm had argued that the SEC couldn’t sue him over foreign transactions between foreign funds.

‘Good Faith’

In a declaration filed with his request to dismiss the SEC’s claims, Homm said he lived in the U.S. for extended periods until the early 1990s and has only visited the U.S. sporadically since then.

“All of my activities were conducted in the good faith performance of my job, which was to increase the value of the relevant ACMH funds to the benefit of the ACMH funds’ investors,” Homm said in the declaration.

Guillermo Hernandez Sampere, who was formerly the head of trading at Absolute Capital, said on Bloomberg Television today that he met Homm in Frankfurt last week. Homm is suffering from multiple sclerosis, Sampere said.

Homm was convicted in 2004 in Germany of a minor trading violation and received a suspended fine, the lowest sentence possible under German law, Doris Moeller-Scheu, spokeswoman for Frankfurt prosecutors, said in an interview today. Her office isn’t investigating him now, she said.

Homm’s trip to Italy allowed U.S. prosecutors to seek his arrest, said Otto Lagodny, a professor of comparative criminal law at Salzburg University. The German constitution bars the extradition of citizens to countries outside the European Union, so Homm would have been safe in his home country.

‘Only Speculate’

“I’m sure his lawyers explained that to him and he must have chosen to take that risk nevertheless,” said Lagodny, who isn’t involved in the case. “You can only speculate about his motives.”

According to the FBI affidavit, Homm’s scheme began unravelling in April 2006 when an unidentified former Absolute Capital employee sent an anonymous e-mail to media and investors providing details of stock manipulation by the hedge funds.

Homm and Absolute Capital’s Chief Executive Officer Sean Ewing traced the e-mail to the sender in the U.S., identified only as D.P.P. in the affidavit. The sender was intimidated into writing a retraction letter to the recipients of his e-mail, according to the affidavit.

‘Mob’ Ties

D.P.P. felt threatened because, when he still worked at Absolute Capital, Homm had told him that he “had ties to a mob family in Frankfurt” and would kill D.P.P. if he ever betrayed him, according to the affidavit.

Homm had started to unload his Absolute Capital shares at an inflated price, before he left in 2007 and the share price plummeted, according to the FBI. He collected about $40 million from the sale of his stock, the FBI said.

According to the SEC’s lawsuit filed in February 2011, Homm and the other co-owner of Beverly Hills, California-based Hunter World Markets Inc., the broker-dealer through which funds controlled by Homm bought the microcap companies’ shares, engaged in “portfolio pumping.”

Homm and his co-defendants in the lawsuit brought microcap companies public through reverse mergers and manipulated the companies’ share prices upward before selling the shares to eight Absolute Capital funds, according to the SEC. Homm ran the alleged scheme from September 2005 to September 2007, the agency said.

Pro Elite

Pro Elite Inc., an organizer and promoter of mixed martial arts matches, was one stock prosecutors allege Homm manipulated. In September 2006, Homm had Absolute Capital funds buy $10 million worth of shares and warrants issued by the company in a private offering.

Pro Elite also issued shares to Hunter World that were later sold to Absolute Capital’s funds for inflated prices, according to the prosecutors.

That October, Pro Elite initially traded for 10 cents a share on the Pink Sheets. Through cross trading between Homm’s hedge funds, the price of the shares was driven to as high as $12 in April 2007. Based on the inflated share price, one of Homm’s hedge funds reported an unrealized gain of $25 million from its investments in Pro Elite, according to prosecutors.

Swiss Account

Homm’s co-owned broker-dealer made $6.4 million from selling its Pro Elite shares at an inflated price in May of 2007 to an Absolute Capital fund, with $4 million of it wired to Homm’s Swiss account, according to U.S. prosecutors.

The cross trading of Pro Elite shares continued into September 2007 and Homm’s broker-dealer made about $14.2 million from selling its shares to the Absolute Capital hedge funds as well as about $1.1 million from commissions on the trades it executed in the stock.

Homm flew to Panama in 2007 using an Irish passport under the name Colin Trainor, according to the affidavit, which cites an interview with a German bounty hunter published in the Financial Times Deutschland last year. The FBI found a “strong resemblance” between Homm’s picture in his German passport and a picture of Trainor in the Irish passport.

The German, who had planned his departure with “Prussian precision,” intended to eventually go to Colombia when he fled Mallorca, according to his book.

Moving Cash

“We were heading to Valencia where everybody would lose our trail,” Homm wrote. “Thereafter, moving the cash to Colombia would get a bit sketchier.”

Homm’s travels since 2007 aren’t detailed in the FBI affidavit. The U.S. is seeking access to a Swiss bank account in his name. Homm’s diplomatic passport issued by Liberia has expired, the FBI said.

In a motion filed in the SEC case to set aside a default ruling issued against him, Homm said he didn’t have a permanent residence. He also said the Swiss were investigating him for alleged money laundering and that he had met last year with prosecutors in Lausanne. He said he hadn’t been charged with any crime in Switzerland.

Homm said in his book that he had the diplomatic passport because he was the cultural attache of the Liberian delegation to UNESCO in Paris.

Castles, Nightclub

In excerpts from the German original of his book, “Kopf Geld Jagd,” posted on the Amazon.com German website, Homm describes himself as a “baby magnate” who was worth about half a billion dollars. He said he owned castles and a nightclub on Palma de Mallorca’s promenade and rubbed shoulders with celebrities including Michael Douglas and Boris Becker.

Homm helped rescue publicly listed German soccer club Borussia Dortmund from bankruptcy. The team won Germany’s league championship last year and currently ranks second after Bayern Munich in the Bundesliga, the country’s top-tier competition.

Absolute Capital in 2007 was also invested in German companies TUI AG and Freenet AG.

When he left Mallorca, Homm wrote, he packed the cash around his waist in the very tight Calvin Klein underwear he was wearing and on both sides of his genitals. The money added about 5 centimeters (2 inches) to his waist size, making him look like the “Michelin man,” Homm said, referring to the tire company’s advertising cartoon figure.

Homm said in the book that he did reach Cartagena, a beach resort city on the Caribbean coast dating back to the Spanish colonial era.

While living in Colombia, he discovered that his bodyguard had made plans to kidnap and rob him, Homm said in his book. He said he considered moving to North Africa or Antalya on Turkey’s Mediterranean coast.

The case is U.S. v. Homm, U.S. District Court, Central District of California (Los Angeles). The SEC case is Securities and Exchange Commission v. Ficeto, 11-cv-01637, U.S. District Court, Central District of California (Los Angeles).