Michael Platt’s investment firm BlueCrest Capital Management, which is fighting a multi million pound UK fine, won a bid to block the financial watchdog’s attempt to demand more than $700 million in compensation for investors.

BlueCrest was hit with a £40 million ($51 million) fine by the Financial Conduct Authority in 2021 over allegations it favored partners over external investors in an internal fund. The firm allocated portfolio managers to the fund, open only to its employees, creating conflicts of interest, the FCA previously said.

As part of the investigation the watchdog had also sought to demand that the fund pay compensation calculated at more than $700 million, according to a FCA calculation cited in a ruling published Wednesday. BlueCrest’s failure to manage the conflict resulted in a “sub-standard” service being provided to the external fund and its investors who paid “excessive” management and performance fees.

BlueCrest challenged the findings in a London court and won the ruling blocking any payout. The FCA had no freestanding power to impose such a requirement, Judge Timothy Herrington said, striking out the regulator’s proposed case.

In December 2021, the FCA outlined how BlueCrest moved its traders from the main client fund to the internal one. They were in part replaced with an under performing algorithm, which generated significantly less profit and more volatility. It said investors ought to get back a proportion of management and performance fees.

The case was unusual in that BlueCrest skipped the FCA’s own internal regulatory panel to challenge the findings directly to court. It’s still to challenge the the full penalty in court and the firm said Thursday it “will continue to defend its position vigorously in this matter.”

“The conduct in question relates to activity under a previous business model no longer relevant to BlueCrest’s operations today,” BlueCrest said.

The judge also criticized the FCA’s formal notice of the penalty.

“The decision notice is not an impressive document,” Herrington said. “It demonstrates a considerable amount of muddled thinking on the part of the authority.”

In the US, BlueCrest agreed to pay $170 million to ex-clients — one of the largest penalties the Securities and Exchange Commission ever levied against a hedge fund. The regulator said at the time that the London-based firm failed to act in the best interests of its investors.

The FCA didn’t respond to a request for comment.

--With assistance from Nishant Kumar.