BVI Offshore Business: Grey Area

The credit card processing firm E-Clear, whose chief executive Elias Elia was named as the person controlling BVI-registered company Allbury Ltd., collapsed a month after the collapse of Flyglobespan, after it was pursued through the courts by PricewaterhouseCoopers administrators.

Mr. Elias, who actually is at the heart of controversy surrounding the collapse of Globespan airlines, has claimed that E-Clear owes him £25m. The firm also faced a bill for up to £35m from Globespan administrators PWC, and bills from a number of other creditors. PWC blamed most of Globespan’s demise on an alleged failure by E-Clear to pass on this sum which was taken from the airline’s customers.

Globespan’s financial position worsening, Elia had agreed companies linked to him would make a rescue investment, subject to regulatory approval, but no funds were actually invested. In the beginning of the year, the information was revealed that the Serious Fraud Office had started gathering materials on E-Clear, without formal investigation. Elia had denied any problems.

A sworn statement of affairs document, produced by Elia for E-Clear’s appointed administrators, claims the firm had assets with a book value of £46.7m, but concedes few of them can be realised for unsecured creditors. The multimillion-pound interest in Allbury Travel Group, a Hertfordshire travel agency controlled by Elia through  British Virgin Islands company Allbury Ltd., is among the assets listed by Elia. Allbury collapsed in January 2010, leaving creditors without possibility to recover any part of assets.

Upon investigation made into the network of BAE Systems companies, the U.S. State Department has placed a “temporary administrative hold” on weapons export licenses of BAE Systems or companies using BAE Systems’ products. This came when the BAE pleaded guilty on March 1 to accusations that it conspired to defraud the U.S., and agreed to pay a $400 million fine in a complicated case involving allegations of mysterious payments paid to a Saudi Arabian official, offshore “shell companies”(including BVI companies) set up by BAE to get weapons contracts, and providing false information about this to the U.S. government.

According to the Justice Department, the company paid 135 million pounds and more than $14 million to a shell company registered in the British Virgin Islands, “even though in some situations the company was aware there was a high probability that part of the payments would be used to ensure that BAE was favored in foreign government decisions regarding the purchase of defense articles.”Also, according to the U.S. arms trade experts, the BAE payments apparently undermined the competitive ability of U.S. companies.

Justice Department lawyers said that none of the company’s criminal conduct involved BAE Systems Inc., which is the U.S. division of the defense company. However, the temporary hold applies both to BAE Systems, Inc. and to BAE Systems PLC, while the department studies the guilty plea and determines whether additional action should be taken against the company.

Kludjeson International Limited (KIL), the company which issued a legal suit against a HK-based Hutchison Telecommunication Limited, accusing it of fraud, is currently in a legal showdown with institutions and personalities to win the ownership dispute of the mobile telecommunication company in the court.

In the ownership struggle over KIL’s subsidiary Celltel Limited, a BVI company which is now conducting business as Kasapa Communications Limited, both companies have descended on the institutions and personalities manning the affairs of the company, and accused them of fraudulent actions. The names mentioned in the joint legal suit of KIL and Kasapa Communication include the Standard Chartered Bank Limited, Pricewater House Coopers, an Accountancy and Management Consultancy firm, Bentsi-Enchil, Lesta and Ankomah, a private partnership company providing legal services and Sudan Telecommunications Limited of Sudan. Among other defendants there are Trustee Services Limited, a company issuing secretarial duties, and its General Manager Philip Dosoo, British Virgin Islands-registered offshore companies Certwell Limited, Kuwata Limited and EGH International Limited, and Expresso Group Limited of United Arab Emirates. Also, the list of defendants includes Emad H. Ahmed, Emad Sukker, both of United Arab Emirates, Ihab Ibrahim Mohammed Osman of Sudan and Lung Hien Ching, a resident of Ghana.

Among other decisions, plaintiffs are seeking a court declaration that BVI companies Certwell Limited, Kuwata Limited and EGH International Limited, as well as some other defendants, are not direct or indirect shareholders of Kasapa Telecommunication Limited, and Emad H. Ahmed, Emad Sukker, Ihab Ibrahim Mohammed Osman and Lung Hien Ching are not and never been directors or alternate directors of the mobile telecommunication. Also, KIL and Kasapa are seeking a restraining order against each of the defendants and their agents apart from Trustee Services Limited and Philip Dosoo, from holding themselves as directors, shareholders, officers and offering and receiving banking services to the telecommunication company.

Ali Al Faraj, the owner of the Portsmouth club affected by crisis, had cancelled his plans to appear in the UK for the first time since the takeover which took place in October 2009.

The Portsmouth club is challenging the winding-up order served on it by HM Revenue and Customs in the end of December, and now is to argue in a High Court battle that the VAT portion of their massive tax debt is too high by ?7.5 million. In case the club wins, it will receive ?500,000 from the tax services, and not pay more taxes.

However, if they lose the case, the winding-up petition will be heard on February 10. It became known that Al Faraj and the British Virgin Islands-registered company Falcondrone, through which he bought a controlling 90% stake of the club, did not have the resources to save the club on their own.

The day after completion of his takeover through the BVI company, the club mortgaged Fratton Park from another BVI company, controlled by Hong Kong-based businessman Balram Chainrai, in return for a ?17million loan from Portpin. It was revealed by media that previous month he together with his business partner successfully sued Arkadi Gaydamak, father of former Pompey owner, for ?16.5 million, and had been part of the Al Faraj consortium only for Gaydamak Jnr to sell to Al Fahim.

So, almost everyone who has come out of the woodwork has a link to, and in most cases brought a legal case against Gaydamak Snr. The motives and ambitions of everyone involved in the case are not clear. Both HMRC and Portsmouth refused to comment the situation.

The British government is asked to investigate the collapse of the Edinburgh-based airline Flyglobespan. The claim of Scotland’s first minister Alex Salmond came after the failure of a Hertfordshire-based holiday company Allbury Travel Group, which has close links to E-Clear, the card payments group accused of hastening the collapse of Flyglobespan.

Allbury Travel Group, which is controlled by the British Virgin Islands company Allbury Ltd., and trades as Libra Holidays, Argo Holidays and Jetlife, went into administration in the end of last week. Elias Elia, chief executive of E-Clear, is named as the person controlling BVI-registered Allbury Ltd. He is also in the group of investors behind Jersey-based Halcyon Investments which had been negotiating to invest in Flyglobespan’s parent company Globespan. When it became clear that investment was not forthcoming, Flyglobespan ’s directors called in the administrators.

According to Scotland’s finance secretary John Swinney, £20m out of £35m collected by E-Clear on behalf of the airline should have been in Globespan’s bank account. He told that the Scotland’s airline would have had “a better chance of survival” if the money had been passed on. A spokesman for E-Clear denied the group’s responsibility for the collapse of the airline. Mr. Salmond said that there was a case for a serious investigation by UK government regulators, who should look at “the negotiations and the financial structure of Globespan.”

Allbury Travel Group operated air package holidays and flights out of Gatwick, Manchester, Newcastle, Birmingham and Leeds airports to Greece, Cyprus and Egypt. Now the Civil Aviation Authority is making arrangements for company’s customers which are now abroad to complete their holidays and return home, and to provide refund for forward bookings under its Air Travel Organisers’ Licensing scheme.

K1 Invest Ltd., the British Virgin Islands-based hedge fund operated by German K1 group - one of the two BVI hedge funds believed to be used in a network of investment firms to transfer the money received from reputable banks, - is to be liquidated after its assets were frozen.

This information was provided by the fund’s director who said in a letter to distributors that the BVI fund has hired accountancy firm Grant Thornton to liquidate it. The freezing of assets and the resulting inability to pay its obligations have led K1 Invest to voluntary liquidation “in the best interest of the company and the investors.”

K1 Invest Ltd. is managed by K1 Group’s founder Helmut Kiener who is now suspected of committing fraud and breach of trust. Kiener now remains in jail, although his diplomatic status would provide him with immunity.

In 2004, German regulator BaFin tried to ban K1 Invest Ltd from operating in Germany.

The process of liquidation and recovery of fees to investors into the BVI-registered Kingate Global Fund Limited and Kingate Euro Fund Limited, which are sued as the funds linked to Madoff Investment Securities LLC, may cause even more problems than it was expected. The dispute between the court-appointed trustee for the liquidation of Madoff’s fund Mr. Irving Picard and the liquidator of the BVI funds Zolfo Cooper may become the reason for the delay of payouts to Madoff investors, and could result in solving the dispute in BVI court.

Last week, Picard had approved payments of $534 million to victims of Madoff’s $65 billion fraud, while there is $4.44 billion in claims that he has deemed valid so far. According to the documents, Picard had claimed about $870 million from the two Kingate funds, including more than $600 million sum that was paid in commissions to the BVI funds by Madoff Investment Securities during the six years to December 2008.

Zolfo Cooper is asking Kingate shareholders to approve a deal in which they would pay the trustee 50 per cent of Kingate’s current assets. The BVI funds would also pay 50 per cent of any additional recoveries to Madoff’s company, and the investors would be allowed full claims in its liquidation. Some investors are not satisfied with this distribution and want to receive any recovered management and performance fees that were paid to Kingate. However, Zolfo Cooper claims that the only alternative to the settlement would be lengthy and costly litigation, because Picard could ask the courts in BVI (where the funds are registered) and in Bermuda (the domicile of the asset manager Kingate Management Ltd) to give him control of any funds recovered there.

Picard is also involved in lawsuits with the liquidators of several other feeder funds in the U.S. and other countries, while Zolfo Cooper has to deal with the claims from  those who subscribed to invest in the Kingate funds after December 2008. Their money (about $12 million only for one of the funds) was never invested, but still it was in the Bank of Bermuda, when Madoff collapsed. In August 2009, the Supreme Court of Bermuda ordered Kingate Global to repay $6 million and $3 million to Knightsbridge Fund Limited and Standard Chartered Bank. This ruling could become a precedent for the return of the rest of money invested after December 2008, but the decision was appealed by the liquidator.

Stefan R. Seuss, German financial manager, was arrested in his home in Miami charged of money laundering as part of global criminal investigation into the German hedge fund. The K1 Group, whose business activities became the reason of losses about US$400 million for major banks, is headed by Helmut Kiener who is now in custody after being arrested by German prosecutors in his house 40 km from Frankfurt.
The K1 Group is alleged of organizing “circular transactions” with a network of investment firms and offshore companies in many countries, including BVI, to make an illusion of having enough money for backing up loans from the banks. Among the banks involved in the case there are Barclays, JPMorgan Chase & Co. and BNP Paribas.

Bank’s money were then transferred to offshore companies in the British Virgin islands and other jurisdictions, and from their accounts - to the accounts in foreign banks. Seuss is said to have ties with various Swiss financial institutions.

In the allegations against Mr. Kiener, the relationship with Barclays is described that began in 2005 when he allegedly agreed to set up K1, a fund of hedge fund. Mr Kiener is said to have ignored the rules for investments agreed with Barclays and used other firms to channel about US$114m provided by the bank into two other hedge funds based in the British Virgin Islands and managed by him.

It is remarkable that the German arrest warrant for Mr Kiener, for some unclear reasons, describes Mr Seuss as a witness. The arrest warrant includes information that the Swiss bank lent US$31.7m to a firm connected to Mr Kiener, and some part of this money went into one of his BVI-based hedge funds.

Mr Kiener is represented by the Munich law firm Lutz Libbertz, which said that they were going to appeal against his arrest. The law firm described allegations against Mr Kiener as thin and based on police inquiries rather than real evidence.

British Virgin Islands company Allerca Inc., also known as Lifestyle Pets Inc., is sued by a man called Andrew Reale for breach of contract, consumer fraud and intentional misrepresentation. By words of this man, on September 11, 2007 he ordered one of hypoallergenic cats which are produced by this BVI company, and has paid extra for expedite delivery. However, after two years the cat has been not delivered yet.

In the complaint filed in Superior Court in Somerset County, Reale claims he paid $7,900 for one of the cats, including extra $1,950, and expected to receive the cat after eight months. After receiving the payment, company officials changed the date of delivery several times, and in February 2009 they informed the plaintiff that the kitten would be delivered “as soon as possible.” Up to this date, Reale has not received a hypoallergenic kitten from defendants. Reale has demanded a refund on several occasions, but the BVI company refused to pay.

Allerca is a BVI company currently located in Las Vegas; it was formerly registered in California and located in San Diego. It is focused on breeding the unique hypoallergenic cats that produce a different version of glycoprotein, which is not allergic for humans. They started with producing these cats in 2006.

Company founder Simon Brodie, who has since sold his share of the business, but remains a consultant, would not comment on this litigation, but noted that in 2007 the standard delivery time was more than two years. Now the company which is expected to be under new ownership this month is trying to reduce the delivery time down to a year or less.

It became known that BVI company’s attorneys will file a response and a counter-claim against Reale. The company is going not to deliver the cat until the legal situation is finally resolved.

Craig Hall, a well-known businessman from North Texas, attempts to get back more than $150 mln of the $180 mln which he has lost by loaning or investing in several natural gas partnerships. Two of the companies in which he is majority shareholder, Hall Phoenix/Inwood Ltd. and Hall Performance Energy Partners 4 Ltd., are now plaintiffs in the court case. Hall claims that both limited partnerships
provided financial support to various drilling partnerships based on lies by the senior executives running them. Three partnerships and four individual defendants are alleged of falsely portraying the  situation, and enticing Hall’s partnerships into loaning or investing huge sums.

In court filings, Hall said that business relationships and friendships made him invest more than $150 mln into loans and equity for drilling partnerships, and he is trying to get back the losses that are tied to misleading information from the partnerships.

The events leading to the lawsuit started in 1986, when Hall, through affiliates of his company Hall Phoenix/Inwood Ltd., started to invest in business ventures of his friend Anthony J. Gumbiner. Now Gumbiner and petroleum engineers William H. Marble and Meduna are the defendants in the lawsuit. Other defendants are  Dallas-based Hallwood Group Inc (HWG), controlled by Gumbiner;  William L. Guzzetti, president and CEO of HWG; and British Virgin Islands-registered companies Hallwood Investments Ltd. and Hallwood Financial Ltd., both established and controlled by Gumbiner. The only other officers or owners of the BVI companies are Gumbiner’s family members. According to the lawsuit, these companies also do not have any employees.

Attorney Mark Werbner, who represents most of the defendants, said he will prove in court that Hall was not misled into investing or loaning money for the drilling ventures. By his words, “Craig Hall was a sophisticated investor and was fully informed about the Hallwood Energy drilling program,” and his lawsuit is just an attempt to recover a loan that he made understanding and knowing the risks of the oil and gas business.