BVI Offshore Business: Grey Area

The director of Firepower Operations Pty Ltd, who also took the positions of the director and executive chairman of its parent company Firepower BVI, is giving his evidence at the liquidators’ hearing of the Firepower’s case.

The Federal Court examination of the collapse of Firepower, which raised about $100 million from its shareholders, continues and includes more and more details. Mr Johnston did not specify any reasons why he agreed to increase a multi-million dollar 2007 Supreme Court settlement by $2 million and millions of shares following a dispute with the former chief executive of Firepower Trevor Nairn and his wife Rhonda. The Perth court was told that the original deed of settlement had given $1.5 million in 2007, and one million shares of Mrs. Nairn.  Mr Nairn’s company Bikpela Investments received another $2.5 million and 19 million shares.  So, by February 2009 the settlement made $3 million and 7,425,000 shares for Ms Nairn and $3 million and 18 million shares for his company.

Mr. Nairns and his wife had an interest in the Cayman Islands-based Firepower Holdings Group, from which Mr Johnston transferred intellectual property rights for Firepower products. The transfer followed the setting up of another Firepower umbrella company in the British Virgin Islands, Firepower Holdings Group Ltd. 

During the liquidators’ hearing, ex-director of the company did not reveal information about how the operations between his own company, Firepower Operations, and the BVI- and CI-based companies were coordinated. Mr. Johnston has claimed that in 2006 and 2007 he gave $11 million to Owston Nominees, the company of Warren Anderson, saying that he was under threat from Mr. Anderson. The property developer Warren Anderson was the previous director of the BVI-registered holding of Firepower Holdings Group Limited. Now he is alleged by Mr. Johnston of intimidating him.

Lawyers for the liquidator agreed to Mr. Johnston writing the names down to avoid them becoming public. Richard Douglas, the barrister for the liquidator, asked for the allegations in writing. Mr. Johston said he would not object to make the names public.

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.

Irving Picard, the trustee who liquidated Bernard Madoff’s fraud scheme, informed the judge in Manhattan Federal bankruptcy court that British Virgin Islands-based hedge fund Vizcaya Partners Ltd. missed a deadline to respond to a lawsuit accusing it of taking $150 million in fake profit from Madoff’s firm. It was said that in October 2008 Bernard L. Madoff Investment Securities Llc. wired this sum to Gibraltar-registered Banque Jacob Safra Ltd., apparently for the benefit of the BVI hedge fund.

As long as Vizcaya Partners Ltd. failed to respond the lawsuit, the trustee asked U.S. Bankruptcy Judge in Manhattan to enter a so-called notice of default against the BVI company, setting the stage for a default-judgement motion by Picard to force it to turn over the money.

The money of Vizcaya should be returned under U.S. law, and used to repay the victims of Madoff’s $65 billion Ponzi scheme, the biggest in the U.S. history. It is important also that to get back Vizcaya’s alleged Madoff money, the co-operation with Gibraltar authorities is needed, as Gibraltar is the home for Banque Jacob Safra Ltd., which is holding over $10.7 million of Vizcaya money and is also sued by Picard. However, the notice of default requested by Picard in relation to the BVI hedge fund does not apply to the Gibraltar bank.

On May 8, 2009, the Eastern Caribbean Supreme Court in the British Virgin Islands made an order appointing William Tacon and Richard Fogerty of Zolfo Cooper as Joint Provisional Liquidators of the British Virgin Islands-registered funds Kingate Global Fund Limited and Kingate Euro Fund Limited, the funds which are sued as the feeder funds which were fully invested in Bernard L. Madoff Investment Securities LLC. Both BVI funds have investors in many parts of the world. The legal action against the funds was recently started by the court-appointed trustee for the liquidation of Madoff’s fund, Mr. Irving Picard in the U.S. Bankruptcy Court.

Their function as Joint Provisional Liquidators is to identify, manage, secure and preserve the underlying assets of the funds, in accordance with the terms of the BVI Court order and the provisions of the BVI Insolvency Act of 2003. The Joint Provisional Liquidators also said that they were not asking investors to submit details of their interests or claims in the BVI funds. One of the provisional liquidators, Mr. Tacon, added that the lawsuits against the funds which have been filed by Mr. Picard will also be an immediate priority for the Joint Provisional Liquidators.

In order to assist investors and creditors, the Joint Provisional Liquidators have established special websites - www. kingateglobal-liquidation .vg and www. kingateeuro-liquidation .vg, where information updates will be posted periodically. The Joint Provisional Liquidators hope to receive full co-operation and support of directors of the BVI funds. They are also going to communicate with investors and any creditors in the near future.