BVI Offshore Business: Grey Area

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.

The Swiss bank UBS AG was summoned before the court in connection with the case of Bernard Madoff. This was done by the initiative of the bankruptcy trustee Irving Picard, liquidating Bernard L.Madoff Investment Securities LLC. There were already two lawsuits against UBS AG lost by French bank BNP Paribas SA, which tried to force the bank to release 2.5 mln euros ($3.1 mln) invested with two Madoff-linked funds.

Currently, the bankruptcy trustee seeks information about the accounts of the arrested manager at UBS, as well as information about UBS accounts held by several Madoff feeder funds (some of them registered in the British Virgin Islands), and banks. The representatives of the Swiss bank complied with the third-party lawsuit. The subpoena for documents to UBS was issued March 17, just some days after Madoff pleaded guilty. One of companies in the UBS subpoena is British Virgin Islands company Plaza Investments International Ltd.; according to its investor, the BVI entity placed money with Madoff company.

By the prosecutors’ information, $170 billion moved through Madoff’s company since the fraud began in the 1980s. So far, there are more than $1 billion of assets recovered by the NY lawyer Picard who is conducting thorough investigation to find assets.

Besides the liquidator’s subpoena, U.S. tax authorities are seeking the identities of 52,000 UBS customers - Americans who evaded paying taxes placing their money in Swiss accounts. UBS avoided U.S. prosecution by paying $780 mln in penalties, and also admitted that in 2000 - 2007 Swiss private bankers helped Americans evade U.S. taxes through offshore companies in the British Virgin Islands, Panama, HK and other jurisdictions.

The US trustee filed a complaint in the US Bankruptcy Court against Kingate Global Fund and Kingate Euro Fund, the feeder funds of Bernard Madoff. The two investment funds, registered in the British Virgin Islands, are sued for the return of 255 million dollars.

It was stated in the complaint by Irving Picard that Kingate subsidiaries received payments of 100 million dollars and 155 million dollars from Madoff in the weeks before Madoff’s Ponzi scheme collapsed last December. By words of the trustee, transfers should be distributed among those who suffered from Bernard Madoff’s scheme, because his remaining assets will not be enough to reimburse investors.

It was said in the complaint that the trustee must pursue recovery from customers who received preferences and/or payouts of fictitious profits to the detriment of other defrauded customers whose money was consumed by the Ponzi scheme.

It was reported in the Wall Street Journal that the two British Virgin Islands funds fed some 1.7 billion dollars of client’s assets into Madoff’s scheme.

Madoff has been pleaded guilty to fraud, and now is due to be sentenced to prison on June 16, 2009.

Investors are continuing to seek for $150 million linked to Bernard Madoff. On April 9, 2009 a British Virgin Islands company and a European bank of Gibraltar were sued by a special trustee who claimed it should go to reimburse investors who lost money in Madoff’s Ponzi scheme, estimated at $65 billion.

In papers filed in Manhattan federal bankruptcy court, the trustee alleged that in October 2008 Bernard L. Madoff Investment Securities Llc., owned by Madoff, wired $150 million to Banque Jacob Safra Ltd. of Gibraltar, apparently for the benefit of BVI-registered international company Vizcaya Partners Ltd. The transfer took place about a month and a half before Madoff was arrested, after admitting he initiated a Ponzi scheme for nearly 20 years.

In the suit, the trustee said that from early 2002 and until the arrest of Madoff, Safra or its affiliates invested $327.2 million with him in New York through his account at JPMorgan Chase & Co. on behalf of the BVI company. Now he is asking the bankruptcy court to wipe out the transfer and add the $150 million to  the $1 billion in found customer assets to be used to repay Madoff victims, including the BVI-based Vizcaya.

The $150 million in Gibraltar is one of several transactions found by the staff of the trustee at the Manhattan law firm. Offshore money has been placed in Ireland, England, Luxembourg, Bermuda and the Cayman Islands, with potential cash on the Isle of Man.

It is known from the US legal source that BVI-registered Vizcaya sued Banque Jacob Safra in Gibraltar. The exact amount held in the Gibraltar account is still unclear.

British Virgin Islands-registered fund Auriga International Advisers has lost more than 400 mln Swiss francs ($350 mln) that were invested with the company’s main shareholder Bernard Madoff. According to the information provided by Jacques Rauber, the majority shareholder of the fund, as well as to the reports published in Swiss weekly SonntagsZeitung, funds of the company were wholly invested in Fairfield Sentry – the US fund which, in its turn, invested all of its assets, which made $7.3 billion, with Madoff.

Auriga is licensed to provide financial management services by the BVI authorities. There is no much information about Auriga’s investors, except for the fact that among them there are institutional investors and high net worth individuals. Jacques Rauber also said that another fund, Auriga Alternative Strategies, was affected much less.

This case is similar to the court case with transfering money of another BVI-domiciled company Repex Ventures into funds run by Madoff. The arrested money manager has confessed to losing up to $50 billion in a giant Ponzi scheme.

BVI-registered company Repex Ventures SA filed a lawsuit in Manhattan federal court against Bank Medici AG, an Austrian private bank that was taken over by regulators. The BVI company invested $700,000 in Herald (LUX) U.S. Absolute Return Fund, which was controlled by the Austrian offshore bank, and now Repex alleges Medici of misleading investors by not disclosing that it was pouring money into funds run by Bernard Madoff – the money manager arrested last month for $50 billion Ponzi scheme. According to the complaint, 100% of the Herald Funds were transferred to Madoff without informing investors.

Bank Medici, which is 25% owned by UniCredit SpA, is the European bank with the largest potential losses related to the Madoff investments. Its clients invested $3.2 billion in funds run by the alleged manager. Last week, after the offshore bank was taken under control by Austrian regulator, the new management board was appointed.

The lawsuit of the BVI company against Bank Medici, which now seeks class action, or group status, is the latest to seek damages from the funds that invested in Madoff’s scheme.

The U.S. Commodity Futures Trading Commission (CFTC) announced that it obtained orders imposing more than US$2.9 mln in sanctions against Foreign Fund and some other defendants, including two individuals and a Tennessee Corporation, for violations of the anti-fraud provisions of the Commodity Exchange Act. The CFTC action alleged that Foreign Fund, which was an Internet entity operating exclusively from a website in Ukraine and maintaining bank accounts in Nashville, Tennessee (U.S.), defrauded thousands of customers worldwide out of more than US$3 mln, by offering illegal off-exchange futures contracts. Two defendants were charged with misappropriation in connection with their handling of customer funds.

Relief defendants, – British Virgin Islands company Star Connection Inc. and Deana Whitely of Olds, Alberta, - were ordered to turn over more than US$658,000 and US$245,424.24 of ill-gotten foreign fund customer money, in Foreign Fund customer funds to which they were not entitled.

The Commission also issued orders that bar Foreign Fund and other defendants from any activities bringing profit. One of them, MW First Trustees Inc., was deprived of all funds and assets that were in its custody. The Commission orders also require Foreign Fund to pay restitution in the amount of US$1,216,463 and a $1,216,463 civil monetary penalty.

Foreign Fund attracted customers by falsely representing that it was generating monthly profits of up to 100% through foreign currency futures trading, whereas in reality it engaged in a Ponzi scheme, using funds from new customers to pay previous customers, and misappropriating other customer funds.

Last week, the jury in Monterey County, California, convicted UK citizen Michael Vousden of selling fake medical malpractice insurance to women’s clinics across the country – in 36 counts. Vousden was arrested in 2004, convicted of insurance fraud, grand theft, forgery and tax evasion. Now he is to be sentenced on April 4, 2008, and can face 34 years in prison.

The matter is that Vousden has never been licensed in California or in any other part of the United States. He was once licensed to sell insurance in the British Virgin Islands, but the British Virgin Islands government refused to renew his license in 2001. Vousden insisted that his licensing problems arose from the bureaucratic dispute between him and the BVI government. By his words, the difficulties and poor business decisions did not give him any possibility to pay his taxes, although he intended to pay them with late penalties when he was financially stable.

John Barrett, spokesman for the state Franchise Tax Board, said Vousden’s contention that he planned to pay taxes in the future were nonsense. Ronald Smetana who prosecuted the case for the state Attorney General’s Office, said Vousden was never licensed to sell insurance in the United States, and actually he is operating a Ponzi scheme, using premiums from his clients to pay for legal bills and large mansion in Carmel Valley. The scheme was destroyed with a $500,000 judgment against a doctor insured by Vousden at a Texas clinic.

Smetana said he was pleased with the verdict of the jury, but he had not decided how much time he would recommend for sentencing when Vousden goes before Judge Terrance Duncan on April 4. In his turn, Defence attorney Miguel Hernandez said he is planning to appeal for a new trial at the April 4 hearing. He also said Vousden will fight efforts to be deported to Great Britain.