Following up an investigation of a hedge fund Weavering Capital and a related offshore firm Weavering Capital Fund Limited, registered in the British Virgin Islands, the UK Fraud Authority started to investigate sales of credit-default swaps and structured-finance products, including collateralized debt obligations. The swaps are derivative contracts used to guard under fluctuations in borrowing costs.
The SFO is looking into whether banks sold such products with flawed values; no specific companies or credit rating agencies have been targeted under the investigation. This may be part of the SFO’s investigations of the collapse of the hedge fund Weavering Capital, and American International Group Inc.’s financial products unit. Also, the Serious Fraud Office commits more resources to probing possible corruption in the private-equity and hedge-fund industries, and looks into the cases of fraud at UK hedge funds.
Using a small auditor was a trait common to many failed hedge funds, most of them may be discounted with larger auditors. In May 2009, two managers of the collapsed fund Weavering Capital were arrested as part of investigation of the fund, which had about $640 mln under management. The investigation of the fund is focused on interest-rate swaps between the hedge fund and a related BVI-registered Weavering Capital Fund Ltd. According to the SFO allegations, the BVI company was used to inflate the net asset value of the fund.
Venulum Group, a multinational private wealth management company headquartered in the British Virgin Islands, found the authors of anonymous internet posts defaming the firm that appeared on the web in September 2008.
The objective of the US law firm engaged by the BVI group was to identify the bloggers to enable libel action. The host website of the blog forum provided 7 posts. After successfully serving the founder of the website for non-compliance of subpoena regarding the remaining 7 posts, Venulum is considering enforcement in New York. If these posts have been made by the webhost, it will lose its safe harbor protection, found that it edits and publishes on a forum. The webhost claims to have various offices in the US, but none of them are active or operational.
The agent of the company found various individuals in the Czech Republic. The webhost founder does retain an office in New York, which is where the webhost is invoiced. The large majority of the unregistered posts have been identified as two former employees of the group, against one of them the lawsuit is filed.
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.