The Republic of Liberia is to be sued in the High Court in London by two “vulture funds” - Hamsah Investments and Wall Capital Ltd., - both registered in the British Virgin Islands. These companies are seeking to get large profits from the debt of Liberia that dates back to the 1970s. One of the “vulture funds”, Hamsah Investments, previously won a similar case against Nicaragua, having received US$11.6 million on a debt which was bought just for US$2.5 million.
The case of these two BVI companies against Liberia showed once again the difficulty of identifying the vulture funds through voluntary schemes: the World Bank and International Monetary Fund report on outstanding commercial creditor claims against heavily indebted poor countries did not even detect this case.
Liberia is one of the poorest countries in the world, which has also most heavily suffered from vulture funds. US$357 million have been received by such companies in their lawsuits against the country - 49% of its GDP. Earlier in 2009, Liberia engaged in a World Bank scheme to purchase back a large part of its commercial debt at discounted rates.
Vulture funds are investment companies that buy up the defaulted debts of poor countries extremely cheaply and then sue them (very often in Britain or the US) for full immediate repayment of this sums including interest and penalty charges. These funds can make enourmous profits from taking money out of the economies of very poor countries.
Some months ago, the African Development Bank launched legal support organisation to protect the poor African countries from the vulture funds. Many international organisations say there is need for legislation that would prevent such cases.
The Australian weapons company Metal Storm Limited has already suffered several delays of financial assistance from the mysterious investment company registered in the British Virgin Islands. It seems there is little information about Assure Fast Holdings and its chairman Robert Rivero who planned to invest a total amount of $US33 million to Metal Storm in equity and debt.
The BVI company Assure Fast planned to initially subscribe $US1.925 million for 110 million shares at a price of just over $0.02 per share, with a further 890 million shares at a similar price, and a starting parcel of 100 million options for a total amount of $US15.57 million. Chief executive of Metal Storm Lee Finniear admitted that this deal would provide Assure the control over Brisbane-based company. Assure Fast also planned to lend $US17.5 million to Metal Storm on terms that have not been decided upon yet.
A first tranche for shares was due already in late October, but its deadline was moved several times, because of such obstacles as bank holidays, cyclones and Metal Storm not knowing where Robert Rivero was based (now it is known that in Manila). The last term was set on this Thursday. Meanwhile, investors are learning more about the mysterious deal with the BVI company. Metal Storm securities have fallen 6.45 per cent to 2.9 cents.
Terry O’Dwyer, the chairman of Metal Storm, described Mr. Rivero as a private investor. Cris Frianeza, secretary-general of the Philippine Chamber of Commerce and Industry, told that his organization had not been able to find any information about Mr. Rivero. Also, the executive director of the Australian-New Zealand Chamber of Commerce Philippines Claudine David is “not familiar” to him. There is no information about this Philippine businessman in English internet. All these facts caused some doubts and skepticism about the Metal Storm deal with the BVI company owned by him. Mr. O’Dwyer declined to comment this, saying the company is comfortable that the financial aid is progressing.
Metal Storm has been pursuing due diligence and checks to ensure the money is clean. The company also informed that they have not finished necessary banking processes. Now Metal Storm’s director is assisting the negotiations over the deal in Hong Kong.
The Irish press published information that Pat Cox, the former president of the European Parliament who can be nominated to the European Commission, is a director of an offshore company incorporated in the British Virgin Islands. His company Pat Cox Incorporated was set up in BVI in November 2007 and registered in February 2008 with an address in Blackrock, Co Dublin, Ireland.
The spokesman of Mr. Cox said that the BVI-based company has no offshore activities, having its bank accounts, paying wages and tax in Ireland.
According to spokesman, the BVI company was established by Mr Cox’s son, Patrick Cox, and its purpose was to allow the directors take loans from the company to use them for other businesses. However, there were no loans issued. The BVI company conducts research for clients and provides strategic advice to companies. Also, it has been involved in demographic analysis linked to the provision of advice on student accommodation needs in Eastern Europe. The ex-president of the European Parliament has done some presentations for Pat Cox Inc. as a consultant. According to BVI company’s filing in February 2008, he is one of the two directors of the company.
Mr. Cox is also a director of consulting company Capa Ltd., based in Cork and owned by him and his wife. At the end of 2008, this company was owed €3,600 from Pat Cox Incorporated.
Mr. Cox has positions in a number of multinational groups, including the Microsoft European Advisory Council, the Pfizer Europe Advisory Council, and the main board of Michelin. Mr. Cox is also the president of the International European Movement and is on the board of other international groups.
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.