Close Bros faces $22m suit

(CNS): A writ filed in Grand Court on behalf of the joint official liquidators (JOLs) of the various Grand Island Funds, which collapsed in 2008, seeks to recover more than $22 million from the fund administrators, Close Brothers Ltd, and one of its employees. In the statement of claim Nick Freeland and David Walker say that the defendants failed to properly carry out their duties as administrators by ignoring obvious signs of fraud. The liquidators claim that the administrators failed to report Robert Girvan, the funds’ director and sole trader, who was convicted on 21 counts of theft and money laundering, despite many obvious red flags that should have alerted them to his illegal activities.

“By reason of their failure to carry out their duties as administrators or to follow their own internal policies and procedures, they failed to discover and so alert the other directors of the funds, the auditor or the regulatory authorities of the Cayman Islands that the funds were being managed by Girvan as a Ponzi scheme,” the JOLs’ lawyers say in the writ.

They present an exhaustive list of opportunities in the 42 page claim, which they say Close Brothers Cayman Limited (CBCL) and John Sutlic, who was a director of the fund and CFO at the firm, ignored. Despite the catalogue of discrepancies, the administrators continued to issue net asset values for the funds, the JOLs state, accusing them of negligence and recklessness.

According to the JOLs, the administrators simply accepted at face value what Girvan told them and the forged documents he sent, even though no reputable bank would produce statements with such obvious errors. The JOLs claim that as early as July 2003, less than six months after the first fund was established, the administrators were being sent very clearly false documents by Girvan. The false bank statements being sent to CBCL were picked up by an employee, who noted the significant discrepancies and alerted other people at the firm in an email of the need to get originals directly from the bank.

“It is not known what investigation, complete or otherwise, was in fact carried out,” the JOL claim states. “Had a proper investigation been carried out, the fact that Girvan was producing forged statements would have been discovered in July 2003.”

Despite this and other warnings, however, and the fact that the documents were so apparently false, Close Brothers continued for another five years to accept the doctored statements and issued fund values based on the forgeries, the liquidators say in the statement of claim.

Girvan was not arrested until 2008, when the real and substantial losses the funds had suffered through trading, further compounded by Girvan’s criminal attempts to cover up the losses, were revealed. He was accused of stealing more than $19 million and was sentenced to eight years in jail after pleading guilty. Girvan was able to commit the acts of theft and money laundering, the JOLs say in the writ, because of the failures of the defendants.

Aside from failing to pick up on Girvan’s poor attempts at forgery, allowing him to co-mingle money from the funds into other accounts, and failing to keep proper books of account, the JOLs claim that Close Bros had “at all material times … irreconcilable conflicts of interest” as a result of the firm’s existing relationship with the promoter of the funds, Naul Bodden, and that affiliates of CBCL were in investors in the various Grand Island Funds.

As a result of the “breach of fiduciary duty”, the JOLs claim that Close Brothers and Sutlic are liable for the losses and the money which was wrongfully transferred. They also say the administrators are liable for the redemption payments that were made based on the false net asset values they produced from the obviously false statements given to them by Girvan, which shouldn’t have been paid. The JOLs say the administrators should also pay back the fees, commissions and other charges they were paid as they were not properly earned.

In total the JOLs are seeking more than $22 million from the firm as well as costs, interest and damages.

The JOLs have confirmed that the litigation remains in the early stages, with the writ filed in late November, and so far no settlement has been reached. “However, we are always willing to consider sensible and realistic proposals that would achieve an acceptable outcome for the funds shareholders,” Nick Freeland told CNS.

Managing Director of Close Brothers, Linburgh Martin, acknowledged the litigation between the Joint Official Liquidators of the Grand Island Funds and Close Brothers (Cayman) Limited (CBCL) and various other parties in Cayman but denied culpability.

“We believe that CBCL and its employees acted appropriately in servicing the funds and that we have a solid defence to the various allegations against us in this unfortunate matter,” Martin added.

He also noted that the recent sale of CBCL and its Cayman affiliates was not related to the Grand Island Funds case.

“The sale follows the recent sale of our Group’s ‘UK Offshore’ business in the Channel Islands, as the Group concentrates on expanding its core UK asset management business. We are confident that CBCL’s Cayman business will go from strengthto strength and the sale will prove to be an excellent strategic move for our business,” Martin told CNS.