Cayman fund in courtroom movie drama
(Courthouse News): Investors in Aramid Entertainment Fund, a Cayman Islands mutual fund, claim hedge fund manager David Molner took more than $60 million in loans for himself – half of the fund's capital – and hid it from auditors. The plaintiffs, two other Cayman Islands companies, say Aramid was established, ostensibly, to issue loans to other companies in the entertainment business, but that Molner made loans he "never had any intention to collect upon." Plaintiffs Wimbledon Financing Master Fund and Stillwater Market Neutral claim in Superior Court that Molner "executed a series of ultravires, insider transactions designed specifically to siphon funds from AEF shareholders."
Plaintiffs say all but one of the loans are "currently non-performing or have been written off altogether," and the full extent of Molner his co-defendants' "looting remains unclear as a result of Molner's ongoing refusal to allow an audit, his refusal to provide proper disclosures, and his active concealment of AEF's true financial condition."
The defendants include Screen Capital International; Aramid Capital Partners; Timothy Levy; Thomas McGrath; David Bree; Roger Hanson; Thomas Adamek; Stonehenge Capital Company; and Future Capital Partners. Plaintiffs seek at least $60 million in damages and an injunction preventing defendants from "transferring or selling assets and conducting transactions" on behalf of the fund. Plaintiffs are represented by Daniel Petrocelli with O'Melveny & Myers.
Category: Finance
It is disappointing to see yet further Cayman Directors being mentioned in lawsuits. Moreover the same firms keep appearing. This is most likely because individuals have far too many directorships to enable them to carry out their fiduciary duties. A similar situation took place many years ago in the Island of Sark when farmers and shopkeepers provided directors to hundreds of companies.luckily the British Government brought this unsavory practice to a conclusion.
What we have here is the Cayman Lark but with millions of dollars of investor money being the responsibility of directors here and abroad, many of whom have never made a proper business decision in their life.The Cayman Government through the Attorney General’s office needs take a close review of this area with a view to implementing some form of regulation with regard to not just hedge fund directors but all directors. Our current laws are far too archaic to regulate rogue directors, not just here but abroad.This needs a swift remedy.
What is disappointing is that a discredited former liquidator would make such ridiculous comments, and draw such baseless conclusions, without neither the facts about this case nor knowledge about this profession. Shameful conduct indeed from any officer of the court, or financial services professional, but not surprising from one previously removed as a liquidator of a fund by the Grand Court of the Cayman Islands for, among other transgressions, serving as a liquidator of a company of which he was previously the auditor. Hoisted with his own petard! Oh what a tangled web we weave when first we practice to deceive. SMH
Excerpt from [1999 CILR 237] ALLIED INVESTMENT FUND LIMITED, ASSET MANAGEMENT AND FINANCE INTERNATIONAL INCORPORATED and GULF CANADIAN INTERNATIONAL FINANCE COMPANY INCORPORATED v. JOHNSON and JENKINSON GRAND COURT (Murphy, J.): May 20th, 1999
“The entire liquidation had been conducted on a very partisan basis. Their startling lack of objectivity in continuing to prosecute the cause of action against BE, against the wishes of the majority creditors, and failure to investigate claims against the former directors who had appointed them had resulted, quite reasonably, in a total loss of confidence on the part of the applicants. Furthermore, they had acted under a conflict of interest by acting as liquidators of an insolvent company for which they had previously acted as auditors. Since it had been their duty to inquire into the solvency of the company when first appointed, they should have resigned when it became apparent that TW was insolvent.”
It is not unusual for liquidators to be removed and indeed there have been may similar removals over the past several years including those who initially liquidated Guardian Bank.The poster ought to look at various court files.With regard to the case cited I made enquires and found out the other side of the story. The poster has only the one side.
However, most of all, the above post seems to ignore the very subject that Mr Johnson raises and indeed has raised many times. That is of directors negligence. If the poster would care to dwell on the various court websites and read Offshore Alert he would realize the extent of the problem.
I reread the article of Mr Johnson and nowhere did he make any accusations against those involved in the case. He merely made general observations concerning the continuing problem of directors negligence and the embarassment it causes the Cayman Islands. Having said that I have read much of the court documentation on the case and clearly there were may red flags that certain parties failed to spot. Readers ought to take a look and see how directors act on hedge funds. It makes pretty interesting reading.