The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian bank is ‘hiding’ its $1.5 million claim against an alleged international fraud - which it unwittingly helped to promote - behind a nominee entity, it is being alleged.

Investment promoter, Benny Ping Wing Leung, and his First Toronto Realty Corporation, are now seeking judicial permission to file a motion to dismiss the multi-million dollar claims against them on the grounds that EFG Bank & Trust (Bahamas) should be one of the named plaintiffs in the case.

Court documents obtained by Tribune Business identify the plaintiffs suing Mr Leung as Taupita Investments and Segue Corporation, two Bahamas-domiciled companies.

But Mr Leung’s US attorney, David Olasov, alleged in a January 30, 2015, letter to the southern New York district court that Taupita Investments “is not the real party in interest of the claims it has asserted, but is a mere nominee for its parent or affiliate, EFG Bank & Trust (Bahamas)”.

Noting that Taupita’s Florida-based attorneys also represent EFG, Mr Olasov’s planned motion to dismiss the case is founded upon the Bahamas-based financial institution’s failure to be named as a plaintiff in Taupita’s stead.

Taupita/EFG’s action against Mr Leung and his company stems from their allegedly fraudulent conduct over a 36-storey Chinese real estate investment, known as Titan Tower.

Among the details revealed in the legal documents are:

• EFG Bank & Trust (Bahamas) seemingly placed itself in a potential ‘conflict of interest’ situation by allowing one client (Leung) to promote the Titan Tower investment scheme to its other clients.

A February 3, 2015, case management letter setting out both parties’ position, describes Leung and his two companies - Cathexis and Sirius Asia V - as EFG Bank & Trust (Bahamas) clients. The two companies allegedly played a key role in the scheme, the former issuing the promissory note securities to investors, and the latter guaranteeing the repayments.

“EFG solicited the business from Cathexis and Sirius Asia V, which are also its clients, negotiated with them on behalf of its other clients from June 2009 forward, and secured an increase in the interest rate from 12 per cent to 15 per cent to take into account the risks in the transaction EFG perceived,” the letter to the New York court alleges.

EFG Bank & Trust (Bahamas) thus appears to have unwittingly helped Leung, one of its clients, to facilitate/promote his scheme by enabling him to market the project to its other clients.

There is no suggestion that the Bahamian financial institution, or its officers and directors, have done anything wrong in relation to the Leung case, but when such schemes go wrong - as appears to have happened here - it is placed in an impossible position, and forced to side with one group of clients against another.

The documents describe EFG as “a private bank that introduced several of its account holders to Leung, and acted as liaison between the investors and Leung”.

• EFG Bank & Trust (Bahamas) received a $112,500 commission from Leung’s company, Cathexis, as its reward for finding the investors. This was equivalent to 3 per cent of the sums raised.

• Senior EFG personnel also appear to be among the alleged victims. A February 6, 2015, letter to the New York court from Mr Olasov names former EFG Bank & Trust (Bahamas) managing director, Steve Mackey, as one person who invested in the Cathexis notes.

• The bank, via Taupita, acquired its $1.5 million interest by purchasing Cathexis promissory notes from one of its clients who needed funds “for personal reasons”.

Tribune Business sources familiar with the situation said other EFG clients still holding the Cathexis notes are less than pleased about this transaction, and are questioning whether this particular client received ‘preferential treatment’ that enabled him to recoup all his investment while leaving them ‘holding the bag’.

The case management letter details how this situation plays out in its summation of Leung’s defence. “Correspondence with the former managing director of EFG [Carlos Valle] makes it clear that Taupita is only a nominee for EFG, and that EFG is the real party in interest for the claims alleged in the name of Taupita,” the letter reiterates.

“At various dates in 2010, EFG placed four notes totalling $1.5 million with three of its customers. In or about May 2011, EFG caused another of its customers, Lawrence Wosskow, to purchase all of these notes from EFG’s other customers.”

Cathexis allegedly consented to the transfer, and the case management letter then states: “Two years later, in or about May 2013, EFG itself agreed to purchase the $1.5 million note from Mr Wosskow.

“Again, none of Cathexis, Sirius V or the named defendants had anything to do with EFG’s decision to buy out Mr Wosskow. EFG’s then managing director gave Cathexis the explanation that Mr Wosskow needed the funds for personal reasons.”

Cathexis allegedly supplied the transfer form to EFG in summer 2013, but it was not returned by the Bahamian bank until November that year.

A less cordial version of events was supplied by the February 6 letter sent to the New York court by Leung’s attorney, Mr Olasov.

“E-mails from a former managing director of EFG, Carlos Valle, make it clear that it was EFG itself that purchased $1.5 million in notes in 2013 from its client, Lawrence Wosskow without Cathexis’ prior knowledge,” Mr Olasov alleged in a February 6, 2015, letter to the New York court.

“Wosskow purchased four notes totalling $1.5 million in 2011 from three other customers of EFG (again without Cathexis’ prior knowledge) who acquired the notes in separate transactions through EFG as their investment adviser in 2010.”

Some $3.75 million was invested in the Titan Tower project by EFG Bank & Trust (Bahamas) clients, the court documents obtained by Tribune Business allege.

However, Mr Olasov’s February 6 letter suggests it is only EFG Bank & Trust (Bahamas) (via Taupita) and Segue who are parties to the action in New York.

“None of EFG’s other clients has signed on to this complaint,” he wrote. “Tellingly, that includes Steve Mackey, who is another former managing director of EFG and a note holder.”

Mr Olasov demanded that the New York court subject the action “to very close scrutiny”, and said: “How EFG or Taupita can assert claims for fraudulent inducement in 2010 for notes they claim to have acquired in 2013 is left unexplained.”

He alleged that both had failed to satisfy the terms in the agreement for the notes’ transfer to EFG/Taupita.

The Leung/Cathexis matter is the second December 2014 court battle EFG Bank & Trust (Bahamas) has featured in. Tribune Business also previously revealed how the bank was being sued in the Supreme Court by three investors over the “total loss” of their collective $8.7 million investment in a fund, while also alleging that it misled the Securities Commission.

EFG denied all those allegations, and pledged to defend that action “vigorously”. There is no connection between the two lawsuits.

Yet the two cases have something in common, namely that clients of EFG Bank & Trust (Bahamas) allegedly accessed - via the bank - investment opportunities promoted by some of its other clients and account holders, only for these to ultimately end in controversy.

The New York documents, obtained by Tribune Business, allege that Leung and his company, Cathexis Ltd, in late 2009 introduced EFG Bank & Trust (Bahamas) to a proposed investment in a 36-storey office/retail development in the Chinese city of Ningbo.

The investment opportunity, the documents alleged, had arisen because Leung claimed one of his friends - an initial investor - was selling his interest for $4 million, “thus creating an opportunity for potential investors such as EFG account holders”.

“Leung advised that construction of the project was well underway, but the $4 million investment was needed to maintain the capital and take the project to completion,” Taupita and Segue alleged.

“Thus he pitched that $4 million in total was needed from potential investors to maintain the necessary funding for the project.”

Based on Leung’s representations, Segue and Taupita’s predecessor investors injected $3.75 million of the $4 million sought.

Segue and Taupita’s ‘predecessor’ then invested $250,000 and $1.5 million, respectively, in promissory notes issued by Leung-related entities and carrying 15 per cent interest.

Leung allegedly promised to repay the principal within two years, with interest to be paid in April 2011 and 2012.

However, Segue and Taupita alleged that unknown to themselves and EFG Bank & Trust (Bahamas), the Titan Tower’s construction was completed in December 2010.

And the initial interest payment was not made on April 2011, with Leung blaming the delay on the wait for Chinese government building permits, occupancy and fire safety certificates.

While the first interest payment was made “four months late, and in three instalments” by August 2011, the second payment and return of all investor principal did not occur by April 2012.

The investors were told, through EFG Bank & Trust (Bahamas), that more building permit issues were causing the delay.

The final extended deadline for repayment, December 31, 2013, was again missed, and Taupita and Segue are alleging they have lost “their entire investment” plus interest.