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Bahamian Bank Sued On $8.7m ‘Total Loss’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Investors are suing a Bahamian bank and trust company over the “total loss” of their collective $8.7 million investment, while also alleging that it misled the Securities Commission.

Three investors in the BHP Advisors Fund are claiming that EFG Bank & Trust (Bahamas) had ‘conflicting duties’ towards both themselves and the fund, and that they were induced to invest by “misleading representations” in its offering material.

And, in court documents obtained by Tribune Business, the same investors alleged that EFG misled the Securities Commission via the fund’s due diligence filings by stating its assets under management were double the true amount.

And they claimed that EFG has also positioned itself as a secured creditor, with financial claims that will take precedence over their unsecured interest in a failed Canadian oil and gas conglomerate.

However, EFG Bank & Trust (Bahamas) completely refuted all the allegations against it when contacted by Tribune Business.

An EFG spokesperson, replying to this newspaper’s inquiries, said: “EFG is unable to comment on what is a legal matter other than to say it intends to defend this action vigorously.”

Tribune Business understands that the bank and its attorneys, McKinney, Bancroft & Hughes, plan to file a complete defence to the allegations within the next two weeks.

Sources close to the situation also suggested to Tribune Business that the BHP Advisors investors were seeking to “lay off” blame for some bad investment decisions on EFG, and that the claims had no merit.

However, the December 23, 2014, statement of claim filed by attorneys for The Private Trust Corporation (acting as trustee of the Herbert Angus Ripley Trust), Elcid Fifty-Five Ltd and Janst Ltd alleges that EFG breached its ‘fiduciary duty’ and ‘duty of care’ to themselves and their investments.

Detailing the background to the case, it was alleged that the Ripley Trust, Elcid Fifty-Five and Janst Ltd made investments totalling $2.25 million, $750,000 and $5.7 million, respectively, in the BHP Advisors Fund.

They collectively injected $8.7 million of the $11.5 million ultimately invested in BHP Advisors, which was incorporated as a SMART Fund Model 002 on April 30, 2009.

EFG, while acting as the BHP Fund’s administrator, custodian, banker and registered agent, also provided the other two defendants in the case - Geminorum and Fornacis - as the fund’s corporate directors.

Both companies were alleged to be EFG subsidiaries, with all their directors and executives holding positions at the Bahamian bank and trust company.

Geminorum and Fornacis were also alleged to be the directors of BHP Bahamas, the fund’s investment manager, and held the same position with companies beneficially owned by BHP’s investment advisors - Scott Dorey and Marc Wade.

Completing an allegedly complicated web of relationships, the statement of claim alleged that EFG was also the then-banker, trustee and custodian for the Ripley Trust, and also provided banking services for Elcid Fifty-Five.

The BHP investors alleged that the fund’s offering/promotional materials induced them to believe they were investing in a vehicle that would deliver stable, secure and low-risk investments.

Yet they claimed that “most of the amounts invested as equity in the fund” were lent to the Sterling Eagle Energy Corporation in Canada “by way of unregistered, unsecured, non-liquid promissory notes” which based investors returns on oil and gas production.

The three investors, represented by Sears & Co and Higgs & Johnson, also claimed that the BHP{ Fund’s investment advisor, Mr Dorey, became Sterling’s president and a director in 2010.

They claimed that “all funds were removed” subsequently from Sterling’s accounts, leaving it unable to pay its accounts, and resulting in the closure or abandonment of its wells.

“The management of Sterling Eagle and the Fund has been characterised by gross mismanagement, and there were large unexplained cash withdrawals, loans, secret commissions and benefits being made from the assets of Sterling Eagle and the fund to [EFG], the investment manager, the investment advisors and other related parties directly and indirectly,” the three investors alleged.

“Further, no management accounts or audited financial statements of Sterling Eagle were produced or, if produced, presented for the information of the investors in the fund.”

A Canadian bank, Canadian Western Bank (CWB), successfully appointed a receiver to take over Sterling Eagle’s affairs in June 2011.

But, alleging insult to injury, the fund investors alleged that just three days later EFG Bank & Trust (Bahamas) acquired the debt owed to CWB, “thereby becoming a secured creditor of Sterling Eagle and gaining a priority position over the Fund’s interest, and an unfair advantage over the shareholders of the Fund as unsecured creditors”.

Tribune Business has obtained Sterling Eagle receivership reports confirming that EFG purchased some $1.894 million worth of debt from CWB.

It did, indeed, become the secured or priority creditor of Sterling Eagle, and by June 2013 the Bahamian bank had already received $1.325 million from the receiver’s sell-off of assets.

The BHP Fund, meanwhile, was said by the Sterling Eagle receiver to have been paid $600,000 from proceeds relating to the same sale, under an agreement that entitled the fund to 15 per cent of such sums.

However, the three BHP Fund investors alleged that under EFG’s supervision, the receiver sold Sterling Eagle assets “on a distress basis, at significantly lower prices than their pre-receivership values”.

“Sterling Eagle has been wound up, the funds due from Sterling Eagle have become uncollectable, and the Fund is insolvent and is expected to be wound-up, with all equity investment made by the plaintiffs and others totally lost,” the investors alleged.

When it came to the Fund’s dealings with the Securities Commission, the investors alleged that EFG “falsely represented” to its primary regulator on June 30,2010, that there was $22.5 million in assets under management - almost double the $11.5 million “maximum at any time”.

The investors also alleged that the BHP Fund’s net asset value (NAV) position was not correctly communicated to the regulator, with investment returns shown as 61 per cent and 82 per cent for the 2010 first and second quarters - “whereas the actual return on investment to-date has been zero”.

The NAV was allegedly shown in filings with the Securities Commission as ranging from $22 million to $144 million, with the largest investors - and their respective holdings - also stated incorrectly in regulatory filings.

Comments

banker 6 years, 9 months ago

Sigh, pirates of the Bahamas again. More reasons why not to trust Bahamian Financial Services. Another black eye in the world marketplace.

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GrassRoot 6 years, 9 months ago

yep, however seems more like an international coalition of pirates based in the Bahamas. EFG has the ability to make the news quite regularly with law suits about disappeared monies and unsuitable third party managers/fund managers/fiduciaries involved, there seems to have been a management issue for quite some time.

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JB357 6 years, 9 months ago

Another CLICOOOOOOOOOOO!!!!! Well motorbiiiiiiiiiiike!!!!! Money gone.......poof!!!!

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ElliottNess 6 years, 9 months ago

How many times do we have to read about EFG scandals before something is done about them. As I recall, they are involved as a feeder fund to Bernie Madoff, some kind of a stock swindle in Sweden, some kind of a rip-off of investors in Egypt involving Mubarack's sons and I'm pretty sure I'm missing some. Now this here in the Bahamas. Some 'trusted' Swiss bank!

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JB357 6 years, 9 months ago

Another case of crookery and book cookery!!!

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