The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian bank and trust company was yesterday accused of acting in “bad faith” and seeking to gain an unfair advantage by suing an investment promoter over an alleged multi-million dollar fraud.

Benny Ping Wing Leung, in an affidavit filed with the southern New York court, alleged that the actions by EFG Bank & Trust (Bahamas) and its officers had “caused damage” to the 36-storey Chinese real estate investment at the centre of their dispute.

EFG, via its nominee, Taupita Investments, and another Bahamian-domiciled entity, Segue Corporation, are suing Mr Leung and his First Toronto Realty Corporation for allegedly failing to make interest and principal payments due to them on their $1.75 million investment in the project, Titan Tower.

Mr Leung, though, alleged that EFG Bank & Trust (Bahamas) had initiated the litigation to improve “the actual economic position of” its investments by embroiling Titan Tower and its financiers/developers in costly litigation.

“I regard the present litigation as a bad faith effort by EFG to alter, and attempt to improve, the actual economic position of the noteholders’ investments (including EFG’s self-interest as an investor, albeit not a noteholder) by trying to impose litigation costs that are extrinsic to the project and its unambiguous funding structure, of which EFG and its clientele had the full opportunity to negotiate and were certainly aware,” Mr Leung alleged.

Segue and Taupita (allegedly EFG Bank & Trust (Bahamas)) invested in the Titan Tower project by purchasing promissory notes, or debt instruments, from a Cathexis Holding (Cayman), a company in which Mr Leung is a director.

He alleged, in his March 15, 2015, affidavit that he approached the Bahamian bank and trust company in June 2009 to see if any of its other clients wanted to buy out an existing Titan Tower investor for $4 million.

Cathexis was also an EFG Bank & Trust (Bahamas) client, and Mr Leung alleged: “EFG’s initial reaction was not encouraging. It was concerned about the remote location of the project in China, its structure as an indirect equity investment, the lack of security, and a proposed rate of return, then 12 per cent, that EFG believed did not take into account the risks of the transaction.

“After some eight months of inconclusive discussions, EFG finally indicated that its clientele would be comfortable with an investment that took the form of high yield debt, with a 15 per cent interest rate......

“The structure of the notes was fully negotiated between Cathexis and EFG on behalf of EFG’s clients, with Cathexis and Sirius Asia V [another Leung entity] having no access to EFG’s customers. Neither Cathexis nor I had any direct contact with EFG’s other clients in connection with their decisions to invest.”

Again alleging that Titan Tower’s completion had been delayed by the Chinese authorities’ imposition of stricter regulations following a major Shanghai tower fire, Mr Leung promised to repay all investors in full once the developers were able to sell units in the property.

Slamming EFG Bank & Trust (Bahamas) for alleged “misconduct”, and for having “improper objectives”, Mr Leung then claimed: “The conduct of EFG and certain of its officers has caused Cathexis damage, and is continuing to cause it damage, and I am unwilling at this juncture to commit to give it a ‘pass’, when this litigation evidences EFG’s intention to increase such damage.”

Mr Leung produced correspondence allegedly showing that, at the same time as suing him and his company for fraud, EFG Bank & Trust (Bahamas) attorneys were also requesting - vis his lawyer - that he provide them with an update on Titan Tower and its progress.

Mr Leung and his attorneys have now filed a motion urging the southern New York district court to dismiss Bahamian bank’s lawsuit against them.

One of the grounds they are citing is that Taupita is “not the real party” to pursue the claims against it, and that it should be replaced as ‘plaintiff’ by EFG Bank & Trust (Bahamas) - something the latter and its attorneys have refused to do.

Leung’s affidavit, meanwhile, confirmed that EFG Bank & Trust (Bahamas) received a $112,500, or 3 per cent, commission from Cathexis in return for finding investors among its clients who were prepared to purchase the $3.75 million worth of promissory notes.

He also confirmed that former EFG Bank & Trust (Bahamas) managing director, Steve Mackey, is among the Cathexis investors, and added: “EFG acted as financial advisor to its customers that purchased notes pursuant to the negotiated transaction documents.

“Surprisingly, with EFG’s purchase of the Wosskow note, EFG began to hold itself out as the ‘custodian’ for the noteholders, and invoked that claimed status to control and restrain efforts by Cathexis to communicate directly with the noteholders.”

Tribune Business previously revealed how a case management letter alleged that 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 added: “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.