2007 top stories: Turtle Farm financing probe

What the Cayman Islands Auditor General called a ‘wanton disregard’ of public funds became a political scandal this year as local police started an enquiry into the debt financing arrangements made to support the Boatswain’s Beach/Cayman Turtle Farm expansion project.

Accusations of cover-ups and political posturing flew back and forth between the current People’s Progressive Movement government and the former United Democratic Party administration as to who was responsible. Current high-ranking members of both parties were members of the board that approved the financing deal which Auditor General Dan Duguay said showed a ‘cavalier attitude of expenditure’ of millions of dollars.

The police enquiry began after Governor Stuart Jack received requests from government ministers and the auditor general’s office to look into the matter. That probe continued toward the end of this year.

Mr. Duguay’s report went into great detail about the financial arrangements for Boatswain’s Beach.

The Turtle Farm borrowed US$46.6 million through a direct bond placement agreement with William Blair and Company in March 2004. The loan came after an uncompleted agreement had been signed with GC Ventures Corp. Ltd. in May 2003. That loan would have been for US$36 million.

The original proposal for the failed financing deal came from a company called Prospect Ventures Inc., which was represented at a presentation to the Cayman Turtle Farm Board of Directors by Suresh Prasad and David Berry.

In a letter to the editor of the Caymanian Compass in October 2006, Minister of Tourism Charles Clifford called Mr. Prasad a close acquaintance of Leader of the Opposition McKeeva Bush, and Mr. Berry a ‘business partner’ of Mr. Bush, but qualified that statement by stating ‘Mr. Bush prefers to call him a business associate or real estate agent working in his firm Cambridge [Realty]…’

Mr. Bush was chairman of the board of the Cayman Turtle Farm when the financing was arranged. Mr. Clifford was also on the board in his capacity at the time as Permanent Secretary in the Ministry of Tourism.

Mr. Bush maintains the decisions made by the board of directors were good ones, despite the criticism of the Auditor General.

Mr. Bush also said other people on the board were authorised to ‘handle all aspects of the financing with no direct involvement of myself in the process’.

Mr. Clifford said Mr. Bush drove the board’s decision on the initial financing agreement through ‘the force of his personality.’

The first financing proposal was made by Mr. Berry and Mr. Prasad, representing Prospect Ventures Inc. Although he acknowledged his acquaintance with the two men, Mr. Bush said he had nothing to do with them making the proposal.

The financing agreement arranged by Prospect Ventures and subsequently two other companies, GC Ventures and QuadCaptial Advisors proposed to lend the money for the project through another company, a special purpose entity. Under that proposal, the Turtle Farm and the Government would have owned the SPE, which would have built and developed the Boatswain’s Beach facility. The Turtle Farm would have leased the property from the SPE for 25 years, after which the property would have been transferred to the Turtle Farm for a nominal amount.

‘If the SPE arrangement had been executed as contemplated, the debt of the Boatswain’s Beach project would not appear on the balance sheet of the Turtle Farm, and by extension the consolidated balance sheet of the Cayman Islands Government,’ Mr. Duguay wrote in his report. ‘This off balance sheet approach appeared to be a prime motivation for the project to be funded in this manner.’

However, the original financing agreement was never finalised on the request, in November 2003, of ‘government officials representing the shareholders of the Turtle Farm’.

Mr. Duguay believes the decision not to go through with the original financing arrangement was ‘a good one… that saved millions of dollars in financing charges.’

‘However, it is important to note that it is my opinion that such a decision should never have had to have been made if the board had done some due diligence before signing the original [financial advisory service agreement].’

Because the original agreement had been signed, GC Ventures, and other companies with which it was associated – Prospect Ventures Inc., QuadCaptial Advisors, Live Oaks Capital Ltd – were paid fees totalling US$1,387,677.

Mr. Duguay stated in his report that the fees paid to GC Ventures were ‘grossly excessive’, and he based the opinion on two documents.

In the end, GC Ventures was paid US$571,000 in direct fees plus $23,948 in other fees. In addition, another company, Live Oaks Capital was also paid US$333,000 in direct fees, plus $51,895 in expenses.

Mr. Duguay does not believe the Turtle Farm should have paid anything at all to Live Oaks, which ostensibly had some sort of deal with GC Ventures.

‘I find it incomprehensible why these payments were made to Live Oaks by the Turtle Farm,’ Mr. Duguay stated in his report. ‘Live Oaks was never a party to any agreement signed by the Turtle Farm and therefore the Turtle Farm was under no legal obligation to make payments directly to them.

Mr. Duguay did not mention the name of any particular member of the board of directors of Cayman Turtle Farm Limited in his report; he instead criticised the board of directors as a body. Aside from Mr. Bush and Mr. Clifford, other members of the board at the time of the financing included: accountant Carlyle McLaughlin, Robert Soto, Captain Eugene Ebanks, Joseph Parsons, and former Turtle Farm Managing Director Ken Hydes.