Two lawsuits filed in Grand Court last week claim damages or substantial losses of US$20 million each.
Lewis Rowe, who was found not guilty of crimes involving the Cash4Titles Ponzi scheme, has sued the attorney general, Ernst & Young’s Regional Managing Partner Daniel Scott, and G. James Cleaver and Richard Fogerty, previously with Ernst & Young and now with Zolfo Cooper.
The lawsuit against the accountants concerns a company known as Red Sea Trading Limited, an entity incorporated in the Federation of St. Christopher (St. Kitts) and Nevis.
The Statement of Claim contends that Red Sea made loans to Texas-based Title Loans Express Inc. totalling US$6.25 million between 1998 and 2000 for the purpose of investment.
The interest rate was two per cent per month on each of six promissory notes signed by Title Loans Express, all of which had a maturity in 2009.
On 18 September, in an order of the Grand Court of the Cayman Islands, Mr. Scott and Ernst & Young were appointed receiver and manager of Mr. Rowe’s realisable assets.
The promissory notes, which were expressly identified in the order as assets of Mr. Rowe, were then delivered to Mr. Scott. Two days later, Mr. Rowe was charged with various offences contrary to the Proceeds of Criminal Conduct Law.
He was acquitted of those charges by a jury on 3 February, 2005.
The Statement of Claim contends Mr. Scott owed Mr. Rowe a fiduciary duty to keep the promissory notes in accordance with the Grand Courts order; to keep the notes safely on behalf of the Plaintiff until he might be able to redeem them on their maturity; not to dispose of the notes in a manner contrary to the orders of the Grand Court; and not to dispose of the notes recklessly or irresponsibly.
On 13 December, 2000, the Grand Court of the Cayman Islands made a further order revoking the receivership of Mr. Scott and appointing Simon Wicker and Theo Bullmore of KPMG as receivers and managers.
The order required Mr. Scott to “deliver up the assets of the Plaintiff to Messrs Wicker and Bullmore”.
The claim states that Mr. Scott “unlawfully and in breach of the said further order” and in breach of his fiduciary duty failed to do so.
On 10 December, 2002, Mr. Cleaver and Mr. Fogerty became official liquidators of Red Sea based on an order of Eastern Caribbean Supreme Court in St. Kitts and Nevis.
The Statement of Claim contends that Mr. Cleaver and Mr. Fogerty “well knew the terms” of Cayman’s Grand Court orders of 18 September and 13 December 2000, in particular because all three of the defendants were partners and/or employees of Ernst & Young in the Cayman Islands “and collaborated closely” in relation to the proceedings against the plaintiff, in which [Mr. Cleaver] was a witness.
Mr. Rowe contends Mr. Cleaver and Mr. Fogerty also owed him the same fiduciary duties as Mr. Scott “and/or the further duty not to aid and abet [Mr. Scott] in any unlawful dealings of the assets of [Red Sea Trading], including the promissory notes.
The Statement of Claim contends that on 28 March, 2003, Mr. Cleaver and Mr. Fogerty, “with the connivance and/or acquiescence” of Mr. Scott, surrendered the promissory notes to Title Loans Express in return for a payment of US$730,000 and a promissory note for US$95,000 payable in September 2003.
Mr. Rowe claims the surrender of the promissory notes usurped the powers of management the Grand Court had given to Messrs. Whicker and Bullmore, who did not authorise the sale.
“The defendants acted recklessly and irresponsibly in surrendering the said promissory notes… thereby allowing [Title Loans Express] to escape its liability to honour the notes.”
After Mr. Rowe’s acquittal, by an order made 10 May,2005, the restraint orders were lifted and Mr. Rowe was able to resume control of his assets.
“However, neither the said promissory notes nor any sum obtained from their surrender were returned to him,” the Statement of Claim contends, contending that in 2009, Title Loans Express was “a flourishing and successful company which would have been able to discharge its legal obligations under the promissory notes”.
On maturity of the promissory notes, Title Loans Express was to pay US$6.25 million plus simple interest at 2 per cent per month. In default of interest payments being paid as they fell due, interest was to accrue on a compound basis.
However, on a simple interest basis, the interest on maturity of the promissory notes would have amounted to US$14.44 million, meaning Red Sea Traders, and Mr. Rowe as its sole beneficial owners, would have received a total of US$20.69 million for the promissory notes.
Mr. Rowe is claiming that amount from the three defendants in his action.
Attorney general action
Mr. Rowe’s Application for Compensation to the attorney general, which is basically a lawsuit against the Cayman Islands Government, states that as of 29 June 2000, based on his own calculations, his realisable property – not including his house and certain gifts – was valued at US$24.67 million.
On 14 November, 2000, shortly after Mr. Scott had been made receiver and manager of Mr. Rowe’s assets, Mr. Scott estimated Mr. Rowe’s assets had a value of US$19.84 million, not including his house and certain gifts.
After his acquittal and the Grand Court order of 10 May, 2005 restoring control of his assets to him, the Originating Summons says Mr. Rowe’s assets, not including his house, were valued at CI$7,931.
The grounds of the application discuss the Cash4Titles matter and the circumstances that led to Mr. Rowe’s arrest.
In particular, Mr. Rowe contends the attorney general relied “wholly or mainly” on a report by Mr. Cleaver dated 19 July, 2000, in the decision to proceed with charges and to apply for restraint and receivership orders with regard to Mr. Rowe’s assets.
Mr. Rowe contends Mr. Cleaver was “guilty of serious default” in the preparing and writing of his report, which used terms and phrases like “misconduct”, “fraud”, “massive fraud” and “fraudulent nature”.
“There was no material available to Mr. Cleaver or relied on by him which would have led a reasonably competent accountant to conclude that either a) the Plaintiff had committed the misconduct alleged, namely perpetrating the Cash4Titles fraud; or b) that the Plaintiff was implicated in the said fraud; or c) that the Plaintiff has actual knowledge of the said fraud; or d) that the Plaintiff knew of the involvement of companies in the said fraud,” the Summons contends.
Mr. Cleaver, who had been appointed controller of Mr. Rowe’s company Zephyr Financial Services Limited on 19 April, 2000 after the Cash4Titles fraud had been uncovered in the United States, owed, according to Mr. Rowe, the Cayman Islands regulatory and prosecutorial authorities several duties, including to make an accurate report based on a thorough and diligent examination of available records; to avoid drawing unwarranted conclusions; and to discharge his functions dispassionately without prejudgment.
Mr. Rowe contends Mr. Cleaver breached those duties, including prejudging the matter, having previously committed himself to an overriding duty to assist with formal charges against him.
The Summons states that had Mr. Cleaver not committed “acts of serious default” the various proceedings, including the restraint order and receivership order, against Mr. Rowe “would not have been started or continued”.
The Summons points out that several of the allegations made in the affidavit sworn by former Crown Prosecutor Stephen Hall-Jones supporting the application for a restraint order and receivership order contained an almost verbatim repetition of Mr. Cleaver’s report, including a statement that said Mr. Rowe “is implicated in the massive fraud involving the [Cash4Titles] scheme”.
Mr. Rowe states there was serious default on the part of prosecutors for instituting or continuing the proceedings against him, partially because they relied on Mr. Cleaver’s report, which, taken as a whole “did not amount to anything more than mere suspicion that the Plaintiff might have been guilty of the offences charged against him”.
The Summons states that prosecutors departed from Mr. Cleaver’s conclusion that Mr. Rowe “may at least have been aware of suspicious activity” and represented to the court that he “must have been aware of suspicious activity” without any good or sufficient reason for the departure.
Mr. Rowe claims he suffered substantial loss as a consequence of things done if relation to his property after the restraint order and receivership order were made, including the loss of his salary of US$11,000 per month between 18 September, 2000, and 10 May, 2005.
Mr. Rowe claims compensation in this action for a sum the court may believe to be just.
The firm Stenning & Associates is representing Mr. Rowe in both actions.