The Cayman Islands Monetary Authority has petitioned the Grand Court to wind up Brighton SPC nearly six months after media reports called the fund’s sponsor and promoter Belvedere Management Group a “criminal financial enterprise” and Brighton a “$130 million Ponzi scheme.”
CIMA said in its court filing that it was alerted to Brighton SPC’s affairs on March 17 when the directors of the company resigned and an article by Offshore Alert alleged Belvedere was “one of the biggest criminal financial enterprises in history” that was being assisted “by professional service providers who were willfully complicit or grossly negligent.”
According to the article, the group operated in several jurisdictions including Mauritius, Guernsey, the BVI, Cayman, Gibraltar, Switzerland, the Seychelles, South Africa, Panama and England.
Between June and December 2014, Brighton SPC initially set up 36 segregated portfolios in Cayman, of which 29 remained unfunded. A large number of the portfolios were pre-fixed CWM and “apparently intended as vehicles for investments related to CWM FX, a London-based foreign exchange broker,” CIMA said.
On March 3, the Metropolitan Police raided the 21st-floor Heron Tower offices of Belvedere Group’s foreign exchange division CWM in London and arrested 13 people, including CWM owner and former Belvedere financial manager Anthony Constantinou in connection with a money laundering and fraud investigation.
Four other segregated portfolios of Brighton included various funds under the name Kijani, which were transferred from Mauritius based investment company Four Elements PCC in November 2014. The sole investment asset of the funds was a loan, valued at US$134.9 million, to Gibraltar company Kijani Resources Ltd (KRL).
The monetary authority said it understands that Brighton is KRL’s sole shareholder and creditor.
Following a number of exchanges with Brighton’s lawyers to gather information about the fund’s structure, the authority appointed two examiners on April 30 to further assess Brighton’s operations.
The examiners, David Walker and Simon Conway of PwC Corporate Finance & Recovery, found in two reports in May that it was likely that the offering documents misrepresented the diversification, liquidity and trading activity of the fund, given that the sole investment asset of the Kijani funds was the KRL loan, which represented $135.4 million of the $137.6 million in total assets.
The portfolio was not disclosed to investors and the loan did not generate any cash flows from interest payments, which meant that redemptions had to be met with proceeds from new subscriptions, something that is generally viewed as “an indicator of a fraudulent scheme,” CIMA noted.
The marketing material for the fund included a table that purported to show trading activity from as early as January 2014 even though it did not begin trading until November or December of that year.
Moreover, the value of KRL’s assets appeared to be significantly overstated, and $2 million in payments were made to Citygate, the fund’s prime broker and investor, “without a clear rationale.”
The examiners, who were appointed by CIMA as controllers of the entity on June 1, unsuccessfully demanded the repayment of the KRL loan, and when the payment demands were not met proceeded to put the company into voluntary liquidation in Gibraltar.
CIMA is now petitioning the Grand Court for the winding up of Brighton to protect investor and creditor interests.
The controllers recommended the step due to the fund’s unpaid redemptions of $12 million and the inability of KRL to repay the loan which renders Brighton cash flow insolvent.
In their first official report in June, the controllers highlighted other unexplained payments to entities that appear to be related to KRL as well as excessive expenses borne by the Kijani funds.
Meanwhile, the Financial Conduct Authority warned investors in July that Eligere, one of the companies that KRL had a potentially overstated investment in, was not authorized to offer financial services or products in the U.K.
The Mauritius Financial Services Authority took regulatory action against Belvedere and two of its collective investment schemes, Four Elements and Lancelot, in March and suspended Belvedere’s management license in April.
CIMA said the official liquidation would enable the liquidators to use statutory powers to enforce more cooperation from service providers to Brighton, coordinate communications with investors and form a committee and bring actions to recover assets on behalf of Brighton that are likely to be conducted in overseas jurisdictions.