Accountants from Deloitte have been appointed by the Cayman Islands Monetary Authority to control the affairs of Beechwood Re, a Cayman-based reinsurance firm being sued for fraud in the U.S., and with ties to a hedge fund whose former executives are facing civil and criminal fraud charges in the U.S.
CIMA took the action last week under the Insurance Law 2010, which allows it to place a licensed entity under controllership for a number of reasons, including the likelihood that the entity cannot meet its obligations, that it is breaking the law, or that it is conducting business in a manner detrimental to the public interest.
The action comes after public reports were published last August that Beechwood Re made loans to Platinum Partners, a U.S.-based hedge fund with feeder funds in Cayman. Platinum Partners was under U.S. Securities and Exchange Commission and Department of Justice investigation at the time, and its president had been arrested on bribery charges in New York last June.
Faced with investor concerns over those loans, Beechwood Re announced last August that its exposure to the allegedly fraudulent hedge fund was minimal.
“Other than an outstanding loan to a Platinum fund … that represents under 2 percent of our portfolio, we have reduced, unwound or restructured any remaining loans to Platinum-related businesses,” stated the Aug. 15, 2016 announcement on businesswire.com, which added that Beechwood Re has a $2.4 billion portfolio. “The remaining loans represent a small portion of our overall portfolio, and are also highly rated and secured by hard assets and other tangible collateral.”
However, a lawsuit filed a month later in the New York Southern District Court against several Beechwood Re executives alleged that the firm was founded for illicit purposes.
“The co-conspirators established Beechwood with the objective of entering into one or more reinsurance treaties with insurance companies, so that they could take control of reinsurance trust fund assets and use those assets to benefit Platinum, thereby enriching Platinum’s and Beechwood’s owners,” states the lawsuit, filed by two U.S.-based insurance companies that were clients of Beechwood.
Last December, at least two former Beechwood executives were also charged with criminal fraud by the U.S. Department of Justice for allegedly defrauding investors of Platinum.
Beechwood was further implicated in wrongdoing later that month when its part-owner and several Platinum executives were charged by the SEC with multiple violations of the U.S. Securities Act.
The SEC is accusing Beechwood part-owner David Levy, who was also a former Platinum executive, and other former Platinum officials of using New York-based entities to steal investor money in order to obtain cash needed for the expenses of Platinum. The SEC is also charging Mr. Levy and his alleged co-conspirators with a bevy of other Securities Act and Exchange Act violations.
The lawsuit, the DOJ charges, and the SEC complaint remain ongoing matters. Platinum’s affiliated Cayman-based entities, for their part, are in liquidation, as per a Grand Court order last August.