A group of related entities, including Cayman-based reinsurer Beechwood Re, and two of its former executives are being sued for illegally obtaining nearly US$100 million of proceeds from the sale of a defunct oil company to keep afloat the allegedly fraudulent U.S. hedge fund Platinum Partners.
According to a complaint filed on Thursday in U.S. Bankruptcy Court, Southern District of Texas, Platinum faced a liquidity shortfall in early 2014 and devised a scheme to divert money from the asset sale of the bankrupt Black Elk Energy Offshore Operations to make up for that shortfall.
That plan allegedly entailed using Beechwood – whose shareholders were also Platinum executives – to buy a controlling interest of the defunct oil company, and then vote to transfer the sales of its assets to Platinum. The sales would otherwise have been distributed to Black Elk’s senior secured noteholders and creditors.
“Platinum and Beechwood engaged in a criminal enterprise to fraudulently transfer nearly $100 million of the proceeds from the sale of Black Elk’s prime oil and gas assets to Platinum for its benefit,” states the complaint, which was initiated by the trustee for the defunct oil company.
The complaint was filed a week after the Cayman Islands Monetary Authority placed Beechwood Re under controllership, and is the latest in a series of lawsuits and civil and criminal charges that implicate its involvement in illegal activity.
For instance, a lawsuit filed in September 2016 in the U.S. claims that Beechwood Re was founded in 2013 by Platinum executives “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.”
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.
Meanwhile, Reuters reported last Wednesday that Beechwood Re, Beechwood Bermuda International, Beechwood Bermuda Investments Holdings, and investment manager B Asset Manager have been sold in an attempt to “salvage some of Beechwood’s value as opposed to just shutting down the business.”
Reuters cited an anonymous “person familiar with the matter” as its source for the reported sale, and reported that Beechwood executives declined to comment on the matter.