The joint official liquidators of Segoes Securities Ltd. agreed in court Tuesday to put a cap on the maximum expense they can charge for investigating individual investors’ accounts to see if their funds were co-mingled with those of other investors.
Individual Segoes investors who have been active in trading after November 2002 will be subject to a $750 charge for the investigations to date, and an additional $750 for further investigations, for a total of $1,500.
Those who invested prior to November 2002 will be subject to a $300 investigatory charge to ensure there were no other trading activities after that date that might have added co-mingled funds to their accounts.
RSM Cayman’s Ken Krys, one of the joint official liquidators, said he could work with the amount granted by the court.
‘This will allow us to get enough information into the non-disclosed accounts holders’ hands so that they can make a decision about how to proceed,’ he said.
Some of Segoes’ investors contributed to a pooled company fund anonymously and millions of dollars of those assets were diverted out of the company’s accounts, leaving that class of creditors in a much weaker position to get their money back.
The liquidators think it is possible that some of the funds contributed by non-disclosed investors could have been used to fund purchases of stock for fully disclosed investors, which creates a potential conflict between the two classes of investors.
Attorney Ross McDonough., who represented the liquidators in the matter in Chambers on Tuesday, likened the situation to a Ponzi scheme where Peter is robbed to pay Paul.
Mr. McDonough said the liquidators felt they had a responsibility to investigate if the funds had been co-mingled or not.
‘It’s an issue as to how far (the investigations) should continue and at whose expense,’ he said.
Mr. McDonough pointed out that there was little money left in the company accounts outside of that in fully-disclosed accounts.
‘There is no certainty at all that the company will acquire any (additional company) money,’ he said.
Attorney David McGrath, who was representing a client tangentially involved in the matter, spoke against the fully-disclosed account holders paying liquidator’s fees.
‘The disclosed account holders are being asked to fund an investigation to defend against a hostile proceeding by undisclosed account holders against themselves,’ he said.
Justice Priya Levers acknowledged that an investigation needed to take place and that the liquidators needed to get paid, but she had reservations about making a pre-emptive cost order against Segoes investors who turned out not to have been affected by co-mingled funds.
‘We cannot forget the individual’s rights in looking at the big picture,’ she said. ‘What jurisdiction do I have to put a (liquidator’s) first charge on an asset that was never a part of Segoes?’
Mrs. Levers invited the attorneys involved to have a short meeting in recess in effort to reach a fee cap figure everyone could live with, which they were able to do.
Mr. Krys said he is still hopeful that the liquidators can recover some additional assets belonging to Segoes.
‘But those assets could take one and a half to two years to recover, and I didn’t want to hold up the whole process waiting for that,’ he said.
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