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Tel.: (305)372-6267; Fax: (305)372-8724; www.OffshoreAlert.com OffshoreAlert April, 2009

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Offshore Financial Centers

Canadian national George Georgiou has been criminally indicted in the United States for allegedly defrauding two Baha-mas-based broker-dealers of at least $29 million in a securities scam.

Georgiou, 39, masterminded a scheme that caused losses of "approximately $25 million" to Caledonia Corporate Manage-ment Group Limited and "at least $4 mil-lion" to Accuvest Ltd., according to an in-dictment at the U. S. District Court for the Eastern District of Pennsylvania on Febru-ary 12, 2009, which came nearly five months after he was first arrested on Sep-tember 18, 2008 as part of the investigation.

Georgiou was indicted on one count of conspiracy, four counts of securities fraud, and four counts of wire fraud. He has pleaded not guilty and is currently out on bail awaiting trial. A parallel civil com-plaint alleging securities fraud was filed against him on the same day at the same court by the U. S. Securities and Exchange Commission.

While the losses at Caledonia, which forced the company into liquidation last year, have been previously reported by Off-shoreAlert, the indictment is the first pub-licly-available document that identifies Accuvest as an alleged victim.

Georgiou and his co-conspirators per-suaded Caledonia and Accuvest to lend them cash in return for either mere prom-ises of security that never materialized or actual security that turned out to be worth-

less stocks whose prices were manipu-lated to create the appearance that they had significant value, according to the indictment.

In order to carry out the scheme, Georgiou controlled accounts that were established by his nominees – identified as "KW", "KG", "RW", and "RB" – at Caledonia, Accuvest, another Bahamas-based broker called Alliance International Management Ltd., and a fourth offshore broker-dealer called Temple Securities Ltd. in the Turks and Caicos Islands, it was claimed. There is no suggestion in the indictment that Alliance International Management or Temple Securities lost any money or that any of the four off-shore brokerages were knowingly in-volved in the scheme.

The alleged fraud took place from "at least in or about April 2004 through in or about September 2008" and involved the manipulation of four microcap compa-nies: Avicena Group, Inc., a Delaware corporation based in Palo Alto, Califor-nia; Neutron Enterprises, Inc., a Nevada corporation based in Ontario, Canada; Hydrogen Hybrid Technologies, Inc., a Nevada corporation based in Ontario, Canada; and Northern Ethanol, Inc., a Delaware corporation based in Ontario, Canada, it was claimed.

The specific scheme to defraud Cale-donia occurred from "at least in or about

December 2006 through in or about Sep-tember 2008", according to the indictment.

"Defendant George Georgiou and his co-schemers took steps to artificially inflate and maintain the prices of Neutron and Avicena stock, including making manipu-lative trades in the stocks to reach certain prices through matched trading and wash sales," it was alleged.

"Defendant George Georgiou and his co-schemers opened an account at Caledonia in the name of an individual known to the grand jury, and identified here as RW, that would enable them to trade on margin that was purportedly secured by at least $15 million of Neutron and Avicena stock. De-fendant Georgiou and his co-schemers did not disclose to Caledonia that the shares of Neutron and Avicena stock that they had pledged as collateral had been artificially inflated and were worth far less than $15 million.

"Defendant George Georgiou and his co-schemers used the artificially inflated stock prices to induce Caledonia to extend them credit by permitting them to trade on margin and by extending them cash loans.

"Defendant George Georgiou and his co-schemers used the credit that Caledonia had extended them to purchase stock, in-cluding additional shares of Avicena and Neutron, which furthered their goals to ma-nipulate the stocks and profit from their inflated prices.

(Continued on page 2)

SPECIAL EDITION for 7th Annual OffshoreAlert

Financial Due Diligence Conference

INSIDE THIS EDITION • George Georgiou Pages 1-3 • McGladrey & Pullen Pages 3-4 • Fairfield Greenwich Pages 4-6 • Millennium Bank Page 7 • Truman Bodden Pages 8-9 • Venulum Group Pages 9-11 • British American Ins. Page 11 • Medilink Insurance Page 12 • Ariel Fund Pages 12-13 • Nolon Bush Pages 13-14 • Anguilla Development Pages 14-15 • European Insurance Page 16 • RichMark International Pages 16-18 • Jonathan Curshen Pages 18-19 • Bank of Bermuda Pages 19-20 • MLATs Pages 21-23 • Ernst & Young (Bda) Page 23 • Latin America Pages 24-25 • Insider Talking Page 26

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Canadian defrauded two Bahamas brokers of $29 m, alleges indictment




"Defendant George Georgiou and his co-schemers consistently made trades in the RW account that lost money and exceeded the margin percentages that Caledonia had offered to provide.

"When Caledonia, on numerous occa-sions, requested additional security to sup-port the credit in the RW account, defen-dant George Georgiou and his co-schemers falsely represented to Caledonia that he and his “group” would transfer additional assets into the RW account. In fact, defendant Georgiou and his co-schemers never trans-ferred any other assets into the account.

"Defendant George Georgiou and his co-schemers also took steps to prevent Cale-donia from obtaining the Neutron and Avicena stock that they had pledged as col-lateral in the RW account.

"Specifically, defendant Georgiou and his co-schemers refused to authorize the transfer of the stock to Caledonia.

"As a result of the false representations of defendant George Georgiou and his co-schemers concerning the collateral for the Caledonia account and their failure to pro-vide additional assets, Caledonia was un-able to cover the substantial deficits in the RW account. Defendant Georgiou and his co-schemers thus caused Caledonia to suf-fer approximately $25 million in losses. Because Caledonia was unable to cover those massive losses, the firm could no longer operate and was liquidated."

The specific scheme to defraud Accu-vest took place from "at least in or about June 2007 through in or about September 2008", according to the indictment.

"Defendant George Georgiou and his co-schemers took steps to artificially inflate and maintain the prices of HYHY and Northern Ethanol stock, including making manipulative trades in the stocks to reach certain prices through matched trading and wash sales," it was alleged.

"Defendant George Georgiou and his co-schemers opened an account at Accuvest in the name of Zaitech Enterprises. The trading in the account was to be handled through an advisory agreement with Wil-liam Wright Associates, an Accuvest affili-ate based in California.

"Defendant George Georgiou and his co-schemers represented to Accuvest and Wright that they would fund the Zaitech account with what purported to be millions

(Continued from page 1) of dollars worth of HYHY and Northern Ethanol stock. In fact, defendant Geor-giou and his co-schemers never disclosed that they had artificially inflated the share prices of HYHY and Northern Ethanol stock and that they were worth far less than they had represented.

"By falsely making it appear that there was valuable stock in the Zaitech account, defendant George Georgiou and his co-schemers fraudulently obtained margin and cash loans of approximately $4 mil-lion from Accuvest.

"Defendant George Georgiou and his co-schemers did not repay the money that they had borrowed on margin and in cash loans from Accuvest, and their artificially inflated stock did not cover the loans. As a result, defendant Georgiou and his co-schemers caused Accuvest to lose at least $4 million."

Although Georgiou's alleged nomi-nees in establishing the offshore accounts were identified by their initials in the in-dictment, the identities of two of them are known to OffshoreAlert: "KG" is Geor-giou's wife, Karen Georgiou, and "RW" is Ronald Wyles, of Lakeshore Road, Bur-lington, Ontario.

According to the SEC's complaint, "Georgiou compensated the nominees for allowing him or his associates to dictate their trading. At times, Georgiou directly paid nominees. Other times, he allowed them to sell shares at specified times in order to profit in exchange for entering trades at Georgiou’s direction.

"Georgiou attempted to conceal his association with the nominee accounts that he directly and indirectly controlled as much as possible. He also sought to minimize records of communications. For example, Georgiou often directed the manipulative trades only by cell phone or sent and received messages by way of BlackBerry PIN. When he did use e-mail, he often used e-mail accounts in other people's names to disguise his identity. Moreover, he avoided U.S. financial insti-tutions and moved cash in and out of his foreign accounts via wire transfers to minimize any "paper trail".

"Through these accounts, and others, Georgiou was able to engage in numerous manipulative practices and techniques including controlling the trading volume through promises of profits to nominees,

marking-the-close, arranging for wash sales and matched trades, and paying illegal kickbacks in exchange for purchases.

""Marking-the-close" is a form of mar-ket manipulation that involves attempting to influence the closing price of a security by executing purchase or sale orders at or near the close of normal trading hours. Such activity can artificially inflate or de-press the closing price for the security and can affect the price of "market-on-close" orders.

"A wash sale is an order to buy or sell securities resulting in no change of benefi-cial ownership for the purpose of (1) creat-ing a false or misleading appearance of active trading in any publicly traded secu-rity; or (2) creating a false or misleading appearance with respect to the market for any such security.

"A matched trade is an order to buy or sell securities that is entered with knowl-edge that a matching order on the opposite side of the transaction has been or will be entered for the purpose of (1) creating a false or misleading appearance of active trading in any publicly traded security or (2) creating a false or misleading appear-ance with respect to the market for any such security."

Although he used nominees to open accounts, Georgiou personally met with representatives of Caledonia in the Baha-mas and with Accuvest-affiliate William Wright Associates in California as part of his alleged scheme, it was stated in the in-dictment.

Georgiou likely used nominees in an attempt to conceal his long track record of regulatory and criminal problems, as previ-ously reported by OffshoreAlert,. In 1995, Ontario police charged him with defrauding a businessman of $170,000, charges which were withdrawn by the Crown on Novem-ber 8, 1996 at the Ontario Superior Court of Justice, and, in May, 2000, the Investment Dealers Association of Canada fined him CDN$50,000 and banned him from the brokerage industry for ten years – from January 31, 1995 to January 31, 2005 – for a slew of violations of client trust from January 22, 1993 to November 19, 1993 while he worked as a stock broker for Mid-land Walwyn Capital Inc. (now Merrill Lynch Canada Inc.) and Levesque Securi-ties Ltd. (now National Bank Financial




McGladrey & Pullen (Cayman) sued for $109 million by hedge fund investors Cayman Islands-based auditor McGladrey & Pullen is being sued for $109 million by investors in a failed offshore hedge fund.

Details are contained in a complaint that was filed at the Circuit Court of Cook County, Illinois on March 19, 2009 by Northwater Market-Neutral Trust, domi-ciled in Ontario, Canada; Northwater Five-Year Market-Neutral Fund Limited, East River Offshore Ltd., French River Offshore Limited, NewQuant Offshore Ltd. I, Spe-cial Offshore Ltd. E, Trent River Offshore Ltd., and Enhanced Investing Corporation (Cayman) Ltd., which are all domiciled in the Cayman Islands.

McGladrey & Pullen (Cayman) is the sole defendant.

The plaintiffs are seeking compensatory damages of $109 million, punitive dam-ages, attorney's fees and costs, alleging fraud and accounting malpractice.

"Plaintiffs invested in excess of $109,000,000 in Lancelot Investors Fund, Ltd. (the "Fund"), an investment fund or-ganized under the law of the Cayman Is-lands," it was stated in the complaint.

"Plaintiffs' decision to invest such a significant amount of money in the Fund was based on the audited financial state-ments prepared by defendant McGladrey & Pullen, Cayman, and a Cayman entity it acquired, Altschuler Melvoin and Glasser (Cayman) (collectively, "McGladrey").

"McGladrey prepared the audited finan-cial statements at the conclusion of audits performed by auditors that Plaintiffs be-lieve included auditors employed by

McGladrey's American certified public accountant counterparts, McGladrey & Pullen LLP and Altschuler Melvoin and Glasser LLP.

"As part of the Fund's audited finan-cial statements in 2004 through 2008, McGladrey-purportedly conducting its audits in accordance with the auditing standards generally accepted in the United States-issued unqualified opinions that the Fund's financial statements pre-sented fairly, in all material respects, the Fund's financial position and results of its operations, changes in partners' capital, and cash flow for the year, in conformity with accounting principles generally ac-cepted in the United States.

"According to McGladrey, the Fund invested its assets in collateralized short-term trade finance loans ("Notes"), which financed a distributor of consumer goods, Petters Company, Inc. Petters Company purportedly was using the loan proceeds to purchase high-end electronic goods from suppliers (the "Suppliers") and then reselling the goods to major United States retailers such as Costco and Wal-Mart (the "Retailers"). The loans were made to a special purpose vehicle (the "SPV") owned by Petters Company.

"To help induce Plaintiffs to invest in the Fund, McGladrey made false, material misrepresentations about the financial position and operations of the Fund. McGladrey's Independent Auditor Re-ports represented that McGladrey con-ducted the audit according to the auditing

standards generally accepted in the United States.

"Indeed, on September 24, 2008, fol-lowing the public announcement of a raid by federal law enforcement officials on the offices of Petters Company and its principal and namesake, Thomas J. Petters ("Petters"), Plaintiffs learned that the Fund had invested their assets in a fraudulent "Ponzi scheme" perpetrated by Petters and his affiliates.

"The federal government confirmed the Ponzi scheme by using the basic auditing practice of confirmation - that is, taking the simple step of asking the supposed Retail-ers to confirm that they purchased high-end electronic goods from the SPY. This basic step led the investigators to uncover the Petters fraud in a short amount of time.

"Petters Company and its SPVs were not purchasing goods from Suppliers and reselling them to Retailers. In truth, Petters and his affiliates were perpetrating a fraud by creating fictitious invoices, purchase orders and other documents relating to non-existent goods so that Petters could use the money from investors for his own purposes. As described in the September 19, 2008 affidavit of Special Agent Timothy Bis-swurm with the Federal Bureau of Investi-gation, Petters and his cohorts were supply-ing false invoices and purchase orders, there were no goods being bought or sold, and the money received by investors was recycled by Petters to trick investors into



Ltd.), both in Kitchener, Ontario. These violations included conducting discretion-ary trades in client accounts without their knowledge or authorization, effecting short sales in client accounts without first obtain-ing signed margin agreements from the clients, making trading recommendations that were inappropriate for clients and not in keeping with their investment objectives, and engaging in business conduct "unbecoming or detrimental to the public interest", including borrowing money from clients, entering into financial arrangements

(Continued from page 2) to privately settle complaints from clients "without the knowledge, consent or au-thorization" of his employer, effecting short sales in client accounts "while under restrictions" from his employer not to do so without obtaining manager approval, and providing a client with "false or mis-leading information regarding the client's account".

The many red flags that exist in Geor-giou's background and his active involve-ment in the operation of the alleged scheme raise question marks about the quality of due diligence conducted by

Accuvest Ltd. and Caledonia Corporate Management Group Ltd. prior to lending him and his nominees millions of dollars.

On its web-site at www.accuvest.net, Accuvest Ltd. identifies its "key" manage-ment as Robert Jensen, Founder and Man-aging Director, and Sean Nottage, Director and General Counsel.

Before going into liquidation, Caledonia Corporate Management Group Ltd. was controlled by Matthew McNeilly, William Jennings, and Paul King, who were all di-rectors.



McGladrey & Pullen (Cayman) sued for $109 million by hedge fund investors

believing that Petters was buying and re-selling merchandise.

"As demonstrated by recordings of FBI-monitored conversations, the Petters con-spirators knew that the basic auditing step of confirmation was a weakness of their scheme and discussed it among themselves, at one point admitting that "the scheme would implode" as soon as "investors send auditors out to visit warehouses where the merchandise is located."

(Continued from page 3) "Had McGladrey taken this basic au-diting step that Petters and others feared and carried out its other professional obli-gations, the Fund could not and would not have fallen victim to Petters' Ponzi scheme. Moreover, had McGladrey been truthful about the performance and opera-tions of the Fund, Plaintiffs would not have invested in the Fund in the first place.

"As a result of McGladrey's misstate-ments and professional misconduct,

Plaintiffs have lost over $109,000,000, which they would not have lost had McGladrey met its obligations and pro-vided a truthful portrayal of the Fund's op-erations and financial situation, and there-fore seek restitution for all of their invest-ment losses and such other relief as the Court finds just and reasonable."

Massachusetts regulator sues Bermuda investment adviser over Madoff fraud A Massachusetts regulator is seeking the return of hundreds of millions of dollars of fees that it claims a Bermuda-based invest-ment adviser, a New York affiliate and their principals received from managing the big-gest feeder funds for Bernard Madoff's multi-billion dollar Ponzi scheme during an 18-year relationship.

In an administrative complaint filed on April 1, the Enforcement Section of the Massachusetts Securities Division is also seeking a fine and an order requiring re-spondents Fairfield Greenwich (Bermuda) Ltd. and Manhattan-based Fairfield Green-wich Advisors LLC to pay full restitution to all Massachusetts investors who put money into the feeder funds, named as Fairfield Sentry Limited, which is domiciled in the British Virgin Islands; Greenwich Sentry LP; and Greenwich Sentry Partners LP, which are both domiciled in Delaware.

"This Complaint is based on a profound disparity between the due diligence Fair-field represented to its investors that it would conduct with respect to Bernard L. Madoff Investment Securities LLC and the due diligence it actually conducted, as well as misrepresentations to investors in its Sen-try funds about Fairfield's degree of knowl-edge and comfort with respect to Madoff's operations," stated the regulator. "This Complaint is also based on the lack of an arms-length relationship between Fairfield and Madoff Investments and the failure of Fairfield to disclose to investors the inter-connected relationship between Fairfield and Madoff Investments. Fairfield's com-plete disregard of its fiduciary duties to its investors and its flagrant and recurring mis-representations to its investors rises to the level of fraud."

Despite the fact that the Madoff group did not conduct a single trade for at least the last 13 years of its existence and was audited by a one-person firm operating from a strip mall in New York City, Fair-field represented to investors that every-thing was above-board and "the due dili-gence Fairfield supposedly undertook with respect to Madoff Investments was a cor-nerstone of its marketing efforts", accord-ing to the complaint.

However, the regulator claimed that "the concept of due diligence was merely part of Fairfield's marketing pitch, not an activity it meaningfully engaged in with respect to Madoff", despite the fact that "over 95%" of the Sentry Fund's assets, approximately $7 billion, was invested with Madoff.

"Fairfield and its key personnel claim to have had no idea whatsoever that Mad-off was anything other than the legitimate broker and brilliant market-timer they promoted him as," stated the regulator. "The Division's investigation attempted to discern how Fairfield possibly could not have discovered the fraud during their eighteen-year relationship. The answer, quite simply, is that they were blinded by the fees they were earning, did not engage in meaningful due diligence and turned a blind eye to· any fact that would have burst their lucrative bubble."

The complaint went on: "In stark con-trast to the promises made in its marketing materials and in statements made to cli-ents, Fairfield neglected to do any mean-ingful check into whether Madoff was actually making the trades he said he was making or actually holding the assets he said he was holding on behalf of Sentry clients. Fairfield acquiesced to the unusual

relationship whereby Madoff served as both the sub-custodian of the assets and the exe-cuting broker, which made it so when Fair-field checked the custodian's records against the broker's records, it was checking infor-mation received from Madoff against other information received from Madoff without third-party corroboration. Both Amit Vijay-vergiya, Fairfield's Chief Risk Officer, and Dan Lipton, Fairfield's CFO, acknowledged that this was a "risk" or a "risk factor", but that risk factor was not specifically dis-closed to investors.

"Fairfield did not receive trade continua-tions from Madoff until three to five days after the trade had been entered, thus allow-ing Madoff ample time to fake the numbers, but did not inform its clients that its "daily" monitoring of positions and risk profiles had a three-to-five day time lag. In addition, the trade tickets received by Fairfield typically contained not the prices at which a security was bought or sold, but weighted average prices of a group -of securities supposedly bought and sold during the day.

"Given the concentration of custodial and brokerage functions at Madoff Invest-ments, and the fact that Fairfield had en-trusted Madoff with in excess of $7 billion of its clients' money, it is all the more sur-prising that Fairfield never made certain basic checks such as insisting that Madoff provide it with the names of at least one of his options counterparties and confirming with that counterparty that Madoff was in fact buying and selling options from them. Neither Jeffrey Tucker, a Founding Partner of Fairfield, or Vijayvergiya could name anybody at Madoff Investments involved in executing the split-strike conversion strat-egy other than Madoff himself or Frank




Massachusetts regulator sues Bermuda investment adviser over Madoff fraud

DiPascali. They, as well as Dan Lipton, Fairfield's Chief Financial Officer, had all received tours of Madoff's market making operation, yet none of them had actually seen the floor, personnel or computers where Madoff supposedly ran the SSC strat-egy."

Fairfield claims to have relied on the oversight of Madoff by the U. S. Securities and Exchange Commission and FINRA, which is the largest independent securities regulator in the U. S.

However, such reliance was "unfounded", stated the regulator, pointing out that, when the SEC was investigating Madoff in 2005, apparently in response to concerns raised by fraud investigator Harry Markopolos, Madoff coached Fairfield's senior staff on how to respond to the SEC's inquiries.

The Massachusetts Securities Division produced a transcript of a telephone conver-sation that took place in December, 2005 between Madoff and Fairfield's General Counsel, Mark McKeefrey, and Chief Risk Officer, Amit Vijayvergiya, that began with Madoff stating "Obviously, first of all, this conversation never took place, Mark, okay?" and Vijayvergiya responding with: "Yes, of course."

"Having received detailed instructions from Madoff as to what to tell SEC examin-ers, Fairfield could not possibly in good faith have relied on the fact that Madoff had a spotless record with the SEC as a basis for believing its assets were being properly supervised at Madoff Investments," stated the Massachusetts regulator in its complaint.

Fairfield's additional reliance on audits of Madoff prepared by Friehling & Horowitz was "equally absurd", it was claimed. "Fairfield did not know a thing about this one-person auditing firm that was operating out of a strip mall in New City, New York until 2005, other than having a copy of the publicly-available portion of the audits Friehling & Horowitz submitted to the SEC. When Fairfield finally did inquire in 2005, it found out that Friehling & Horowitz only had one employee and ap-proximately $180,000 in annual sales (which is certainly not consistent with per-forming the function of auditing a $65 bil-lion enterprise). No-one at Fairfield had ever spoken to anyone at Friehling & Horowitz other than a five-to ten-minute conversation Dan Lipton had with a partner

(Continued from page 4) at Friehling & Horowitz (whose name Lipton testified that he cannot remember, but who must have been David Friehling, because he was the firm's only employee) in 2005.

"Fairfield only made this one limited inquiry in order to respond to a Sentry client's question. In a September 5, 2005 email from a Sentry client, the client asked the following question about Mad-off's auditor: "Bernard L. Madoff Securi-ties LLC has employed a small accounting firm. Is that accounting firm checked and approved by Fairfield Greenwich Group?". Dan Lipton, on September 12, 2005, sent the following statement for Jeffrey Tucker to communicate to the cli-ent:

"Friehling & Horowitz, CPAs are a small to medium-sized finan-cial services audit and tax firm specializing in broker/dealers and other financial services firms. They are located in Rockland County, New York. They have hundreds of clients and are well-respected in the local community. [Emphasis added]

"In his on the record testimony before the Division, Lipton testified as follows:

Q. How did you determine they had hundreds of clients? A. That's what the partner said on the phone to me. Q. Did you corroborate that in any other way? A. No.

… Q. How did you determine that they were well-respected in the local community?" . A. That's what our conversation – my conversation with one of the partners at Friehling & Horowitz, that's what was told to me. Q. So he told you they were well-respected in the local commu-nity? A. That's correct. Q. And that's what you based this statement on? A. Plus I had looked up on the Internet to see if he was in good standing with the CPA license, which he was and it listed that he – or members of the firm – were

members of the local chapters of the CPA.

"When Vijayvergiya was asked how he knew that Friehling & Horowitz were inde-pendent auditors, he testified that "on the front of the report it said independent audi-tor". On September 14, 2005, Gordon McKenzie emailed Tucker, Lipton, McKee-fry and others at Fairfield. In the email he stated: "It appears Friehling is the only em-ployee" of Friehling and Horowitz. Jeffrey Tucker emailed back: "thank you". This awareness did not prevent Fairfield from routinely presenting the supposed audits of Friehling and Horowitz's to investors as evidence that Madoff's operations were le-gitimate and the assets he was managing were properly supervised."

According to the Massachusetts regula-tor, Fairfield's relationship with Madoff was so cozy that it gave Madoff proprietary in-formation, including the names of specific investors in the Sentry funds, and "even told him that it was suspending redemptions in two of its funds before Fairfield told the investors in those funds", it was alleged. "However, the most telling indicia of the interconnected, co-dependent relationship between Fairfield and Madoff occurred when things began to fall apart.

"In October, November and December of 2008, Madoff reversed his longstanding policy with Fairfield of limiting the amount of money Fairfield could invest with Mad-off and, instead, began to react angrily when Fairfield gave him information regarding a significant amount of redemptions in the Sentry fund.

"In response, Fairfield redoubled its marketing efforts to "defend" against re-demptions. In addition, Fairfield personnel quickly worked with Madoff to set up new funds – the BBH Emerald fund and the Greenwich Emerald fund – to funnel money to Madoff. The Emerald funds were mar-keted to investors as an "enhanced" version of the Sentry funds, with a modified version of the SSC that supposedly generated higher returns but with greater risk. However, much of the money that went to Madoff on December 1 was from Fairfield insiders. In the words of Walter Noel, one of Fairfield's founding partners, "we tried to help stem things" and "we thought, well, we can help him a bit if we give him some more money". In contrast, Jeffrey Tucker testified that "he and his wife put money into the




Greenwich Emerald fund on December 1 because they thought it was a good invest-ment. However, they made their investment without had the benefit of any due diligence with respect to the fund, without having seen any offering documents, without hav-ing signed a subscription agreement, with-out the Greenwich Emerald fund having picked an auditor or custodian, and without having received any information about the fund other than a one-page sheet of sup-posed performance results from Madoff (which no-one at Fairfield double checked, corroborated or did any due diligence with respect to) and having had only a five min-ute conversation with Madoff in which he described the fund.

"Despite the fact that they were able to solicit $14,800,000 in investments from Fairfield insiders in the Greenwich Emerald fund, no offering documents for that fund ever existed. The Fairfield principals who invested did not even sign subscription agreements-they merely sent their money to an intermediary to send to Madoff."

Fairfield's "desperate efforts to prop up Madoff in the end" was chronicled in a let-ter from Jeffrey Tucker to Madoff on De-cember 10, 2008 – just one day before Mad-off turned himself in to U. S. authorities, claimed the regulator. "Tellingly, the letter states:

"We have taken a number of steps with our other funds in order to put all of our investable capital in Sen-try and the new split-strike strategy which we call Emerald. While the full results of this strategy will take a few months to take effect, they will include:

• investments in Sentry by existing Fairfield funds (~$100 mm)

• liquidating other Fairfield funds and transferring the assets to Sentry and Emer-ald (up to ~200 mm)

• purchase by the firm of Sentry positions from cli-ents rather than having them redeem from Sentry (~150mm)

• investments by individual partners of the firm in Sen-try and Emerald (~50mm)

(Continued from page 5) • new UCITS III fund, launch Feb 2009 (target ~$500mm in 12 months)

"We are aggressively cutting effective fees for new subscrip-tions through offering significant fee-sharing incentives to our cli-ents, agents and finders."

The regulator noted: "Investors in the Sentry funds were not made aware of Fairfield's desperation. Right up until the -end, they were aggressively being told to purchase the Sentry and Emerald funds because they were good investments."

The Massachusetts regulator stated that Fairfield relied upon Madoff's bogus claims of high returns, whereby he "posted positive returns in 92% of the months over the last 15 years, as a basis to charge investors "hundreds of millions of dollars" in fees.

The exact total of the fees is unknown to the regulator, which stated: "The Divi-sion issued a subpoena requesting the pre-cise amount of the fees earned by Fairfield from the Sentry Funds. Even though the date for response to that subpoena has elapsed, the Division still has not received that information. "

According to the regulator, "Fairfield earned a fee of one percent of assets under management for assets invested in the Sentry funds, and a performance fee of 20 percent of the returns of those funds," stated the regulator. "Jeffrey Tucker, a founder of Fairfield, estimated that Fair-field earned approximately $100 million per year from those fees in each of 2008, 2007 and 2006. Gordon McKenzie, Fair-field Bermuda's controller, in his testi-mony with the Division, put the figure at over $100 million for each of 2008, 2007, 2006 and 2005. Tucker testified that he earned in the range of $100 million from Fairfield's relationship with Madoff In-vestments over the last ten years.

"However, documents produced to the Division indicate that the principals of Fairfield made substantially more. For example, a document titled Partner Comp Worksheets 2008 produced by Fairfield appears to indicate that in 2007 alone Andres Piedrahita (Fairfield Partner and son-in-law of Fairfield founding partner Walter Noel) earned in excess of $45 mil-

lion and Tucker and Noel earned in excess of $30 million.

"The vast bulk of the fees Fairfield earned were performance fees that were generated from gains derived from Madoff's purported returns. Fairfield's purported value added to its investors (upon which the assets-under-management fee and perform-ance fees were based), was (a) the access to Madoff Investments that Fairfield provided to its investors, (b) the supposed due dili-gence Fairfield performed on Madoff In-vestments to make sure that it was a safe investment investors did not have to worry about and (c) Fairfield's ongoing monitoring of Madoff's execution of the SSC strategy based on guidelines provided by Bernard L. Madoff.

In the conclusion part of its complaint, the Massachusetts regulator stated: "Investors who trusted Fairfield and its sup-posedly rigorous due diligence lost billions of dollars. Had Fairfield engaged in the due diligence it represented to investors that it was undertaking, and had it been forthright to investors about its level of understanding and. comfort with respect to Madoff Invest-ments, these losses could have been pre-vented."

In written "Standardized Responses" to questions from the regulator, Fairfield Sen-try Limited stated that its investment man-ager, Fairfield Greenwich (Bermuda) Ltd. was incorporated in Bermuda on June 13, 2003 and identified the following FGBL employees as being involved in the "management, operations, risk control and accounting" process for the Fund: Amit Vijayvergiya, Partner, Chief Risk Officer; Disha Attavar, Vice President, Analyst – Analytics, performance measurement and investor communications; Clare Wood, Sen-ior Risk Officer – Risk Management; Bjorn Axelsson, Senior Vice President, Risk Ana-lyst – Operations, Data and Investment Compliance; and Ryan Amlin, Vice Presi-dent, Senior Fund Accountant – Finance and Accounting. FGBL's "Back Office Team" was identified as Gordon McKenzie, Director and Controller – Finance and Ac-counting, and Ryan Amlin, while members of Fairfield Sentry's risk department were identified as Amit Vijayvergiya, Bjorn Axelsson, Clare Wood, Disha Attavar, Charles Oddy, Director, Senior Risk Offi-cer, and Elizabeth Cotlebrooke, VP, Risk Analyst.

Massachusetts regulator sues Bermuda investment adviser over Madoff fraud



Millennium Bank accused of $68 m Ponzi scheme, goes into receivership A Receiver has been appointed for Millen-nium Bank, which is licensed in St. Vin-cent & the Grenadines, after the offshore bank was accused of perpetrating a$68 million Ponzi scheme by the United States Securities and Exchange Commission.

Details of the alleged fraud are con-tained in a civil complaint that was filed by the SEC at the U. S. District Court for the Northern District of Texas on March 26, 2009 against Millennium Bank Inc., its Swiss parent, United Trust of Switzerland SA; United T of S LLC, domiciled in Ne-vada, based in Napa, California; Millen-nium Financial Group, based in Raleigh, North Carolina; William J. Wise, 58, d.b.a. Sterling Administration, Sterling Invest-ment Services, and Millennium Aviation, a resident of Raleigh, North Carolina and the Caribbean and described as the person controlling Millennium Bank, Kristi M. Hoegel, a.k.a. Kristi M. Christopher, a.k.a. Bessy Lu, 34, a resident of Napa, Califor-nia; her mother, Jacqueline S. Hoegel, 52, a resident of American Canyon, Califor-nia; Philippe Angeloni, 61, a resident of Raleigh, North Carolina, a director of Mil-lennium Bank; and Brijesh Chopra, resi-dence unknown, Managing Director of Millennium Bank.

Relief defendants are Lynn P. Wise, 52, a resident of Raleigh, North Carolina; Daryl C. Hoegel, 54, a resident of Ameri-can Canyon, California, husband of Jac-queline Hoegel; Ryan D. Hoegel, 29, a resident of Lincoln, California, brother of Kristi Hoegel; Laurie H. Walton, 46, a resident of Raleigh, North Carolina; and four Las Vegas, Nevada-based entities: United T of S, LLC, Sterling I.S., LLC, Matrix Administration, LLC, and Jasmine Administration.

From July, 2004 to the present, the defendants raised at least $68 million from over 375 investors "by promising return rates up to 321% higher than legitimate bank-issued certificates of deposit", ac-cording to the complaint.

"Millennium Bank's website offers to the public-at-large high-yield CDs with "a guaranteed rate of return to avoid market fluctuations"," it was claimed. "The so-called CDs promise high return rates that exceed those available for average bank-issued CDs. For example, in February 2009, Millennium Bank's website was pro-

moting a one-year CD paying 7% inter-est (compounded annually) and a five-year CD paying 7.75% interest (compounded annually). Those rates were 321% and 285% higher, respec-tively, than the national overnight aver-age for traditional banks. According to Bankrate.com, a well-known aggregator of financial information, as of February 23, 2009, the national overnight average interest rate being offered on a one-year CD was 2.18% and 2.71% for a five-year CD."

In a press release announcing the action, the SEC stated: "The solicitations by the Defendants, which were distrib-uted on the bank's website, www.mlnbank.com, and in advertise-ments in luxury lifestyle magazines, were replete with extensive and funda-mental misrepresentations about Millen-nium Bank and its CDs, according to the Commission's complaint. For example, Millennium Bank mass marketed its CDs as safe and secure with guaranteed rates of return. Millennium Bank also claimed to be "the benefactor of Swiss banking . . . as well as the vast global investment network that United Trust of Switzerland S.A. has built over the last 75 years." According to the complaint, however, these assurances were false, because nei-ther Millennium Bank nor UT of S, LLC actually invested any of the money it received from investors. Moreover, United Trust of Switzerland S.A. is not a bank. In reality, investor funds were di-verted to the Defendants and used for a variety of illegitimate purposes.

"The complaint alleges that, in order to create the appearance of a legitimate offshore investment, Defendants in-structed investors purchasing the so-called "CDs" to mail/Federal Express their checks to the offshore bank. Once received, the checks were packaged and mailed to UT of S, LLC's office in Napa, California, where they were electroni-cally deposited by a remote deposit ma-chine into a UT of S, LLC operating ac-count. The account, which is held at a major U.S. financial institution, also re-ceived tens of millions of dollars in in-vestor funds via wire transfer.

"Furthermore, according to the com-plaint, bank records establish that a vast

majority of the $68 million raised from investors was misappropriated by the De-fendants, who enriched themselves and paid their personal expenses, while making small Ponzi payments to investors—satisfying investors' liquidation requests with recent deposits of new investors."

An order appointing Richard B. Roper, a Dallas, Texas-based partner with the law firm of Thompson & Knight LLP, as Re-ceiver for the defendants was issued at the U. S. federal court on the same day that the SEC's complaint was filed.

One day later, on March 27, 2009, the International Financial Service Authority in St. Vincent & the Grenadines an-nounced that KPMG had been appointed "pursuant to Section 21(2)(e) of the Inter-national Banks Act 2004 to assume control over the licensee's affairs to preserve re-cords and assets".

Research by OffshoreAlert showed that the domain name 'mlnbank.com' was cre-ated on August 28, 2003 and is registered to Sheryl Hinds, of the Financial Services Centre, Stoney Ground, Kingstown, St. Vincent & the Grenadines, which is the same address used by the bank.

In the complaint against the defen-dants, it was stated of William Wise that: "In 2003, the Pennsylvania Securities Commission ordered Wise to comply with state securities laws in connection with the sale of high return "deposit agreements" offered by a Grenada-based bank."

Research by OffshoreAlert showed that the regulatory action against Wise in Penn-sylvania was initiated on July 23, 1998 and concerned his involvement with Chase Mutual Investment Services Inc., a busi-ness based in Toronto, Ontario, Canada of which Wise was identified as President. In that action, Wise and Dan J. Christante, described as an investment consultant of Chase Mutual, were accused of soliciting funds from investors in Pennsylvania by offering "returns of 80% in three years". Investors were informed their funds would be used to capitalize "a private offshore bank in Grenada" that was sponsored by Chase Mutual, according to the Pennsyl-vania Securities Commission. Wise settled the action on July 8, 2003 by agreeing to comply with the Pennsylvania Securities Act. He was ordered to pay the investiga-tive and legal costs off the investigation.



Truman Bodden-affiliated Cayman fund forced to withdraw from National Futures Association A Cayman Islands-based commodity pool operator partly-owned – at least on paper – by an affiliate of local law firm Truman Bodden & Company has settled a regula-tory action in the United States in which it was accused of deceptive and dishonest practices by the National Futures Associa-tion, including concealing from investors the murky background of its two main ex-ecutives.

Magma Fund Advisors Ltd., of which Trulaw Corporate Services Ltd. is the only listed principal in regulatory filings with the NFA, "agreed to be withdrawn from NFA membership and to never again apply for NFA membership or principal status with any NFA Member in the future", it was stated in a decision by the NFA's Business Conduct Committee on February 11, 2009.

Additionally, Desmond M. Muthemba, who was described as a "principal" and "Associated Person" of Magma, "agreed to be withdrawn from Associate NFA mem-bership and principal status with an NFA Member and that he would not apply for Associate NFA membership for two years and that he would not apply for NFA mem-bership or principal status with any NFA Member for five years".

In settling the action, Magma and Muthemba "neither admitted nor denied the allegations made against them" in a com-plaint that the NFA filed with its Business Conduct Committee on December 22, 2008.

In the complaint, Magma was accused of knowingly providing materially false information to the NFA, failing to register one of the firm's principals – Richard Clif-ford – with the regulator, and "failure to uphold high standards of commercial honor and just and equitable principles of trade". Additionally, Magma and Muthemba were accused of using "deceptive and unbalanced promotional material" and "failure to super-vise" the conduct of Magma's commodity futures business.

Most of Magma's problems stem from the prior involvement of both Clifford and Muthemba with two NFA-regulated entities that were also the targets of regulatory ac-tions, namely commodity pool operator Lake Dow Capital LLC and introducing-broker Risk Capital Trading Group, Inc., according to the complaint.

Lake Dow Capital was permanently barred from the NFA in 2006 for, among

other things, "distributing fraudulent pool statements, lying to NFA and converting investor funds", stated the NFA. "In a related case brought by the Commodity Futures Trading Commission, Lake Dow was permanently enjoined from commit-ting fraud." Risk Capital Trading Group was disciplined by the NFA in 2003 for, among other things, "sales practice and Registration Rule violations. In addition, a 2003 CFTC enforcement action against that firm resulted in a permanent injunc-tion and fine of more than $8 million."

When Magma first applied to become an NFA Member Commodity Pool Op-erator on September 18, 2007 through the NFA's online registration system (ORS), Clifford was identified as a principal of the firm and Magma sought his registra-tion as an Associated Person and Associ-ated Member, according to the complaint.

"Shortly after September 18, 2007, NFA placed a hold on Clifford's pending registration and principal applications due to unresolved issues raised by his associa-tion with Lake Dow and informed Clif-ford's representative of the hold. As a consequence of the hold on Clifford, Magma's pending application to become an NFA Member CPO was not approved at that time.

"On or about May 27, 2008, Magma applied through ORS seeking Muthemba's registration as an AP and NFA Associate sponsored by Magma and identifying him as a principal of Magma. Muthemba was approved as a principal of Magma on or about May 30, 2008 and as an AP and NFA Associate on or about June 6, 2008.

"On or about June 6, 2008, Clifford's pending registration and principal appli-cations with Magma were withdrawn by Magma.

"On or about June 6, 2008, Magma's application to become an NFA Member CPO was approved.

"Magma willfully submitted materi-ally false or misleading information to NFA concerning Clifford's role as a prin-cipal of the firm in that, when Magma withdrew Clifford from pending principal and AP status on or about June 6, 2008, Clifford continued to act in a manner that required his disclosure as a principal of Magma in that Magma's organizational chart and offering memorandum contin-

ued to list Clifford as Magma's president, Clifford performed certain management functions for Magma and Clifford directly or indirectly owned more than 10% of Magma.

"Beginning on or about June 6, 2008, Magma failed to list Clifford as a principal of Magma within twenty days of him be-coming a principal."

In explaining an allegation that Magma and Muthemba used "deceptive and unbal-anced promotional material", the NFA al-leged: "Magma and Muthemba were re-sponsible for reviewing and approving Magma's promotional material.

"Muthemba approved, and Magma used, promotional material that mentioned the possibility of profit without an accom-panying equally prominent statement of the risk of loss. Specifically, a fact sheet avail-able on the firm's website promoted "consistent, superior absolute returns" and at the same time minimized downside risk.

"Muthemba approved, and Magma used, promotional material that included reference to actual past trading profits with-out mentioning that past results are not nec-essarily indicative of future results. Specifi-cally, the fact sheet showed rates of return, but did not contain a comparably prominent disclaimer stating that past performance is not necessarily indicative of future results.

"Muthemba approved, and Magma used, promotional material that contained material misstatements of fact or which Muthemba and Magma knew omitted facts, the omission of which made the promo-tional material misleading. Specifically, Magma's July 2008 offering memorandum included background information about Clifford, but failed to include the material information that he had been employed by Lake Dow and Risk Capital. The memoran-dum also stated that Clifford is "a principal of the Investment Manager" although he had been previously delisted by Magma as a principal of the firm in ORS and was not disclosed as a principal in ORS in July. Furthermore, the memorandum referred to Merchant Capital SA as a firm that Clifford founded, but failed to disclose orders issued against Merchant in 2007 by several Cana-dian regulatory authorities. The offering memorandum also failed to disclose Muthemba's prior employment with Lake Dow and Risk Capital."




Truman Bodden-affiliated Cayman fund forced to withdraw from National Futures Association

In explaining its allegation of "failure to supervise", the NFA stated: "The diligent supervision of Magma's employees and agents in the conduct of their commodity futures activities for or on behalf of Magma required, in part, that Muthemba, as the only principal of Magma who was also reg-istered as an AP, be knowledgeable about material information related to Magma's business operations and its solicitation pro-cedures.

"Muthemba was not knowledgeable about material information related to Magma's business operations in that he could not provide substantive answers to several questions posed by NFA, such as inquiries related to Trulaw and its owner-ship structure and wire transfers in and out of Magma's bank account. He was also un-able to promptly provide certain informa-tion to NFA regarding Magma's ownership records and underlying bank statements. Furthermore, while Muthemba identified some wire transfers that related to loans that Magma had received from certain indi-viduals, he was unable to explain any de-

(Continued from page 8) tails about those loans or to provide NFA with copies of related loan agreements.

"Muthemba also provided inconsistent information to NFA concerning Magma's solicitation of U.S. individuals. Muthemba first indicated that U.S. inves-tors did not have access to Magma's web-site and that Magma was not providing its current promotional material to U.S. indi-viduals. However, during the course of NFA's investigation, an NFA staff mem-ber completed an electronic form on Magma's website requesting a login and password to access the site listing a Ten-nessee address as her location and re-ceived a login and password to enter Magma's website. Once on the website, the staff member was able to access addi-tional information about Magma and its funds, such as performance information from November 2007 through October 2008 and an offering memorandum for a pool named Vesuvius Investment Fund [A Cayman Islands fund registered with the Cayman Islands Monetary Authority on October 26, 2007].

"In addition, Muthemba himself tele-phoned the NFA staff member and asked several questions about her interest in the fund and the potential investment amount. While he did inform her that Magma did not currently have any funds open for U.S. investors, he discussed Vesuvius and Magma's plans for launching a U.S. fund in the near future. In addition, Muthemba so-licited the NFA staff member to buy an equity position and become a part owner of Magma – claiming that being an equity owner was better than being an investor in the fund and that Magma only offered eq-uity positions to its family, friends and as-sociates."

Research by OffshoreAlert showed that, in its registration details filed with the NFA, the only listed principal of Magma Fund Advisors Ltd. is Trulaw Corporate Services Ltd., which is affiliated with Tru-man Bodden & Company law firm, whose directors are Truman M. Bodden, who is a Member of the Cayman Islands Legislative Assembly and a former Leader of Govern-ment Business; Chris Narborough, who is a British national; Philip S. Boni, who is also a British national; and Gina M. Berry.

BVI fund group Venulum sues anonymous posters of web-site messages for defamation British Virgin Islands-domiciled Venulum Ltd., which claims to be part of a "private wealth management" group that specializes in "alternative investments" and has mutual funds domiciled in the BVI, Cayman Is-lands and Delaware, is suing the as-yet un-known authors of several messages posted anonymously on a web-site run by World Law Direct that it claims falsely accuse the firm of fraud.

Venulum, which is controlled by 39-year-old British national Giles Cadman, filed a civil complaint against "John Does" at the U. S. District Court for the District of South Carolina on November 24, 2008. The counts are defamation against Does only and Intentional Interference with Business Relations, and Negligent Interference with Business Relations against all defendants. Apart from unquantified monetary dam-ages, Venulum is also seeking an order restraining the defendants "from posting, disseminating, transferring, copying, or otherwise communicating or publishing any false, misleading, and/or defamatory mate-

rial, whether via the Internet or by any other means".

On December 8, 2008, U. S. District Court Judge Patrick Michael Duffy en-tered an order permitting Venulum to engage in discovery to try to identify the John Doe defendants, after which Venu-lum requested and received from World Law Direct the IP addresses and identities of Internet Service Providers used by the posters of messages that form the basis of the complaint.

On February 25, 2009, the judge is-sued another order authorizing subpoenas to be served on the ISPs requiring them to provide the names and addresses of sub-scribers suspected of posting the offend-ing messages. The ISPs were identified as Bell South Telecommunications, Inc. (AT&T), Charter Communications, Inc., Comcast Corporation (Comcast Cable Communications, LLC), Cox Communi-cations, Inc., Florida Information Re-sources Network (Hayes E-Government

Resources, Inc.), SBC Internet Services, Inc. (AT&T), and Verizon Online.

In its complaint against the John Does, Venulum described its "principal business" as "dealing in fine wine and champagne on behalf of and for the benefit of its clients".

The BVI company stated that its action was filed in Charleston because "Venulum has over 10 clients within the State of South Carolina and this Court's jurisdic-tion".

"John Does 1 through 40 are the uniden-tified and unregistered persons that have published defamatory statements concern-ing Venulum on a website run by World Law Direct," stated the firm. "Their true names and capacities are unknown to Venu-lum. When their true names and capacities are ascertained, Venulum will amend this complaint by inserting the defendants' true names and capacities."

Explaining its count of defamation, Venulum stated: "On WLD's website (www.worldlawdirect.com), it hosts forums




BVI fund group Venulum sues anonymous posters of web-site messages for defamation

in which various issues are discussed by messages being posted by various posters. One of the forums is titled "Internet HYIP Scams." The Internet HYIP forum contains a thread of posts entitled "Venulum, Archi-tects of Wine and Seed International fraud."

"A second forum exists on the WLD website called "Money Frauds and Scams," and a string of posts within this forum are entitled "venulum wines," "re: venulum wines fraud," "re: venulum wines scam," and "wine ‘futures' fraud."

"These forums contain untrue and false statements of fact regarding Venulum, in-cluding statements that Venulum is associ-ated and/or affiliated with Architects of Wine and Seed International, is made up by the same people, and comprises the same fraud, scam and pitch/sales tactics as Archi-tects of Wine and Seed International."

Some of the messages being com-plained about are:

• "I see some of the same people are involved as were involved in Architects of Wine as de-scribed on this website.";

• "Same player, new scam."; • "Same pitch and same people

… They ask you to invest then you can never get the funds back because of your supposed ‘Futures' contract. A contract that has no meaning if you really examine it. This was the same thing the same people tried four years back.";

• "Venulum/Cadman Fine Wines/ is just another label for the same old questionable gang as far as I can tell.";

• "Oh brother, this is pure fraud … See also the Architects of Wine fraud - - same scam, same pitch.";

• "Look what I found about the old bucket shop they [Venulum] used to run.

Investdrinks – Ocean – Seed – Heros This is crazy I cannot believe they would actually go after the same people with the exact same sales tactic. Maybe crime actually does pay.";

(Continued from page 9) • "Same fraud/scam as archi-tects of wine.";

• "They were supposedly in-vesting my money in fine wine but my accountant said all the contracts look bo-gus???";

• "the contract they asked us to sign was utter rubbish, de-signed to cause you to forfeit your funds"; and

• "Your contract will mean you easily forfeit all your funds, beware".

"These forums contain untrue and false statements of fact regarding Venu-lum, including statements that the con-tracts and papers that Venulum has clients sign are fake and bogus and that the con-tracts are designed to cause clients to for-feit their funds."

Venulum added: "These forums con-tain untrue and false statements of fact regarding Venulum, including statements that Venulum scams people into thinking that they are making money, pushes cli-ents to invest larger amounts, and then refuses to repay them."

The messages defamed Venulum by "falsely suggesting (i) that Venulum en-gages in fraudulent and criminal activity; (ii) that Venulum's business is affiliated with Architects of Wine and Seed Interna-tional; and (iii) that Venulum requests clients to purchase wine and champagne with the intention of taking the clients' funds."

Research by OffshoreAlert showed that the domain name 'worldlawdirect.com' is registered to "World Law Direct, Haskova 10, Prague 7" in the Czech Republic. The administra-tive contact is Milan Rabiska, with an addresses of 1504 Bay Road, Suite 1011, Miami, Florida.

Meanwhile, on its web-site at www.venulum.com, the "Venulum Group" describes itself as "a multina-tional private wealth management firm headquarted [sic] in the British Virgin Islands. The Group manages the wealth of high net worth individuals, and special-ises in alternative investments often not available to the general public. Venulum helps high net worth individuals balance their portfolios. The Venulum Group was formed in 2002, and has expanded to in-

clude offices in five countries, with service offices in a further two. Since 2002 Venu-lum's client base has expanded rapidly, and we now have a substantial number of United States based clients.

Companies belonging to the group are identified as Venulum Ltd., domiciled in the BVI; Venulum Property Investments (BVI) Limited, a BVI-domiciled mutual fund; Venulum, Inc., which is described as Toronto-based "Canadian subsidiary"; Venulum Ltd., in the United Kingdom; Venulum Property Developments Limited, domicile not identified; Venulum Capital LLC, described as a Delaware-domiciled mutual fund; Venulum Property Invest-ments Ltd., described as a Cayman Islands-domiciled mutual fund that is regulated by the Cayman Islands Monetary Authority; Venulum Wine Limited, incorporated in England and Wales, and serving as "parent company of the Group's Fine Wine sales and marketing division"; Cadman Fine Wines Limited, incorporated in England and Wales, and described as "the Venulum Group's fine wine sales and marketing divi-sion"; Fine Wines TV, domicile not identi-fied; and Caribbean Sustainable Fisheries, described as being involved with "a sustain-able lobster farm in the British Virgin Is-lands". Although not listed on its web-site, OffshoreAlert also found two other active companies in England and Wales that have Giles Cadman as a director – Venulum Limited and Venulum Semilong Limited – and another BVI-domiciled mutual fund bearing the 'Venulum' name – Venulum En-Primeur and Wine Investments Ltd.

It is stated on Venulum's web-site that the group has offices at PO Box 765, 4th Floor, Rodus Building Road Reef, Road Town, Tortola, British Virgin Islands; Encon House, Owl Close, Moulton Park, Northampton, NN3 6HZ, England; Royal Trust Tower, 77 King Street West, P.O. Box 83, 31st Floor, To-ronto, ON M5K 1G8, Canada; PO Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands; and 17 Arataki Road, Havelock North, Hawkes Bay 4201, New Zealand.

At least two of the "office" addresses appear to be mail-drops, specifically the address in the BVI, which is the home of Sable Trust, and the address in the Cayman




BVI fund group Venulum sues anonymous posters of web-site messages for defamation

Islands, which is the home of the law firm of Maples and Calder.

The Venulum Group identifies its "Corporate Advisors" as: Venulum Inc (Canada) – Lawyers: Dale & Lessmann LLP, 181 University Avenue, Suite 2100, Toronto, Ontario, Canada M5H 3M7; Con-tact: Andrew Frei; Accountants: Garry W. Culverson Chartered Accountant, ING Tower Suite 2200, 181 University Avenue, Toronto, Ontario, Canada M5H 3M7, Con-tact: Garry Culverson; Bankers: Scotia Bank, 44 King Street West, Toronto, On-tario, Canada M5H 1H1, Contact: Lia Do-natelli; Venulum Ltd. (BVI) – Lawyers: Maples & Calder, P.O. Box 173, Road Town, Tortola, British Virgin Islands, Con-tact: Antony Spencer; Administrators: Folio Administrators Ltd., Folio Chambers, PO Box 800, Road Town, Tortola, British Vir-

(Continued from page 10) gin Islands, Contact: William Harris; Bankers: First Caribbean International Bank, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands, Contact: Juliet Cupid; Accountants: Baker Tilley, PO Box 650, Tropic Isle Building, Nibbs Street, Road Town, Tortola, Contact: Nigel MacPhail; Venulum Ltd. (UK) – Lawyers: Ross & Craig, 12A Upper Berk-ley St., London W1H 7QE, England, Contact: Adrian Ring; Accountants: Adler Shine LLP, Aston House, Cornwall Avenue, London N3 1LF, England, Con-tact: Daniel Garcia; Bankers: NatWest, 167 St James Road, Northampton NN5 5LE, Contact: Andy Ellis.

Records maintained by Companies House for England and Wales show that Cadman has been a director of at least ten companies that have been dissolved since 1999, namely: Architects of Wine (UK)

Limited, Cadman Leisure Limited, Corkers Limited, Fine Wines of Mayfair Limited, Shinystar Plc, Wine Finds Limited, Calais Direct Limited, Charter Building Company Limited, Gold Street Estates Limited, and Manor House Cogenhoe Limited. Follow-ing an application by Christopher Johnson, who is the Cayman Islands-based joint liq-uidator of the Architects of Wine group, Architects of Wine (UK) Limited was re-stored to the corporate register on March 4, 2008 so that it could pursue litigation against Corby Bottlers Plc and Coudent Brothers and/or its current and former part-ners. Cadman was a director of Architects of Wine (UK) Limited from October 8, 1998 to April 3, 2001 – four-and-a-half-years before it was struck off the register, effective August 30, 2005.

Bahamas-based British-American Insurance Co. sued for $38 million in Florida Bahamas-domiciled British-American Insur-ance Company Ltd. and British Virgin Islands-domiciled British American Isle of Venice (BVI) Ltd. are being sued for $38 million at federal court in West Palm Beach, Florida.

Details are contained in a civil complaint that was filed by Green Islands Holdings LLC, based in Palm Beach County, Florida, at the U. S. District Court for the Southern Dis-trict of Florida on February 19, 2009.

"This is an action to recover in excess of $38,274,359.00 due and owing pursuant to a Promissory Note, as amended by a Note Modification Agreement, as well as pursuant to a Guaranty," it was stated in the complaint. "Moreover, through this action, Plaintiff seeks to foreclose on its security interest in 100% of the membership interests in Green Island Ventures, LLC.

"Plaintiff, Holdings, was formerly the owner of 100% of the membership interests in Green Island Ventures, LLC, a Florida limited liability company.

"On or about January 7, 2008, Holdings sold its membership interests in Ventures to BAI [British American Isle of Venice].

"In conjunction with the sale of Ventures' membership interest to BAI, the following documents were executed and delivered to Plaintiff:

a. That certain Purchase Money Promis-sory Note in the original principal amount of $56,544,359.82;

b. That certain Pledge and Security Agreement executed by BAI in favor of Plaintiff through which Holdings was granted a first prior-ity security interest in the Ventures membership interests that were sold to BAI.;

c. That certain Guaranty executed by British American in favor of Hold-ings;

"On or about September 9, 2008, Hold-ings and BAI entered into that certain Note Modification Agreement.

"Pursuant to the Note BAI was obli-gated to make a payment in the amount of$9,568,589.96 by or before January 15, 2009.

"BAI is in default of its obligations un-der the Note and Pledge and Security Agreement as a result of which a Default Notice was sent to Defendants on January 30, 2009.

"Pursuant to the Default Notice, the indebtedness evidenced by the Note was accelerated as a result of which the entire principal balance of $38,274,359.82 became due and owing along with all interest at the default rate of 18%."

Exhibits attached to the complaint show that the loan and guaranty agreements were signed by Robert Fullerton, as a director of both British American Isle of Venice (BVI) Ltd. and British-American Insurance Com-

pany Ltd.; Brian Branker, as a director of British American Isle of Venice (BVI) Ltd.; and Charles Pratt, as manager of Green Island Holdings LLC. British American Insurance Company Ltd. and British American Isle of Venice are identified in contracts as having the same address, i.e. c/o BA Management Services, Inc., 950 South Pine Island Road, Suite A 150, Plantation, Florida. Another address for BA Management Services is given as 11-13 Fifth Street, Barataria, Trinidad (Attention: Gabrielle Patrick). Research by OffshoreAlert showed that Brian Branker is the Chairman of British American Insurance Company Limited, which is based in Trinidad and Tobago and is part of the CL Financial Group, which was one of the largest local conglomerates in the Caribbean, claiming to encompass 65 companies in 32 countries worldwide involved in banking, insurance, financial services, real estate, media, energy, manufacturing, retail and other sectors, until it collapsed earlier this year.

British-American Life Insurance Com-pany Ltd. is licensed as a long-term insurer in the Bahamas. The company is unrelated to British American Financial, a Bahamas-based insurer that did business as British American Insurance Company of the Bahamas Ltd. until a change of ownership occurred in 2007.



Cayman reinsurer obtains $4.7 m judgment against US claims administrator A Cayman Islands-licensed reinsurer has obtained summary judgment for $4.7 mil-lion after allegedly being defrauded by a third-party claims administrator.

The judgment in favor of Medilink In-surance Company Limited, which was li-censed as an insurer in Cayman on July 31, 1985, was issued at the U. S. District Court for the Eastern District of Michigan on March 5, 2009.

Defendants John P. Bender, a resident of Milford, Michigan; JP Bender and Asso-ciates Inc., and Bender Inc., both Michigan corporations, were ordered to jointly and severally pay $4,749,920.

The complaint was filed on November 27, 2007 and, inter alia, alleged embezzle-ment, common law conversion, fraudulent misrepresentation, civil conspiracy, breach of fiduciary duty, unjust enrichment, con-structive trust, and negligence.

According to the complaint, the defen-dants submitted fraudulent claims to Medil-ink in amounts that were higher than the actual claims, submitted fraudulent expense requests, failed to pass on to the reinsurer reinsurance recoveries and also converted for their own use funds that were paid by Medilink pursuant to legitimate claims.

"During the time period from 2005 until approximately September, 2007, Plaintiff was completely unaware of the actions of the Defendants in fraudulently, intention-ally and by misrepresentation of fact secur-ing greater amounts than appropriate to pay settlements, judgments, costs and fees on behalf of Plaintiff’s insureds; it was not until September, 2007, that the Plaintiff

discovered the fraud and misrepresenta-tion of the Defendants," it was stated in the complaint.

The fraudulent activity occurred be-gan in 2005 – 20 years into the business relationship between the plaintiff and the defendants, it was claimed.

"From approximately 1985, J.P. Bender and Associates, Inc. and John Bender, individually served as a third party claims administrator or claims han-dling agent on behalf of and for the bene-fit of Plaintiff's reinsureds with regard to certain claims made against Plaintiff’s reinsureds, in the State of Michigan; upon information and belief within the past two years, approximately, Bender, Inc. has taken over some or all of the duties of J.P. Bender and Associates, Inc. as third party administrator and claims handling agent on behalf of and for the benefit of Plain-tiff’s reinsureds," it was stated in the complaint.

"J.P. Bender and Associates, Inc. and later Bender, Inc., specifically served as claims handling agents in the State of Michigan for claims of general liability and professional liability made against Garden City Hospital, Osteopathic, Pontiac Osteopathic Hospital and Mt. Clemens General Hospital, each of whom was reinsured for such risks by the Plain-tiff.

"In addition, certain physicians prac-ticing osteopathy and medicine in the State of Michigan were insured by the Lexington Insurance Company, a Massa-chusetts corporation. With respect to such

insurance provided by the Lexington Insur-ance Company, all liability was reinsured on a first dollar basis by Plaintiff; J.P. Bender and Associates, Inc. and later Bender, Inc. specifically served as claims handling agents in the State of Michigan on behalf of Lexington Insurance Company and on behalf of the physician insureds."

Research by OffshoreAlert showed that JP Bender and Associates Inc. and Bender Inc. were incorporated on July 11, 1980 and June 15, 2006, respectively, and are both identified as "active" companies on the web-site of the Michigan Department of En-ergy, Labor & Economic Growth.

OffshoreAlert found evidence that John Bender may be preparing to operate under a new name, namely Bender & Associates Consulting. The domain name 'bendercon.com' was created on December 15, 2008, with the name of the registrant is hidden through a privacy-protecting com-pany called Domains by Proxy Inc. How-ever, that John Bender is behind the enter-prise is disclosed in a message at www.bendercon.com that states: "Welcome to Bender & Associates Consulting. We are a firm comprised of proven senior consult-ants, focused on helping compa-nies "translate ideas into action". We are in the process of building our website. In the meantime, please feel free to contact John Bender at (408) 718-7613 for more infor-mation." A search of corporate records in Michigan showed there was no company called Bender & Associates Consulting incorporated in the state.

Madoff investors file class action against Cayman-based bank and hedge fund A Bernard Madoff-related class action law-suit has been filed in the United States against an offshore hedge fund and bank in the Cayman Islands and other parties.

The complaint was filed at the U. S. District Court for the Southern District of New York on March 4, 2009 by Nephrol-ogy Associates PC Pension Plan, which claims to have lost "in excess of $4 mil-lion", on behalf of all investors in Ariel Fund Ltd., domiciled in Cayman.

Defendants are Ariel Fund Ltd., Gabriel Capital Corporation, a Delaware corpora-tion based in New York; J. Ezra Merkin, described as a graduate of Columbia Uni-

versity, a graduate of Harvard Law School, a money manager and sole share-holder of Gabriel Capital; Fortis Bank (Cayman) Ltd., Fortis Prime Solutions (Cayman) Ltd., Fortis Bank, BDO Tor-tuga, and BDO International.

Causes of action are breach of fiduci-ary duties, fraudulent concealment, negli-gent misrepresentation, breach of con-tract, gross negligence and mismanage-ment, unjust enrichment, and aiding and abetting breaches of fiduciary duty.

"This case arises from a massive, fraudulent scheme perpetrated by Bernard L. Madoff ("Madoff') through his invest-

ment firm, Bernard L. Madoff Investment Securities, LLC ("BMIS"), and others, and which was facilitated by defendants named herein, who, recklessly or with gross negli-gence and/or in breach of fiduciary duties owed to Plaintiff and other Class members, caused and permitted the Fund's assets to be invested with Madoff absent performing the requisite due diligence and investigation prior to and during the time defendants placed the Class's money with Madoff," it was stated in the complaint.

"On December 10, 2008, Madoff alleg-edly informed his sons that his investment




Madoff investors file class action against Cayman-based bank and hedge fund

advisory business, BMIS, was a complete fraud. Madoff stated that he was "finished," that he had "absolutely nothing," and that "it's all just one big lie." He confessed he had been running "basically, a giant Ponzi scheme." Madoff admitted that the business was insolvent and that it had been for years. Madoff also stated that he estimated the losses from this fraud to be approximately $50 billion. Published reports now indicate that Madoff's estimate may be conservative and the losses will not be fully known for some time.

"On December 11, 2008, Madoff's fraud was publicly disclosed and the SEC charged both Madoff and BMIS with secu-rities fraud. Criminal charges were also filed against Madoff individually. When he was arrested, Madoff was quoted as saying "there is no innocent explanation" for what had happened and that he "paid investors with money that wasn't there." In short, Madoff operated a massive Ponzi scheme the likes of which are unparalleled.

"Madoff was unable to perpetrate this fraud on his own. Numerous funds of funds ("FOF''), investment advisors, and affili-ates, including the defendants, facilitated Madoff's fraud by investing billions of dol-

(Continued from page 12) lars of their clients' money with Madoff and his related entities without perform-ing adequate due diligence despite the existence of obvious "red flags." These red flags included, among others, the ab-normally high and stable positive invest-ment results reportedly obtained by Mad-off regardless of market conditions; in-consistencies between BMIS's publicly available financial information concern-ing its assets and the purported amounts that Madoff managed for clients; and the fact that BMIS was audited by a small, obscure accounting firm with no experi-ence auditing entities of the apparent size and complexity of BMIS. Despite having failed to perform the most basic due dili-gence, these FOFs, investment advisors and affiliates were paid large manage-ment and advisory fees by their clients, often for doing little other than blindly handing over their clients' funds to Mad-off or his related entities, without disclos-ing same to their clients.

"Defendant Gabriel Capital Corp. is wholly owned by defendant J. Ezra Merkin. Gabriel Capital is the investment advisor to the Fund. As detailed below, Plaintiff's investment in the Fund was decimated as a direct result of defendants'

reckless and/or grossly negligent dereliction of their fiduciary duties, and the complete failure of the Fund's auditor (defined be-low), to perform adequate due diligence despite the existence of myriad red flags indicating that a high concentration of the Fund's assets were invested in Madoff-related investments.

"In fact, as a result of defendants' con-duct, the Fund has been forced into liquida-tion, and most of Plaintiffs and the other Class members' investments have been decimated with losses exceeding 25% on Madoff-related investments alone.

"Plaintiff seeks to recover damages caused to the Class by defendants' viola-tions of common law fraud, contract, negli-gent misrepresentation and breach of fidu-ciary duty under New York law. Plaintiff is not pursuing derivative claims on behalf of the Fund because it is being liquidated at the instruction of Gabriel Capital."

The complaint was filed 73 days after an action was filed at New York State Su-preme Court against the same defendants by another Ariel Fund investor, New York University, which was seeking damages of $24 million. NYU did not ask that its com-plaint be certified as a class action.

Fraudster Nolon Bush receives 30-year prison term for Nevis-based scam A 30-year prison sentence and $30 million financial penalty has been handed out to a 69-year-old fraudster who owned and oper-ated a Nevis-based offshore group with former offshore providers Nigel Scott Grant and his son, Nicolas Grant St. James.

Charles Nolon Bush, formerly of Port Orchard, Washington, was sentenced at the U. S. District Court for the Western District of Washington on March 20, 2009 – four months after a jury convicted him on 27 counts of securities fraud, wire fraud, mail fraud, and money laundering regarding a $35 million Ponzi scheme.

According to a press release issued by the U. S. Department of Justice, U.S. Dis-trict Judge Ronald B. Leighton said at sen-tencing: "This was an incredible enter-prise.... He lied to people on a repeated basis.... He was very calculated throughout this enterprise... Throughout all of this the one who got paid first was Nolan Bush." The judge was also quoted as saying: "Mr.

Bush is a flim flam man and he has been since his college days. Everything that he did was done with a purpose to build an image, a facade of success..."

Asking for a 30-year prison sentence, Assistant U. S. Attorney Arlen Storm had written to the court stating that "the cal-lousness Bush expressed actually may exceed both the harm Bush caused and the effort he put into the scheme. Every time Bush leased a $3,000 per night villa in Nevis, bought a luxury vehicle, or pur-chased an additional piece of art, he well knew that at the other end of the money he spent were living, breathing investors who may be required to spend the rest of their lives trying to recoup from the losses he inflicted. Nevertheless, Bush pro-ceeded with enthusiasm."

It was stated in the DoJ press release that: "According to testimony at trial and records filed in the case, Bush took mil-lions of dollars in investor money in a

fraudulent high-yield scheme between 1998 and 2002. In 1998, Bush was a resident of Des Moines, Washington, and later Port Orchard, Washington, where he operated various investment entities such as Hula-man Management Services, Global Domin-ion Financial Services, and Cornerstone Institute. Bush accepted more than $35 mil-lion in investor funds. Bush promised high yield investments, when in fact only one-third of investor money was placed into any investments. Bush used the remaining in-vestor money, among other things, to fund a lavish lifestyle and pay previous investors in the form of a Ponzi scheme. Victims speaking in court turned to Bush and said "you're a liar, you're a thief, and you're a coward." They described how he had robbed people of their health care and col-lege funds."

The release went on: "In order to lend legitimacy to the investment scheme, after




Fraudster Nolon Bush receives 30-year prison term for Nevis-based scam

July 1999, Bush conducted business from "View Park Golf Estate", a mansion on a private nine-hole golf course, and from a luxury suite at Safeco Field, while repre-senting to investors that he personally had taken a vow of poverty. Bush recruited other individuals, referred to as "financial planners," to act as his agents in promoting the scheme.

"Towards the end of his scheme, Bush represented that investor money was for Cabo San Quintin, the name given to a des-tination resort which developers planned to build on a peninsula located on the west coast of Baja California, Mexico. Bush lied to investors about the safety of the project as an investment.

"Bush was indicted by a federal grand jury in Seattle on August 9, 2006. During July 2002, Bush left the U.S. for France, and traveled on to Warsaw, Poland. The Department of Justice requested Bush's extradition from Poland on January 25, 2007. During August 2007, Polish authori-ties arrested Bush and, though he fought extradition, Bush was extradited from Po-land and made his initial appearance on the indictment in U.S. District Court in Tacoma on January 22, 2008."

OffshoreAlert first exposed Bush's fraudulent investment scheme on May 31, 2001, when we revealed that "About 200 people who invested more than $6 million through Nevis-based Global Dominion Fi-nancial Services are unable to redeem their investments", further reporting that GDFS was operated by British attorney Nigel Scott Grant, his son, Nicolas Grant-St. James; and Nolon Bush.

(Continued from page 13) When contacted prior to the publica-tion of the expose, Nigel Scott Grant claimed in writing that "I have nothing to do with GDFS" and described Offsho-reAlert as "a third rate tabloid" and its publisher, David Marchant, as "a cow-ardly ersatz journalist who denies his tar-gets any opportunity to respond fairly to charges that are sensationalist yet un-founded".

However, his and his son's roles were outlined in the U. S. Government's Trial Brief dated October 24, 2008, in which they are referred to only as "N.S.G." and "N.G.S.J.".

The Grants began helping Bush move his scheme offshore in 1999, according to the Government. "During July 1999, N.S.G. and his son, N.G.S.J., leased Suite 10 at the Temple Building, Charlestown, Nevis, for the purpose of establishing an "offshore financial services company" called Inter-Caribbean Business Manage-ment ("ICBM"). For the first month or so that they leased this office, N.G.S.J. ran ICBM while N.S.G. continued to run his law firm in Coronado [California]. Work-ing together, they assisted clients in open-ing secret offshore bank accounts in Ne-vis.

"On August 13, 1999, September 8, 1999, and October 30, 1999, N.S.G. met with Bush and others at View Park. Dur-ing these meetings, Bush and N.S.G. initi-ated efforts to move the trading program scheme infrastructure to N.S.G.'s and N.G.S.J.'s office in Charlestown, Nevis. Among other things, with N.G.S.J.'s as-sistance, they established LLCs in Nevis and opened bank accounts in the name of the LLCs at Royal Bank of Canada in the

Bahamas and at Bank Crozier in Grenada. In addition, N.S.G. took all of the investor files back to his law office in Coronado, California. Shortly thereafter, Bush's assis-tants, L.T. and T.S., traveled from View Park to Coronado in order to organize the investors' files in N.S.G.'s law office.

"In order to complete the process of moving the scheme offshore, Bush and N.S.G. set up telephone lines to be used in furtherance of the scheme in N.S.G.'s and N.G.S.J.'s Nevis office. They also hired N.G.S.J. to run the scheme operations in Nevis. In addition to hiring personnel to operate the telephone lines and perform other functions in Nevis, N.G.S.J. was re-sponsible for establishing LLCs in Nevis for all new investors – in order that the new investors could submit their investments to Bank Crozier in the names of their Nevis LLCs, and thereby conceal their true identi-ties.

"During this period, Bush and N.S.G. took extraordinary steps to conceal their activity from the outside world. Bush re-peatedly hired R.C., of Domestic Interna-tional Consultants, to travel from Oregon in order to "debug" View Park and, on one occasion, paid R.C. to travel to Coronado in order to debug N.S.G.'s law office. In addi-tion to declining to discuss sensitive busi-ness over the telephone, moreover, they employed devices called "egnimas" to scramble their wire communications and "super shredders" to destroy old emails."

Additionally, Nigel Scott Grant re-ceived money from victims, maintained the scheme's web-site, issued false account statements to victims and, with his son and Bush, helped to train promoters, it was claimed.

Lawsuit filed in New York over alleged Anguilla-based property scam A civil lawsuit has been filed in New York by plaintiffs who claim they were defrauded of $1.7 million in a Ponzi scheme that was based around a land development project in Anguilla.

Details are contained in a complaint that was filed at the U. S. District Court for the Southern District of New York on February 9, 2009 by Arlyne M. Goldstein, a resident of Suffern, New York; Goldstein Family Part-nership LP, domiciled in Delaware, based in Suffern, NY; and Anguilla Development

LLC, described as a "Domestic Limited Liability Company" based in Suffern, NY.

Defendants are Anguilla Holding Corp., described as a Connecticut company based in Greenwich, CT; Paul Foley, described as a New York resident and a partner in An-guilla Holding Corp.; and Claude P. Priolet, described as a New York resident and "a shareholder and/or officer" of Anguilla Holding Corp.

"The foundation of this action is the illegal and fraudulent "Ponzi" scheme of

Defendant Paul Foley and his company, An-guilla Holding Corp., which used and contin-ues to use monies invested by the Plaintiffs for Defendant Foley's own personal benefit and for the benefit of other corporate entities the Defendant Foley controls," it was stated in the complaint.

"As a result of that corrupt scheme, De-fendants Foley and Anguilla Holding have defrauded the Plaintiffs, Arlyne M. Gold-stein, Goldstein Family Partnership, L.P. and




Lawsuit filed in New York over alleged Anguilla-based property scam

Anguilla Development, LLC out of hundreds of thousands of dollars in investments and financial opportunity.

"In the summer of 2007, for consideration of Two Million Dollars, Defendant Anguilla Holding obtained the right to purchase real property located at Registration Section North Block 59018B Parcel 32, Schoal Bay, Anguilla, British West Indies (hereinafter the "Property") in order to develop the same into luxury villas (hereinafter the "Project").

"In the Fall of 2007, Defendant Foley approached the Plaintiffs about becoming a 50% partner in the Project which was owned by his company, Anguilla Holding.

"To entice the Plaintiffs, Defendant Foley represented that he had a partner in the De-fendant Anguilla Holding who was finan-cially secure and was backing the Project financially. Upon information and belief, the Defendant Foley has no such partner.

"Based on representations made by De-fendant Foley, the Plaintiffs agreed to invest in the Project and the Plaintiff, Goldstein Family Partnership, L.P., agreed to become a fifty percent owner in a Joint Venture by the name of Fountain Beach Development Group with Defendant Anguilla Holding, which was formed for the express and exclusive purpose of acquiring, owning, developing, construct-ing, operating, marketing, managing and sell-ing the Property and Project.

"Between October 17, 2007 and June 4, 2008, Plaintiff Arlyne M. Goldstein made nine payments to Defendant Anguilla Hold-ing totaling One Million Seven Hundred Fifty One Thousand Six Hundred Eighteen and 44/100 ($1,751,618.44) Dollars.

"On or about November 2, 2007, a joint venture agreement was entered into between the Plaintiff Goldstein Family Partnership, L.P. and Defendant Anguilla Holding.

"On June 20, 2008, Plaintiff Goldstein Family Partnership, L.P. wired the total sum of $100,000 to Defendant Anguilla Holding.

"In June, 2008, Anguilla Development, LLC, an entity which is 100% owned by Goldstein Family Partnership, L.P., was formed and its existence filed with the New York State Department of State.

"Between August 25, 2008 and January 9, 2009, Plaintiff Anguilla Development, LLC made eight payments for the benefit of the Project totaling Four Hundred Eighty One Thousand Seven Hundred and no/100 ($481,700.00) Dollars.

"Pursuant to the terms of the Joint Ven-ture Agreement, Defendant Anguilla Holding

(Continued from page 14) was given the authority to manage the Joint Venture with the requirements that: (a) it shall "at all times be subject to the direction of' the Goldstein Family Partnership, L.P. and Anguilla Holding; (b) it shall consult with Goldstein Family Partnership, L.P. ' s designated representative "on a regular on-going basis as to all matters concerning the Joint Venture"; and (c) it shall obtain ap-proval of Goldstein Family Partnership, L.P. and Anguilla Holding for all "Major Decisions" as defined in the Joint Venture Agreement.

"Despite the clear intent of the Joint Venture Agreement – that the monies in-vested would be used solely for the further-ance of the ownership and development of the Property Defendant Foley has devised and conducted an illegal and fraudulent scheme using the Plaintiffs' investments in the Joint Venture to pay for his personal investments and that of his other corporate entities (the "Scheme").

"Through this Scheme, Defendant Foley has repeatedly, systematically and continu-ously engaged in a pattern of unlawful con-duct in which he has, intentionally and will-fully, and without Plaintiffs' knowledge or authorization, inter alia: (I) diverted hun-dreds of thousands of dollars of Plaintiffs' investment in the Joint Venture to non-Joint Venture uses; (2) engaged in numerous self-dealing transactions, including but not limited to the unauthorized collection of service fees, the improper charging of legal and other overhead expenses, and the charging of unrelated business and wholly unrelated personal expenses to the Joint Venture; (3) diverted Joint Venture re-sources to Foley's own unrelated uses; (4) repeatedly failed to provide financial re-ports to Plaintiff Goldstein Family Partner-ship, L.P. for the Joint Venture, including the failure to provide a specific accounting related to the diversion of Joint Venture monies and resources; (5) presented falsi-fied, fraudulent and/or misleading financial information and reports to the Plaintiff Goldstein Family Partnership, L.P. con-cerning the business and financial affairs of the Joint Venture; (6) engaged in other acts and omissions constituting gross breaches of Defendants' fiduciary duties and respon-sibilities to Plaintiff Goldstein Family Part-nership, L.P., including but not limited to acts and omissions which have placed the Joint Venture in default, jeopardizing the

entire transaction and threatening the contin-ued viability of the affected Joint Venture.

"The Defendants, Foley, Anguilla Hold-ing and Claude P. Priolet have been asked repeatedly by the Plaintiffs, and their repre-sentatives, to provide a complete accounting of the monies invested by the Plaintiffs in the Joint Venture. Despite repeated requests, the Defendants have failed to sufficiently re-spond to the Plaintiffs' questions concerning the inconsistencies between what they were told their investment in the Joint Venture was used for and what the actual application of those funds by the Defendants Foley and Anguilla Holding appeared to be.

"By converting and diverting Joint Ven-ture assets to himself and/or other business entities, Defendant Foley has inter alia: (1) defrauded the Plaintiffs and the Joint Ven-ture; (2) violated various provisions of the Joint Venture Agreement; (3) willfully breached the fiduciary duties owed to the Plaintiffs; and (4) converted hundreds of thousands of dollars of the Plaintiffs' and Joint Venture assets to Defendant Foley's own uses, which were wholly unrelated to the business affairs of the Plaintiffs, the Joint Venture and the Project.

"Defendant Foley's fraudulent Scheme has violated, and continues to violate, the provisions of Title 18, Chapter 96 of the U.S. Code, the federal Racketeer Influenced and Corrupt Organizations Act.

"Defendant Foley's control over the Joint Venture has allowed him to conceal the mag-nitude of this Scheme from everyone except his close inner circle. Along with Defendant Foley, that inner close circle – made up of the remaining Defendants who have coordinated and facilitated this Scheme – has illegally benefitted at the expense of the Plaintiffs."

In their complaint, the plaintiffs are, inter alia, seeking compensatory and punitive dam-ages, the disgorgement of "all distributions, salaries, management fees, partnership inter-ests, shareholder interests and rents paid di-rectly or indirectly to Defendants" and decla-rations that "all of the Defendants' rights, title and interest in the Property, Project and Joint Venture Agreement be transferred to the Plaintiff Goldstein Family Partnership, L.P. or its designee", "the Plaintiff Goldstein Fam-ily Partnership, L.P., or its designee, be ap-pointed the sole manager of the Property and Project" and "the Plaintiff Goldstein Family Partnership, L.P. is not in default of its Joint Venture obligations".



Cayman-licensed European Insurance sued in New York A Cayman Islands-licensed offshore insurer is being sued in the United States for dam-ages totaling $423,720 by two former own-ers.

Details are contained in a civil com-plaint that was filed at the Supreme Court of the State of New York, County of New York on February 25, 2009 by Anthony Chimento, a resident of Cedar Park, Texas, and Travis D. Miller, a resident of Wimber-ley, Texas.

Defendants are EUIC Holdings Ltd., domiciled in the Cayman Islands, with an address of HSBC Financial Services (Cayman) Limited, PO Box 1109 GT, Strathvale House, North Church Street, George Town, Grand Cayman, Cayman

Islands, KY1-1102; EUIC SPC Ltd., a.k.a. European Underwriters Insurance Company SPC Ltd., with the same ad-dress in Cayman; European Insurance & Reinsurance Underwriters Group Inc., a.k.a. European Insurance, based in Texas; Stanley Friedman, described as a resident of Staten Island, New York; and Michelle Schlenker, described as a resi-dent of Austin, Texas.

The causes of action are breach of promissory note, unjust enrichment, con-version, breach of implied duty of good faith and fair dealing, tortious interference with contract, fraudulent transfer, piercing corporate veil, and co-signer liability/damage to credit.

Chimento and Miller sold their owner-ship interests in European Insurance on August 1, 2006 and received promissory notes of $180,000 and $90,000, respec-tively, with each note bearing annual inter-est of 5% and maturing on August 1, 2008, according to the complaint. To date, no payments have been made under the terms of the note, claim the plaintiffs, who are seeking damages comprising principal, in-terest, and attorney's fees.

Research by OffshoreAlert showed that European Underwriters Insurance Company SPC Ltd. was licensed as an insurer by the Cayman Islands Monetary Authority on April 12, 2006.

Japanese investors accuse BVI firms of $2.5 m fraud Three British Virgin Islands-domiciled companies are among the defendants in a civil complaint in which 20 Japanese plain-tiffs claim they were defrauded of $2.5 mil-lion in a Ponzi scheme.

Details are contained in a civil com-plaint that was filed at the U. S. District Court for the District of Utah on March 23, 2009.

Defendants are RichMark International (BVI), Dressel Investments Limited, Top and Top Ltd., all domiciled in the British Virgin Islands; RichMark International Management Ltd., domiciled in British Co-lumbia, Canada; Asset Recovery Trust, Liberty Lofts LLC, both domiciled in Utah; Dressel Investments Ltd. (USA) Inc., Dres-sel Portfolio Management Inc., Elite Portfo-lio LLC, Elite Dynamics LLC, Dressel Consultants Inc., Options Limited LLC, Tonga Living LLC, DS Platinum LLC, The Fucoidan Company Inc., Triple D Mining Inc., Regal Financial Bank, all domiciled in Nevada; Integrity Office Support LLC, Top & Top Limited Inc., Dressel Investment Limited (USA) Inc., Music Chamber Inter-national Inc., Korr Development Inc., Nora-nia Development LLC, all domiciled in Washington; N206WB LLC, Mining 3 Inc., Mining 4 Inc., Rand Alaska Discovery & Mining Inc., all domiciled in Alaska; CCW International Ltd., domiciled in China; Dwight Williams, an attorney, and his son, Brad Williams, both described as residents of Salt Lake County, Utah; Brian Childs, believed to be a resident of Texas; Joseph

K. Kao, believed to be a resident of Hong Kong and Washington state; Danny M. K. Wong, believed to be a resident of Hong Kong; Karen Tsang, described as the sis-ter of Danny Wong and a resident of North Carolina; and Frank Ho, believed to be a resident of Hong Kong.

The plaintiffs are seeking compensa-tory damages of $2.5 million and punitive damages of $7.5 million, citing securities fraud, racketeering, fraud, misrepresenta-tion, conspiracy, unjust enrichment, and intentional and negligent misrepresenta-tion.

It was alleged in the complaint that: "This matter involves the creation, or-chestration, operation and concealment of a massive and highly successful fraudu-lent offer and sale of securities. A Ponzi Scheme. The Plaintiffs in this case were victimized by the Defendants in their na-tive country of Japan but the illegal in-vestment scheme which targeted them was created and perpetuated by Utah resi-dents who used Utah banks, business and real property to launder and conceal their ill-gotten investment capital.

"Plaintiffs assert that Defendants iden-tified individually can be divided into two groups of equal culpability and responsi-bility. The first group will be called Con-trol Persons. Control Persons are those who: actively marketed and sold securi-ties in various capacities; made false rep-resentations in connection with the sale of securities; who intended to deceive, ma-

nipulate, or defraud Plaintiffs; and, who ran the day to day operations of the various entities used to facilitate the Investment Scheme.

"Plaintiffs assert that the following indi-vidual Defendants are Control Persons: Brad Williams (son of defendant Dwight Williams), Danny Wong; Dwight Williams, Joseph Yao and Frank Ho. These persons knowingly and intentionally participated in the creation, orchestration and operation of the Ponzi Scheme for their personal profit. These Control Persons knew that investors were being robbed of millions and that funds were being diverted for their personal profit and that actual investments were not being made as represented to investors.

"Plaintiffs assert that the following indi-vidual defendants acted as Facilitators: Blake Ostler, Karen Tsang and Brian Childs. Each of these Defendants knew (and know) an illegal Investment Scheme was in operation and made or caused to be made untrue statements of fact in further-ance thereof. Each of these Defendants knew that the Plaintiffs and others were losing millions by the operation of the ille-gal Investment Scheme. Each of these De-fendants took no action to protect investors or correct misrepresentations of fact as re-quired by federal and state law. Each ac-tively assisted in the concealment and per-petuation of the illegal Investment Scheme in exchange for payments or assets gener-ated by its operation.




Japanese investors accuse BVI firms of $2.5 m fraud

"Plaintiffs assert that there are also two different groups of entity defendants. The first group of entity defendants are the in-strumentalities of the illegal Investment Scheme and were used to obtain and con-ceal investor funds, proceeds or assets. Each of these entity defendants are owned, operated or controlled by the Control Per-sons and used by them to divert money and assets for their personal profit. These enti-ties shall be identified as the Dressel Enti-ties. The Dressel Entities include for pur-poses of these Indonesia Plaintiffs include: Dressel Investments, Ltd. (BVI); Dressel Portfolio Management, Inc.; Integrity Of-fice Support, LLC; The Asset Recovery Trust ("ART"); N206WB, LLC (Alaska); Dressel Investments, Ltd. (USA), Inc. (Nevada); Top & Top, Ltd. (BVI); Elite Portfolio, LLC; Elite Dynamics, LLC; Dressel Investment Consultants, Inc., Op-tions Limited, LLC; Tonga Living, LLC; DS Platinum, LLC; The Fucoidan Com-pany, Inc.; Triple D Mining, Inc.(Alaska); Rand Alaska Discovery & Mining, Inc.; Triple D. Mining, Inc. (Nevada); Top & Top Limited, Inc. (Washington); Dressel Investment Limited (USA), Inc. (Washington); Mining 3, Inc.; Mining 4, Inc.; Music Chamber International, Inc.; Richmark International (BVI); Richmark International Management Ltd. (Canada); Korr Development, Inc; Norania Develop-ment, LLC, CCW International, Ltd. For purposes of brevity, throughout the remain-der of this Complaint, the identification of a defendant as a Dressel Entity shall carry the meaning and Plaintiffs' assertion that it was used by the Control Persons as an instru-mentality of fraud, to obtain, conceal and divert monies, assets and other rights at the expense of Plaintiffs. It shall further mean that its acts and omissions were directed by the Control Persons and Facilitators here in the State of Utah.

"Plaintiffs assert that the second group of entity defendants are not owned and con-trolled exclusively by the Control Persons. Nonetheless, they worked with or in con-cert with the Control Persons and the Dres-sel Entities to obtain monies, assets, con-tractual rights, shares of stock, ownership, real property and other proceeds of the Plaintiffs by furthering the Investment Scheme. These Defendants include: Regal

(Continued from page 16) Financial Bank, Inc, N206WB, LLC and Liberty Lofts, LLC.

"The Control Persons marketed, dis-tributed and sold the Investment Scheme by making untrue statements of material fact. Each of these defendants worked in concert as part of their fraudulent conspir-acy to offer and sell the Investment Scheme to the Plaintiffs. Each Control Person played a specific role in order to create the false impression of financial success, business acumen, securities ex-perience and investment acumen. Most notably, the individual Control Persons located in Utah were specifically selected to create an "American" look and feel so as to further induce the Plaintiffs to pur-chase securities.

"The Control Persons identified above in paragraph 3, marketed securities for the Dressel Entities as a group of world class companies offering a unique investment plan or program. They falsely claimed that Plaintiffs funds would be used to acquire, develop, and manage residential and commercial real estate, agricultural projects, mining operations and other hard assets. Additionally, the Control Persons claimed expertise in international finance and foreign currency trading.

"The Control Persons collectively recruited investors inclusive of the Plain-tiffs with promises of a high rate of return in collaboration with Dressel Entity funds. In Japan, this was done by their Agent in Fact, Sunny World Co. Ltd., which was engaged by Danny Wong, Brad Williams and Dwight Williams to further the Control Persons objectives and investment scheme. The Control Persons via Sunny World solicited investor funds from Japan, specifically the Plaintiffs. The Control Persons and Dressel Entities told the Plaintiffs and other investors that the proceeds for their purchase of Dressel Entity securities would be used to fund and acquire real estate developments, commercial properties, international fi-nance, mining operations, agricultural projects and their participation in various international finance trading programs. The Plaintiffs understood that all assets would be acquired and held in Dressel Investments Ltd. (BVI) which was re-flected or represented on the face of the securities provided in exchange for their investment funds. This did not occur.

"The Control Persons and Dressel In-vestments Ltd. (BVI) did not use the funds invested by the Plaintiffs as represented. The vast majority of funds were used in one of three ways: A) diverted to various third party entities in which the Plaintiffs had no equity or shareholder rights and which were in fact, owned or controlled by the Control Persons privately; B) diverted to make in-terest payments or "Priority Distributions" to earlier investors; and C) diverted to make under the table or undisclosed commissions or other payments to agents working for the Control Persons or others who convinced investors to deliver funds to the Control Persons and their Ponzi Scheme. Remain-ing funds were used by those same Control Persons to pay the operating expenses, legal fees and to support the Control Persons.

"The Control Persons failed to notify the Plaintiffs and other investors that at the time of their solicitation of securities, the Dressel Entities were essentially insolvent. The "token investments" made with the Plaintiffs (and other investor funds) had failed to generate any real revenue and the real estate, mining and other investments never materialized into any equity or assets for the benefit of the investors. In further-ance of their conspiracy, the Control Per-sons provided the Plaintiffs and others with numerous false statements of financial sol-vency, strength and ability to continue to acquire equity and value for the Plaintiffs.

"Instead of managing an innovative investment or "co-investment" program as represented by the Dressel Entities as they claimed, the Control Persons operated a blatant Ponzi Scheme using new investor funds obtained from the Plaintiffs and oth-ers to make interest payments or Priority Distributions to earlier investors from Utah, or other states and countries around the world.

"This action has been filed by Plaintiffs who assert that the Defendants have oper-ated an illegal investment scheme by solic-iting and selling securities to Plaintiffs that had no monetary value. Defendants em-ployed various illegal schemes to further the Investment Scheme. Defendants' acts include knowing misrepresentations regard-ing the value of the securities sold, the busi-ness activities and operational standards of the Defendants, the solvency of the Dressel entities, the indented use of proceeds, and




Japanese investors accuse BVI firms of $2.5 m fraud

the credibility of the investment fund, its directors, and managers. Defendants acted with scienter, as evidenced by their opera-tion of a Ponzi Scheme, money laundering, mail and wire fraud, receipt of Plaintiffs monies and assets, and other illegal acts to conceal investment capital obtained under these false pretenses.

"The Dressel Entities have been created, used and manipulated by the Control Per-sons to effectuate their various illegal in-vestment schemes, transfer monies between them domestically and internationally, and, benefit themselves personally at the ex-pense of the Plaintiffs and other investors. The actions of these Control Persons, through the mechanism(s) of the Dressel Entities, violate 18 U.S.C., §§ 1956, 1957. In essence, the Dressel Entities have been created to receive and re-distribute fraudu-lently obtained investment funds from the Plaintiff for the benefit of the Control Per-sons and Facilitators directly or indirectly.

"Plaintiffs acknowledge and assert the likelihood that the Control Persons will act to create other entities in other countries and states of these United States in further-ance of their illegal investment schemes and to conceal monies diverted from Plain-

(Continued from page 17) tiffs without their knowledge or consent in violation of federal and state law. Plaintiffs reserve the right to amend this Amended Complaint to add additional John Doe parties or entities that are dis-covered to have acted for or in concert with the Control Persons or the Dressel Entities.

"The Asset Recovery Trust has been established to shield those individually identified Control Persons and Facilitators who are engaged in various illegal activi-ties as set forth below. Under the watchful eye of Dwight Williams, the Asset Re-covery Trust was created with Robert Jinks with the alleged purpose of “marshalling the assets” of the Dressel Entities. Investor funds, assets and pro-ceeds were given to ART by assignment, though formal assignment has ever been provided and ART has admitted that no consideration was paid for the assign-ment. ART used the Utah Courts with the assistance of Blake Ostler to conceal the ownership of Dressel investor funds and assets.

"ART has obtained assets, rights and/or investment capital directly or indirectly from the Dressel Entities and/or Control Persons by way of fraudulent conveyance.

ART is an Alter Ego of the Control Persons and Dressel Entities and as such shares with them a unity of interest and ownership which exists to the point where a separation in the ART, the Dressel Entities and the Control Persons fails to exist. Further, the observance of the ART form would sanc-tion a fraud, promote injustice and an ineq-uitable result.

"The Dressel Entities and the Control Persons used ART to conceal their activi-ties, assert false and misleading statements publicly and privately and acted in concert with the intent to make permanent their diversion of the Plaintiffs invested funds."

Plaintiffs in the action are Markos Akio, Almir Maeda, Ulises Roque Valencia Bendezu, Miyashiro Inafuko Fernando, Jose Saavedra Kurimoto, Kazuo Yoshizaki, Fujii Leonardo, Fujii Adrian, Silvio Akio Tateo, Francis Guimaraes Aoto, Fabio Jun-ior de Liz, Meykell Giorge da Silva Sato, Maria Almeri da Silva Sato, Luciano Mas-sayuki Sakaue, Sam Prasad, Alain Borges, Ulf Bremer, Mirna Susanti, Kanagawa-Ken-Yoko-Shi Uragocho, and Ellen Yumi Ono. They were described as "either residents of Japan or were recruited or solicited by the defendants through Sunny World, in Ja-pan".

Jonathan Curshen found liable for securities fraud in SEC action Offshore provider Jonathan Curshen has lost the first of two securities fraud com-plaints filed against him by the United States Securities and Exchange Commis-sion.

Curshen, 42, a former Honorary Consul for St. Kitts & Nevis in Costa Rica who is a U. S. and U. K. national with addresses in Costa Rica and Sarasota, Florida, was found liable for an Internet-based 'pump and dump' scheme in a judgment that was rendered by U. S. Senior District Judge Walker D. Miller, sitting at the U. S. Dis-trict Court for the District of Colorado, on March 3, 2009 – nearly two years after the two-day bench trial ended.

In a final judgment entered on March 6, Curshen was ordered to disgorge profits of $66,235, plus interest, and banned from participating in any future penny stock of-fering.

In a press release issued on March 10,

2009, the SEC stated: "Based on the Commission's evidence at the bench trial held on April 30 and May 1, 2007, the Court concluded that in early 2000, Cur-shen knowingly or recklessly posted on various Internet sites baseless projections and other financial information about Freedom Golf Corporation, a now-defunct Denver-based golf club manufac-turer. The Court further found that Cur-shen knowingly failed to disclose that he was being paid to promote Freedom Golf and was selling the company's stock at the same time he was touting the company.

"According to the Court's findings, Timothy Miles, a principal shareholder of Freedom Golf, arranged for the company to hire Carter Allen Jones and Curshen to promote Freedom Golf. Jones prepared an "investor report" touting Freedom Golf based on information provided by the company's president. The report con-

tained factually baseless profit and revenue projections for Freedom Golf, which was in dire financial condition at the time. Curshen posted a link to the report on Internet web-sites, despite knowing of the company's poor financial condition. Furthermore, the Court found Curshen posted numerous messages touting Freedom Golf on various Internet web sites without disclosing his receipt and sale of Freedom Golf stock in exchange for promoting the company."

In his Findings of Fact, the judge stated: "Except for the Defendant, the witnesses who testified before me were generally credible. Given his demeanor and answers, the Defendant was not fully credible. He repeatedly stated he did not recall matters which were clearly linked to him, such as e-mail communications which were admit-tedly sent from his computer or under his user name. He also suggested that messages




Jonathan Curshen found liable for securities fraud in SEC action

could have been created by other individu-als who from time to time used his com-puter, including his Rabbi. There was no explanation, however, of why his Rabbi or anyone else would be communicating mes-sages concerning potential investments in Freedom Golf. His testimony is in direct conflict with other witnesses who had no self-interest in the particular issue such as Jose Pablo Jimenez, and Joseph Fernando. By use of his passport, Defendant also sought to distance himself from the Internet postings by demonstrating that he fre-quently traveled to Costa Rica during the early months of 2000. The passport mark-ings, however, did not include dates of his departures from Costa Rica to enable a de-termination of the length of his stays in Costa Rica. Accordingly, these efforts were inconclusive at best."

The judge determined that Curshen had anonymously posted several messages on web-sites at ragingbull.com and deja.com in an attempt to increase Freedom Golf's share price, including the following:

• "I hear rumblings that some very powerful investor relations people are going to get involved here."

(Continued from page 18) • "Pump up the volume!!" • "Get in now before the fireworks .

. ." • "All aboard! This train is pulling

out . . ." • "About to leave the launching

pad." "Defendant’s promotional efforts were

contemporaneous with his receipt and sale of Freedom Golf stock for his bene-fit," stated the judge.

In explaining his decision to ban Cur-shen from the penny stock industry "in the public interest", the judge stated: "Defendant does not recognize any wrong-doing, indeed denies it or declares the inability to recall it. Given that history and attitude, I do not accept Defendant's assurances against future violations or that there is no likelihood that he will have the opportunity to engage in similar conduct. I also note that he was not a fully credible witness and his assurances are given little if any weight. Accordingly a permanent injunction should enter."

As previously reported by Offsho-reAlert, Curshen and a business associate, Bruce L. Grossman, were criminally

charged with conspiracy to commit securi-ties fraud at the U. S. District Court for the Southern District of New York on Septem-ber 4, 2008. Six days later, they were also named as defendants in a civil complaint that was filed by the U. S. Securities and Exchange Commission at the same court.

In both actions, Curshen and Grossman have been accused of participating in a scheme to manipulate the common stock of Pink Sheets-listed Industrial Biotechnology Corp. by bribing registered representatives to buy IBOT shares in customer accounts over which the registered representatives had trading discretion. Both cases are ongo-ing.

Research by OffshoreAlert showed that, in recent years, Curshen has been involved as an officer, director and/or consultant in several businesses offering an array of off-shore and financial services, including Red Sea Management Ltd., in Costa Rica; Sen-try Global Securities Ltd., in Nevis; South-ern Assurance Group Inc., in Florida; LPS&C Law, in Costa Rica; and Curshen and Associates, in Costa Rica and Miami, Florida.

$3 b class Madoff-related class action filed against Bank of Bermuda et al A class action lawsuit has been filed against several offshore entities and individuals on behalf of investors in four hedge funds who allegedly lost over $3 billion in the Bernard Madoff fraud.

Among the offshore defendants are Bank of Bermuda subsidiaries in the Cayman Islands and Luxembourg, two Cayman-domiciled hedge funds – Primeo Fund and Herald Fund; James E. O'Neill, a former Managing Director of Bank Austria (Cayman Islands) (now UniCredit Bank); Cayman Islands resident Michael Wheaton, and British Virgin Islands-domiciled investment adviser BA Worldwide Fund Management Ltd. Also named as defen-dants are Ernst & Young, whose Cayman office allegedly audited one of the funds, and Price-waterhouseCoopers.

The complaint was filed at the U. S. Dis-trict Court for the Southern District of New York on March 19, 2009 by specimen plaintiffs Fabian Perrone, a resident of Argentina, and Chia-Hung Kao, a resident of Taiwan.

The action was filed on behalf of "all per-sons or entities" who purchased shares of the Thema Fund, a sub-fund of Thema Interna-

tional Fund Plc, of Ireland; Primeo Select Fund and Primeo Executive Fund, which are both sub-funds of the Primeo Fund;, Herald USA Fund and/or Herald Luxemburg Fund (collectively "the Medici Funds") between March 1, 2001 and December 10, 2008.

"Plaintiffs brings claims against some or all defendants for violations of §§ 10(b) and 20(a) of the Securities and Exchange Act of 1934, negligent misrepresentation, breach of fiduciary duty, violation of General Business Law §349, gross negligence, unjust enrich-ment, and aiding and abetting breach of fidu-ciary duty," it was stated in the complaint.

"This action arises from defendants' wrongful conduct in connection with the fraud and Ponzi scheme run by Bernard L. Madoff through his investment firm Bernard L. Madoff Investment Securities LLC. On December 11, 2008, Madoff's Ponzi scheme was disclosed to the public and Madoff was arrested by federal authorities. Madoff and BMIS had fraudulently reported steady, posi-tive returns on billions of dollars in invest-ments they controlled when, in fact, they had lost most, if not all, of the investors' money in

the largest Ponzi scheme in financial history. In fact, the government now says that it appears Madoff did not invest any of the money sent to him for over thirteen years. The U.S. Govern-ment has filed criminal charges against Madoff and the SEC is investigating BMIS and related entities. Investors' losses are estimated at $50 billion.

"Following these revelations, a number of investment funds disclosed that they were little more than feeder funds for Madoff and BMIS. Such funds included the Medici Funds. The Medici Funds each sought contributions di-rectly from investors, and delivered, or fed, the investments they received to Madoff. Bank Medici AG, controlled the Medici Funds, and caused these funds to be fed into Madoff's Ponzi scheme. Sonja Kohn, the founder of Medici, its chairperson, and a 75% owner; Pe-ter Scheithauer, the former Chief Executive Officer of Medici; Werner Tripolt a former director of Medici; John Holliwell, another director of Medici; UniCredit S.A., an Italian bank which owned 25% of Medici through its subsidiary Bank Austria Creditanstalt, Bank




$3 b class Madoff-related class action filed against Bank of Bermuda et al

Austria itself (collectively the "Medici Defen-dants") were all control persons of Medici.

"The Medici Defendants, and Pioneer Al-ternative Investments (collectively the "Fund Managers"), who at all relevant times was owned by UniCredit and owned the Primeo Fund, represented to investors that their money would be invested in the securities market. The Fund Managers touted profits made by current investors, thereby encouraging investment by new and existing investors. However, the Fund Managers did not inform their investors that the Medici Funds were acting as feeder funds for a Ponzi scheme.

"Equally, defendants the Herald Fund Di-rectors, Primeo Fund Directors, and Thema Fund Directors, along with the Medici Funds' advisers, administrators, managers and custodi-ans, as defined infra, were control persons of their respective funds and misled investors by failing to inform them that they were investing in Madoff's Ponzi scheme through feeder funds.

"Defendant Ernst & Young was the auditor for the Herald and Primeo Funds and Defen-dant PricewaterhouseCoopers was the auditor for the Thema Fund (collectively the "Auditor Defendants"). The Auditor Defendants falsely represented to plaintiffs and the Class that their investments were secure and gaining value. The Auditor Defendants ignored or failed to do reasonable due diligence to uncover the many red flags which would have shown that these funds were not safe and growing, but were instead invested in a Ponzi scheme.

"Moreover, all the defendants ignored many red flags that should have caused them, as investment professionals, to conduct further due diligence and/or alter their investment deci-sions. These red flags included but were not limited to the following:

(a) the lack of transparency into BMIS, including Madoff s refusal to disclose his investment strategy;

(b) BMIS's returns lacked the usual level of volatility, including only five months of negative returns in the past 12 years;

(c) the inability of other funds using a "split-strike conversion" strategy (which Madoff purportedly used) to generate returns comparable to those generated by Madoff;

(d) Madoff acted as his own prime broker, while most hedge funds use outside large banks as their prime brokers;

(e) BMIS only generated revenue through transaction-based commission fees, unlike most hedge funds which charge investment management fees based on the performance of the fund;

(f) account statements sent to Madoff's investors did not support the returns

(Continued from page 19) they reported; (g) one of Madoff s competitors, Harry

Markopolos, sent two letters to the SEC, one in 1999 claiming that "Madoff Securities is the world's largest Ponzi Scheme" and another in 2005 stating "The World's Largest Hedge Fund is a Fraud;"

(h) BMIS's auditor, Freihling & Horowitz, consisted of one office in Rockland County, New York, with three employees, one of whom was 78 years old and lived in Florida, and one of whom was a secretary;

(i) regulatory filings of the Medici Funds showed very small positions in equi-ties, which the Medici Funds ex-plained was due to Madoff's strategy of converting all the assets to case equivalents at the end of every quar-ter, but there was no record of the estimated $13 billion in assets being moved all at once; and

(j) BMIS's comptroller was based in Bermuda, while most mainstream hedge funds have in-house comptrol-lers.

"As a result of defendants' wrongdoing, plaintiffs unknowingly invested in a Ponzi scheme indirectly through one of the Medici Funds known as the Thema Fund. The vast majority of the capital of the Thema Fund was invested with Madoff and his related entities. Due to defendants' actions, plaintiffs have lost their investments in the Thema Fund and Class members who invested in the Medici Funds have lost over $3 billion.

"By contrast, defendants have received millions of dollars in commissions and fees throughout the Class Periods."

The defendants in the complaint are: Primeo Fund, described as a hedge fund formed in the Cayman Islands on November 17, 2003, with Bank of Bermuda (Cayman) Limited as its registered office; Herald Fund SPC, domiciled in the Cayman Islands; Thema International Fund Plc, based in Ire-land; BA Worldwide Fund Management Ltd., described as an investment adviser to the Primeo Fund with a registered office at HWR Services P.O. Box 71, Road Town, Tortola, British Virgin Islands; Bank of Bermuda (Cayman) Limited, described as the adminis-trator and registrar of the Primeo Fund; Bank of Bermuda (Luxembourg) SA, described as the custodian of the Primeo Fund for a por-tion of the Class Period; Ernst & Young, described as auditor of the Herald and Primeo Funds, with its Cayman office allegedly au-diting the Primeo Fund and its Luxembourg office allegedly auditing the Herald Funds; HSBC Holdings Plc, based in England, de-

scribed as the parent company of the adminis-trator and administrator of the Thema Fund" and "a control person of the Thema Fund and Primeo Fund"; HSBC Institutional Trust Ser-vices (Ireland) Ltd., described as the custodian of the Thema Fund; HSBC Securities Services (Ireland) Ltd., described as the "administrator, registrar, transfer agent, and secretary of the Thema Fund"; HSBC Securities Services (Luxembourg) SA, described as "the custodian, service agent and listing agent of the Herald Funds and custodian for the Primeo Fund"; Bank Medici AG, described as a "closely-held merchant bank" based in Austria which "owned, acted as investment manager for, and marketed the Herald Funds, controlled the Primeo Fund …, was the manager of the Thema Fund beginning in 2006, and caused each of these to become feeder funds for Mad-off's Ponzi scheme based in Austria"; Bank Austria Creditanstalt, described as "Austria's largest bank"; Pioneer Alternative Investment Management Limited, described as an invest-ment manager based in Ireland; Pricewater-houseCoopers, described as the auditor of the Thema Fund; UniCredit S.A., described as an Italian bank which owned 25% of Bank Medici through its subsidiary Bank Austria; Nigel H. Fielding, Karl E. Kaniak, Declan Murray, Jo-hannes P. Spalek, Michael Wheaton, and Ursula Radel-Leszczynski, all described as directors of the Primeo Fund at one time or another; Alfred Simon, described as President and CEO of Primeo Fund "for a portion of the Class Period"; Alberto La Rocca, described as a director of the Primeo Fund "for a portion of the Class Period" and "a Managing Director of Pioneer Alternative Investment Management (Bermuda) Limited from at least December 2002 through April 25, 2007"; James E. O'Neill, described as a director of the Primeo Fund "for a portion of the class Period" and its adviser BA Worldwide Fund Management, Ltd. and a Managing Director of Bank Austria (Cayman Islands) from 1998 to at least 2004; Alberto Benbassat, Stephane Benbassat, Ge-rald. J. P. Brady, David T. Smith, and Daniel Morrissey, all described as directors of the Thema Fund; Helmuth E. Frey, described as Chairman of Herald Fund Luxembourg and CEO of Investment at Bank Austria; Friedrich Pfeffer, described as a director of Herald Lux-embourg Fund; Franco Mugnai, described as a director of Herald Luxembourg Fund; Nicola A. Corsetti, Herald C. Nograsek, and Hannes Saleta, all described as directors of BA World-wide Fund Management; Sonja Kohn, de-scribed as the founder of Bank Medici AG; John Holliwell, described as a director of Bank Medici; Werner Tripolt, described as a director of Bank Medici; and Peter Scheithauer, de-scribed as the CEO of Bank Medici.



MLAT Round-Up

Recent Requests for Judicial Assistance in the United States

CANADA Robert Waxman Canada has requested evidence from five residents of Michigan for a fraud and theft trial in Ontario.

Details are contained in an application for the appointment of a Commissioner to collect evidence – pursuant to a request for judicial assistance from Canada – that was filed at the U. S. District Court for the East-ern District of Michigan on March 16, 2009.

"The Department of Justice Canada, specifically the Attorney General of On-tario, will be commencing trial against Robert K. Waxman on March 23, 2009 for multiple count of Fraud Over $5,000 and Theft Over $5,000 and has asked for assis-tance in obtaining the sworn testimony, by means of video technology, of five wit-nesses in the Eastern District of Michigan," it was stated in the application. "All five witnesses have agreed to appear voluntar-ily, although witness subpoenas will still be necessary."

The identities of the witnesses were not disclosed in court filings. COLOMBIA David Barros Velez, Luz Isaza Velasquez, Bank of America, Blackman Overseas Corp., FIT International Group Colombia is seeking account records at Bank of America, in Miami, and informa-tion about a British Virgin Islands-domiciled IBC called Blackman Overseas Corp. as part of a criminal investigation into alleged corruption by a former mayor of the city of Armenia.

Details are contained in an application for the appointment of a Commissioner to collect evidence – pursuant to a request for judicial assistance from Colombia – that was filed at the U. S. District Court for the Southern District of Florida on March 3, 2009.

"The instant Convention request has been made by the Republic of Colombia, the Central Authority for Colombia under the Convention, in connection with a cur-rent criminal investigation by Prosecutor 14 of the Criminal Courts in and for the Circuit of Armenia, Quindío," it was stated in the application.

"According to the request, Colombian authorities are conducting an investiga-tion involving the alleged illicit activity of Mayor David Barros Velez. Allegedly, Barros Velez, along with Luz Isaza Velasquez, managed an account which was initially opened in May 5, 2006, with $50,000. When the account was closed in February 6, 2008, it had a balance of $384,061,050 that was not declared as income by Barros Velez. Due to the fact that Barros Velez was having financial trouble prior to taking office it is believed that the increase of funds in the account is the result of criminal activity.

"Colombian authorities seek our assis-tance in obtaining bank account records from Bank of America, located in Miami, Florida, in furtherance of their investiga-tion."

According to the request for assis-tance, Barros Velez and Isaza Velasquez controlled a foreign currency trading ac-count at FIT International Group that was associated with the Bank of America ac-count.

Barros Velez served as municipal mayor of the city of Armenia, in the re-gion of Quindio, from 2004 to 2007, it was stated in the request. He is being in-vestigated for "Illicit Enrichment of Pub-lic Servant".

In its request, Colombia has asked for details of any accounts at the Brickell Avenue, Miami branch of Bank of Amer-ica in the names of David Barros Velez and Blackman Overseas Corp., described as a company domiciled in the British Virgin Islands with an address of 782 Lejeune Road, Miami, FL 33126, and for evidence as to whether Blackman Over-seas Corp. operates from 782 Lejeune Road, Miami, Florida and has any links to Barros and Luz Elena Isaza Velasquez.

LATVIA www.gold-cash.biz, Julija Berezovska, Vladislavs Hveskovics, OptionsXpress, Bancorp Bank, Digital Exchangers, Rie-tumu Banka

Latvia is seeking information about a ficti-tious bank – using an address in Bermuda – and other companies that were allegedly used to defraud a Connecticut resident of US$151,730.

Details are contained in an application for the appointment of a Commissioner to collect evidence – pursuant to a request for judicial assistance from Latvia – that was filed at the U. S. District Court for the Dis-trict of Delaware on March 19, 2009.

A resident of Norwalk, Connecticut had two online accounts with OptionsExpress, a Chicago-based online broker, according to the request for assistance.

On April 25, 2005, the account-holder discovered there had been unauthorized access and that "unknown persons used his user name and password and did money transferrals from his account", it was claimed. It was found that, from March 9, 2005 to April 25, 2005, US$151,730 had been illegally transferred from his account at The Bancorp Bank, which is a FDIC-insured online commercial bank with an address of 405 Silverside Road, Suite 105, Wilmington, Delaware, to an e-gold ac-count in the name of "Bancorp Bank", us-ing an address of Reid House, 31 Church Street, Hamilton, Bermuda, it was alleged.

Some of the funds ended up in an e-gold account registered to www.gold-cash.biz, which was registered to Julija Berezovska and has an address in Riga, Latvia, it was claimed. In 2003, her husband, Vladislavs Hveskovics, started an Internet currency business called Digital Exchangers, which was domiciled in the United States, oper-ated a web-site at www.gold-cash.ru and had an account at Rietumu Banka, stated investigators, who added that he sold Digi-tal Exchangers to an Italian company in 2005.

In its request for assistance, Latvia re-quested the following information: Details about OptionsXpress, of 39 S. LaSalle Street, Chicago, Illinois; Bancorp Bank, of 405 Silverside Road, Suite 105, Wilming-ton, Delaware; Bancorp Bank, Reid House,





of 31 Church Street, Hamilton, Bermuda; and Digital Exchangers.

Research by OffshoreAlert showed that the domain name gold-cash.biz is now reg-istered to Kam Chun Man, with an address in Kowloon, Hong Kong. LATVIA Latcelt LLC, a.k.a. Laceit LLC; Forever Auto LLC, Niratons LLC, M.Art Studija LLC, Arhidom LLC, Sen LLC, ARTE ET LLC, Dinakts LLC, Nordval Baltic LLC, Style & Interior LLC, Ekobild LLC, Credit Suisse Premium Finance LLC, Langa USA, Northstar System Corporation, Leonid Paliitchouk, Elita Zolotovska, Pavels Kadirkovs, Alexander A. Dubitsky, Tatjana Mihailuka, Dmitrijs Osokins, Kristina Kokina, Arvids Morozs, Rasids Sultanovs, Rieutuma Banka Latvia has requested information about several companies with addresses in the United States as part of a criminal investi-gation into alleged tax evasion and money laundering.

Details are contained in an application for the appointment of a Commissioner to collect evidence – pursuant to a request for judicial assistance from Latvia – that was filed at the U. S. District Court for the Dis-trict of Delaware on March 19, 2009.

A pre-trial investigation determined that "a group of persons" was executing ficti-tious transactions with a view to commit-ting value added tax fraud and legalizing the proceeds of criminal activity "on a grand scale", it was alleged,

Investigators stated that, during the in-vestigation, several "fictive" companies were discovered, including Latcelt LLC, also identified as Laceit LLC; Forever Auto LLC, Niratons LLC, M.Art Studija LLC, Arhidom LLC, Sen LLC, ARTE ET LLC, Dinakts LLC, Nordval Baltic LLC, Style & Interior LLC, and Ekobild LLC.

(Continued from page 21)

"The officials of "Niratons" LLC, "Forever Auto" LLC, "Arhidom" LLC, ''M.Art Studija" LLC confirmed that they had never carried out any commercial activity in the companies and had never concluded any deals with any company," it was stated in the request.

Funds were transferred to accounts in the names of ARTE ET LLC, Dinakts LLC, Nordval Baltic LLC, and Style & Interior LLC at Rietumu Banka and were further transferred to the accounts of "Langa, Northstar System Corporation and other companies registered abroad", it was alleged.

The purpose for the transfer of funds was given as "for construction materials or for promissory notes" but there are "reasonable doubts" that deals ARTE ET LLC, Dinakts LLC, Nordval Baltic LLC, and Style & Interior LLC purportedly transaction with foreign companies such as Langa, Northstar System Corporation, and Credit Suisse Premium Finance LLC never took place, it was claimed.

Latvia is seeking information about Credit Suisse Premium Finance LLC, with an address of 11 Madison Avenue, New York, NY 10010; Langa USA, with an address of 1912 Capitol Avenue, Cheyenne, WY 82001; and Northstar System Corporation, with an address of Suite 606, 1220 North Market Street, Wil-mington, DE 19801 and for witnesses to be asked questions about a number of businesses and individuals, including Leonid Paliitchouk, Elita Zolotovska, Pavels Kadirkovs, Alexander A. Dubit-sky, Tatjana Mihailuka, Dmitrijs Osokins, Kristina Kokina, Arvids Morozs, and Ra-sids Sultanovs.

PANAMA Jose Campa, Lia Lasso de Chiari, Alberto Ignacio Paz, Ariel Marcelo Soto, Tower-bank International, Inc., BankAtlantic Panama is seeking information about an account at BankAtlantic in Miami as part of a criminal investigation into alleged fraud.

Details are contained in an application for the appointment of a Commissioner to collect evidence – pursuant to a request for judicial assistance from Panama – that

was filed at the U. S. District Court for the Southern District of Florida on March 18, 2009.

"The instant Treaty Request has been made by the Republic of Panama Ministry of Government and Justice, the Competent Authority under Article 4 of the Treaty, in connection with a criminal investigation by the Office of the Fourteenth Circuit Public Prosecutor of the First Judicial Circuit of Panama," it was stated in the application. "Panamanian authorities are conducting an investigation into an unauthorized money transfer.

"According to the request, Lia Lasso de Chiari worked at Towerbank International, Inc., in Panama. On December 6, 2006, she received a fax allegedly sent by account-holder Alberto Ignacio Paz, requesting the wire transfer of 28,300 Balboas from his account at Towerbank to an account at Ban-kAtlantic in Miami, Florida, in the name of Ariel Marcelo Soto. On January 26, 2007, after receiving his account statement and seeing the wire transfer, Paz denied that he requested any funds to be transferred. Lasso de Chiari told law enforcement officers that the fax was the first time Paz had requested a transfer via fax.

"Based on these facts and in furtherance of their investigation, the Republic of Pa-nama requests our assistance in obtaining bank records from BankAtlantic."

According to the request, Panama is investigating a "crime against the national economy, committed in [sic] the detriment of Jose Campa". PARAGUAY Nilo Sancir Lima Alvarez, Citibank, Susana Anahi Ayala Lima Paraguay is seeking information about an account at Citibank from which it is alleged that at least one withdrawal was made 12 days after the account-holder died.

Details are contained in an application for the appointment of a Commissioner to collect evidence – pursuant to a request for judicial assistance from Paraguay – that was filed at the U. S. District Court for the Southern District of Florida on March 18, 2009.


MLAT Round-Up




"The instant Convention request has been made by the Ministry of Public Af-fairs, the Central Authority for Paraguay under the Convention, in connection with a current criminal investigation by Sonia Maria Mora Franco, State Prosecutor of Criminal Unit No.2 of the State Prosecu-tor's General Office of the Republic of

(Continued from page 22)

Paraguay," it was stated in the applica-tion.

"According to the request, Paraguayan authorities are investigating the complaint of Susana Anahi Ayala Lima, grand-daughter of now deceased Nilo Sancir Lima Alvarez. Lima Alvarez died on De-cember 17, 2003. According to the re-quest, Ayala Lima declared in the succes-sion trial the existence of three bank ac-counts in her grandfather's name that re-mained open and continued to have movement of withdrawals and transfers until February 25, 2004. One of these accounts is an account at a Citibank branch located in Miami, Florida.

"In furtherance of their investigation, Paraguayan authorities seek our assistance in obtaining bank account records from Citibank."

The criminal investigation began after a complaint by Susana Anahi Ayala Lima, a grand-daughter of the deceased and one of the heirs of his estate, according to the re-quest for assistance.

Investigators alleged that US$21,000 was withdrawn from the deceased's account on December 29, 2003 – 12 days after his death and that activity in the account con-tinued until February 25, 2004.

MLAT Round-Up

Petters-related class action against Ernst & Young (Bermuda) A class action complaint has been filed Ernst & Young (Bermuda) in the United States on behalf of investors in a hedge fund for which it was the audi-tor.

The action was filed at the U. S. District Court for the District of Connecticut on March 9, 2009 by Susan Quinn, who claims to have invested approxi-mately $1.8 million in Stewardship Credit Arbitrage Fund LLC.

Defendants are Ernst & Young LLP, a Delaware partnership based in New York, NY; Ernst & Young Ltd., in Bermuda; Stewardship Credit Arbitrage Fund LLC, Stewardship Investment Advisors LLC, and Acorn Capital Group LLC, all Delaware corpo-rations based in Greenwich, Connecticut; and Mar-lon Quan, an investment manager believed to reside in Connecticut and the founder and principal officer of both SIA and Acorn.

The causes of action against all defendants are breach of fiduciary duty and negligence.

"Plaintiff is an investor in Defendant Steward-ship Credit Arbitrage Fund, LLC, which is managed by Defendants Marlon Quan and his company, Stew-ardship Investment Advisors, LLC," it was stated in the complaint. Plaintiff and other members of the Class purchased interests in the Fund.

"During the Class Period, Defendants caused a material share of the investment capital of the Fund (approximately sixty percent (60%)) to be invested with Thomas J. Petters and Petters Group World-wide, LLC, and its subsidiaries and affiliates (collectively, "Petters").

"During September 2008, a federal investigatory task force assembled in the District of Minnesota uncovered a massive fraudulent Ponzi scheme perpe-trated by Petters. Petters and their co-conspirators have been charged with multiple federal felonies and more charges are expected. At present, the total estimate involved in the swindle approaches a stag-gering $3 billion.

"The essence of this scam was the completely fictitious sale of high-definition flat screen television sets and other expensive electronic consumer prod-ucts by the Petters organization to retail wholesale

clubs, including Sam's Club, Costco Wholesale, and BJ's Wholesale Club. Phony purchase orders and invoices were prepared and provided to per-sons who loaned money to the Petters Group, including numerous investment funds, which had in turn obtained money from private investors as their fiduciaries.

"In the federal investigation, FBI agents took the phony purchase orders and invoices directly to Sam's Club and Costco Wholesale to obtain con-firmation of their legitimacy, and were immedi-ately informed that they were completely bogus. Indeed, according to an affidavit executed by an FBI Special Agent, Petters and their co-conspirators knew this could happen and discussed it among themselves: "[I]f investors send auditors out to visit warehouses where the merchandise is located, ...the scheme would implode."

"The Private Placement Memorandum for SCAF (the "Memorandum") states that one of the Fund's "primary investment strategies" would be the purchase of short-term notes from "merchandise distributers," like Petters, "who are engaged in the business of buying excess high-quality, consumer merchandise inventory arising, for example, from manufacturing overruns, whole-sale inventory overages and retail bankruptcies, at distressed prices and selling the merchandise to retailers at a profit."

"With respect to all such distribution compa-nies and transactions, the Memorandum specifi-cally provides that SCAF would "undertake the following procedures," among others, to ensure the legitimacy of any short-term notes in which the Fund invested:

a. "Receive a secured promissory note"; b. "Confirm that the consumer goods fall

into an acceptable category"; c. "Confirm that the consumer goods have

been pre-sold to a retailer with an 'A' or better credit rating ....";

d. "Obtain a security interest in the con-sumer goods and accounts receivable proceeds";

e. "Require payment of the accounts receiv-able into a lock-box account"; and

f. "Perform ongoing quantitative and qualita-tive analysis of the consumer goods mar-kets, the short-term commercial credit market and the financial condition of the Distribution Company and its retailer cus-tomers."

"Defendants did none of these things, however. While a simple telephone call to any of Petters' sup-posed "retailer customers" would have immediately revealed that the subject notes were entirely bogus, Defendants performed no due diligence whatsoever, despite their fiduciary duties to Plaintiff and the other Class members.

"Defendants' abject failure to conduct any pro-cedures to verify the legitimacy of the notes and the transactions underlying them is all the more egre-gious given that Petters was the only distribution company in which the Fund had invested Plaintiff's and other Class members' money. As set forth in the Memorandum, all of the Fund's "financing activities will nothing to investigate the legitimacy of the notes.

"Ernst and Young, LLP, and Ernst and Young Ltd. Bermuda (together, "E&Y") served as the Fund's primary outside auditors during the Class Period. When a certified public accounting firm audits a client's financial statements, it has a duty to exercise due professional care, professional skepti-cism and objectivity, and to develop and follow procedures, analyses, and tests to verify the legiti-macy and accuracy of the client's assets, liabilities, operations, and cash flow.

"E&Y, which is among the largest accounting firms in the world, failed in these duties when it conducted its audits that were so superficial and perfunctory that it failed to detect that approximately sixty percent (60%) of the assets reflected in the Fund's financial statements were a complete and total sham. Had E&Y done its job, Plaintiff and the other members of the Class would not be in the dire financial straits in which they find themselves to-day."



Latin America

Round-Up ARGENTINA

Fears of more laundering rise

An Argentine plan to increase tax revenue and invigorate the economy by attracting offshore assets, with a no-questions-asked policy, is generating criticism from experts who say it could encourage money laundering instead. Argentine lawmakers began debating the bill sent by President Cristina Fernandez last De-cember, and it has become law this month. With capital flight estimated at $20 billion this year and as much as $140 billion in Argentine funds held offshore, the government wishes to offer chunky tax breaks to people and compa-nies who declare their offshore assets. The government has not said how much money it hopes to raise, but critics say the plan opens a can of worms because people who repatriate funds they parked offshore would be free of any enquiry into the source of the money. Some have called the bill |"an amnesty law for money launderers." Argentina's basic tax rate on earnings is 35%, but the plan offers rates as low as 1% for assets that are repatriated and invested in national industry, infrastructure or farming. The same bill also sets out tax breaks for companies that put under-the-table workers on to the payroll. In addition, the government would drop prose-cution of individuals and companies who agree to long-term, low-rate plans to pay off back taxes. BOLIVIA

Now with the Very Bad Guys

In the 2009 International Narcotics Control Strategy Report (INCSR), Bolivia –together with Zimbabwe and Guinea-Bissay – has been moved to the "Jurisdictions of Primary Con-cern" category from the "Jurisdictions of Con-cern" category by the US State Department. Bolivia is now on a list alongside with Brazil, Colombia, Costa Rica, Dominican Republic, Guatemala, Mexico, Panama, Paraguay, Uru-guay and Venezuela, as well as other non-Latin American countries. Jurisdictions of Primary Concern are those that are identified as "major money laundering countries." A major money laundering country

is defined as one "whose financial institutions engage in currency transactions involving significant amounts of proceeds from interna-tional narcotics trafficking." Bolivia is not a major regional banking cen-ter, but it is a big cocaine processing and producing country. The focus in considering whether a country or jurisdiction should be included in this category is "on the signifi-cance of the amount of proceeds laundered, not of the anti-money laundering measures taken," says the US State Department. This is a different approach taken than that of the Financial Action Task Force's Non-Cooperative Countries and Territories (NCCT) exercise, which focuses on a juris-diction's compliance with stated criteria re-garding its legal and regulatory framework, international cooperation, and resource allo-cations. Last December, Bolivia's Financial Intelli-gence Unit (FIU) was expelled from the Eg-mont Group. According to the US State De-partment, "the goal of the Egmont Group is to provide a forum for FIUs around the world to improve support to their respective govern-ments in the fight against money laundering, terrorist financing, and other financial crimes. This support includes expanding and sys-tematizing the exchange of financial intelli-gence information, improving expertise and capabilities of personnel employed by such organizations, and fostering better and more secure communication among FIUs through the application of technology." More information at http://www.state.gov/p/inl/rls/nrcrpt/2009/vol2/116550.htm. EL SALVADOR

Corruption – One of the main challenges

The main challenges faced by the new presi-dent-elect Mauricio Funes are adopting meas-ures to deal with the economic crisis, fighting against corruption and strengthening the country's institutions. According to local analysts, Funes of the Farabundo Martí Na-tional Liberation Front (FMLN) will have to act fast, even before he takes office on Jun 1, to generate confidence at the political level, among the business community and in soci-ety at large.

El Salvador is number 67 in the Corruption Perceptions Index of Transparency Interna-tional, with 180 the worst position in the world. Almost 14% of the population said that it has been victimized by corruption in the past year, according to the 2008 TI report. GUATEMALA

New tougher AML rules From April 1, the Superintendence of Banks in Guatemala will implement new rules that affect more than 700 politicians, public officials and their families (or Politically Exposed Persons known as PEPs), as part of a plan to fight money laundering. Transactions of $10,000 or more will have to be reported to the Superin-tendence. MEXICO

Exchange of prisoners Mexico and the US have exchanged 36 prison-ers who will have to serve the remainder of their sentences in their own countries. A total of 10 US citizens convicted for homicide, weapons possession and drug charges in Mex-ico were exchanged for 26 Mexicans serving sentences for money laundering, drug charges or weapons possession. A 1977 treaty allows inmates convicted in ei-ther country to serve out their sentences in their home countries.

Sinaloa Cartel Leader Captured Vicente "Vicentillo" Zambada Niebla – the drug-smuggler son of a leader of Mexico's Si-naloa cartel – was captured in Mexico. This is one of the highest-profile catches of the gov-ernment's two-year "war on drugs". Zambada Niebla is the son of Ismael "El Mayo" Zam-bada, coleader of the ruthless Sinaloa cartel, along with the Mexico's most-wanted fugitive, Joaquin "Shorty" Guzmán. Zambada Niebla´s capture follows that of his uncle Jesús "The King" Zambada in 2008. President Felipe Calderon´s army-backed, con-troversial crackdown on drug cartels has be-come the biggest test of his presidency after turf wars between rival cartels killed some




Latin America

Round-Up

6,300 people across Mexico last year, posing a threat to investment and tourism. Zambada Niebla ran smuggling operations in parts of the cartel´s territory and ordered execu-tions of rivals, according to Mexican authori-ties. The Mexican attorney general´s office said he is also wanted in the United States. PERU

Impunity for the Generals

Retired military officers facing prosecution in Peru for cases of corruption or human rights violations allegedly committed during the 1980-2000 civil war are awaiting trial in the comfort of their homes. Retired army lieutenant Juan Rivera, who headed a platoon accused of taking part in the massacre of 30 women, 23 children and 16 old men in Accomarca, was let out of jail after less than three months. He is facing a 30-year sen-tence. Rivera was deported to Lima by the US government for immigration law violations on August 18, and was imprisoned in the Canto Grande prison. But in his appearance before Judge Teófilo Salvador, he argued that his par-ticipation in the massacre has not been proven, and that he did not fire a single shot because he was not even near the scene of the crime. Judge Salvador granted him house arrest. Also under house arrest are several former members of the so-called "Colina Group", a death squad made up of Army Intelligence Service (SIE) agents that killed 15 people at a neighbourhood barbecue in the Lima district of Barrios Altos in November 1991, and murdered nine students and a professor from La Cantuta University in July 1992. Retired colonel Víctor Silva, a former SIE chief, has been under house arrest for six and a half years. Another retired colonel, Fernando Rodríguez Zabalbeascoa, who was the Colina Group's liaison with the National Intelligence Service (SIN), the secret police apparatus run by Fujimori's powerful security adviser Vladi-miro Montesinos, has also been awaiting his sentence at home for four years. And a former sub-director of army intelligence, retired Gen-eral Federico Navarro, who has been implicated in the Barrios Altos and La Cantuta cases, has been under house arrest for five months. Silva,

(Continued from page 24) Rodríguez Zabalbeascoa and Navarro are all facing charges of aggravated homicide. So are non-commissioned officers César Alva-rado and Pedro Santillán, former members of the Colina Group, and retired General Luis Pérez Documet, who played a key role in the La Cantuta killings. Alvarado has been under house arrest for five years, Santillán for four years and Pérez Documet for five months. Retired General José Valdivia, accused of ordering the May 14, 1988 murder of 25 peasant farmers in the village of Cayara in reprisal for an attack on a military convoy by the Sendero Luminoso (Shining Path) Maoist guerrillas, also enjoys the benefit of house arrest. Colonel Flavio Gallegos, another of the offi-cers accused in connection with the Cayara massacre, has been under arrest in his home for the past seven months. Retired Generals Ricardo Sotero and Luis Cubas, who held high-level posts during the Fujimori regime and are facing corruption trials, have also been under house arrest, for five and a half years and 11 months, respec-tively. REGIONAL

Leading banks laundering poor countries' criminal proceeds

Some of the world's leading banks facilitate money laundering and corruption in the poor-est countries, charges a new report by Global Witness, an independent watchdog group. Nothing new there. The study quotes from a 1999 US Senate's Permanent Subcommittee on Investigations' report and other references that point to the same conclusions. The survey, "Undue Diligence: How banks do business with corrupt regimes," shows how by doing business with dubious custom-ers in corrupt states, banks are facilitating laundering, corruption and state looting. The same lax regulation that created the current credit crunch has let some of the world's big-gest banks facilitate the laundering of pro-ceeds from looting wealth from poor coun-tries, according to the report. The report mentions the case of Raul Salinas (brother of the former president of Mexico,

Carlos Salinas), who was included in the US Senate's Permanent Subcommittee on Investi-gations report Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities. Another case that is mentioned is that of the Riggs Bank in Washington, which, according to the report, "provides the ultimate textbook example of failure to conduct due diligence on politically exposed persons. The Washington bank, an august institution which had banked for Abraham Lincoln and billed itself as the bank of presidents, fell apart in 2004 after a US Senate committee investiga-tion and federal criminal investigators found it had been holding accounts for President Obi-ang of Equatorial Guinea, his family members, and his corrupt government, as well as for Au-gusto Pinochet, the former Chilean dictator." The banks doing business with corrupt custom-ers include Barclays, Citibank, Deutsche Bank, and HSBC. Nearly all of the banks that are featured in the report are major international banks and all of them make broad claims about their commitments to social responsibility. Yet, according to the report, there is a huge mis-match between rhetoric and reality. The report prescribes essential reforms to the financial regulatory system, which need to be adopted globally, with effective information sharing across borders. These include the adop-tion of explicit anti-money laundering laws that call on banks to identify the natural person behind the funds, investigate the source of funds, and refuse the customer if they present a corruption risk. Another recommendation is for greater coop-eration between governments to ensure that national bank regulations become globally compatible, accountable and transparent, and are not hindered by bank secrecy laws. This must begin with reforms to the inter-governmental body that oversees the anti-money laundering regime, the Financial Action Task Force (FATF), which sets the global stan-dard for the anti-money laundering rules that are supposed to prevent flows of corrupt funds. For more information, see Global Witness re-port http://www.globalwitness.org/media_library_detail.php/735/en/un-due_diligence_how_banks_do_business_with_corrupt and Financial Action Task Force http://www.fatf-gafi.org/



In the very first edition

of OffshoreAlert in February, 1997, we referred to TCI as the "Totally Corrupt Is-lands" and commented that there was a presumption among knowledgeable busi-nesspeople that TCI-domiciled companies were 'crooked until proven otherwise', prompting a local resident, Dale Peters, to write a letter to the editor complaining about our "gratuitous comments". Peters ended with: "If the balance of your efforts bears no more resemblance to reality than those with respect to the TCI I suggest the existence of the letter will be brief and its demise swift, just and certain." Twelve years later, it is the Turks and Caicos Is-lands, not OffshoreAlert, which is on life support. Twelve years later, it is the TCI, not OffshoreAlert, which is on life support. The UK Overseas Territory is in chaos fol-lowing the publication of the "Interim Re-port" of retired judge Sir Robin Auld, who headed a Commission of Inquiry into "possible corruption or other serious dis-honesty in relation to past and present elected members of the Legislature in re-cent years". After an evidentiary-phase comprising six months of "extensive writ-ten inquiries" and two months of oral hear-ings in TCI that ended on February 11, Auld stated in his Interim Report that he had determined there was a "high probabil-ity of … systemic venality" and "clear signs of political amorality and immaturity and of general administrative incompetence". The Territory's Government is "at a near stand-still" and the Cabinet is "divided and unsta-ble", wrote Auld. The Territory's finances "are in dire straits and poorly controlled" and "the financial position is so bad that the Government cannot pay many of its bills as they fall due", he added. "Governmental and other audit recommendations lie ig-nored and unattended. In short, there are wide-spread fears on the part of the people of the Territory that they are leaderless and that their heritage is at risk of continuing to drain away." In short, OffshoreAlert's un-flattering description of the TCI 12 years earlier as the Totally corrupt Islands was spot on. Auld recommended that the TCI's Governor, Gordon Wetherell, who repre-sents the UK Government in the Territory,

take a number of urgent measures, includ-ing suspending the Territory's Constitu-tion "for an indeterminate period" and replacing the local government with di-rect rule from London. He also recom-mended that steps be taken to recover public assets that are believed to have been misappropriated by politicians, their families and associates. To handle the anticipated corruption cases resulting from the Commission of Inquiry's full findings, which are expected to be com-pleted by the end of April, Auld recom-mended an increase in the number of courts, the appointment of more judges and court officers, the appointment of a Special Prosecutor, and a "special proce-dure of trial by judge alone for cases where trial with a jury would risk impair-ment of the administration of justice". Auld also recommended the "speedy im-plementation" of an Integrity Commission Ordinance, which would set out specific rules of conduct for public officials. It was revealed during the Inquiry that the TCI Government has been discussing such an Ordinance since 1976 without ever passing one. Although dated Febru-ary 28, 2009, Auld's Interim Report was made public on March 16, 2009 and, seven days later, Michael Misick resigned as the Territory's Premier. It came to light during the Inquiry that 43-year-old Misick had accumulated assets of ap-proximately $180 million by 2008, which was a massive increase from the $50,000 that he declared when he became Chief Minister in 2003 (a position converted into Premier in 2006). His new-found wealth included approximately $20 mil-lion in undeclared loans from financial institutions, foreign companies, and mem-bers of his government. At the same time he was holding the public sector positions of Premier and ministers of tourism, civil aviation and planning, the British-trained attorney was operating in the private sec-tor as a real estate agent, a law firm con-sultant and a director of property compa-nies, the Commission of Inquiry heard. Evidence presented to the Commission suggested that one way Misick and his associates had grown wealthy was by acquiring publicly-owned Crown Land and selling it to developers. During the Inquiry, a document was produced from

the TCI Minister for Natural Resources, McAllister Hanchell, in which he awarded himself Crown Land. The document read: "Dear Honourable Hanchell, I refer to your request for a freehold title. I am pleased to inform you in accordance with Cabinet's decision, it has been agreed freehold title shall be granted. Yours sincerely, Honour-able Hanchell." The Minister denied any wrongdoing and said the document was standard practice. The current scandal is nothing new for the TCI. In 1985, three members of the TCI Government, namely Chief Minister Norman Benjamin Saun-ders, Minister of Development Stafford Allan Missick, and Alden Smith, a.k.a. Aul-den Smith, were arrested in Miami, Florida and charged with cocaine trafficking of-fenses. Saunders and Missick were con-victed by a jury and sentenced to eight and 10 years, respectively, in federal prison, while Smith pleaded guilty and also re-ceived a prison term. The following year, in circumstances that resemble what is hap-pening now, the Territory's Constitution was suspended and direct rule imposed from London after a Commission of Inquiry into corruption, arson and related matters found three Government ministers, namely Chief Minister Nathaniel Francis, Minister of Health and Education Robert Hall and Minister of Works Alden Durham, "guilty of unconstitutional behavior and of ministe-rial malpractices which rendered them unfit to exercise ministerial responsibilities" and two members of the Opposition, Lewis Ast-wood and Oswald Skippings, "guilty of the most reprehensible conduct" and "unfit to hold public office". Despite this, when Brit-ish direct rule ended in 1988, the local population elected Skippings as their new Chief Minister. As with many countries, TCI has a history of acrimony between its main political parties. However, all of that was put aside in 1996 when, in a rare dis-play of unity, all 16 members of the Legis-lative Council, include cocaine-trafficker Saunders, who had been re-elected after his release from federal prison in the U. S., and unfit-for-office Skippings, signed a petition calling for the removal of then Governor Martin Bourke after a British financial magazine published an article in which Bourke spoke of the "moral indifference" of the TCI population and referred to the local police as "slothful, indolent, corrupt". It is apparent from Auld's report that nothing much has changed since then.

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