Tel.: (305)372-6267;Published Fax: (305)372-8724; by KYC News,www.OffshoreAlert.com Inc., 123 S. E. 3rd Avenue, PMB #173,April, Miami, 2009 FL 33131, USA. OffshoreAlert

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 SPECIAL EDITION for A newsletter covering • Ernst & Young (Bda) Page 23 7th Annual OffshoreAlert Offshore Financial Centers • Latin America Pages 24-25 Financial Due Diligence Conference • Insider Talking Page 26

Canadian defrauded two Bahamas brokers of $29 m, alleges indictment Canadian national George Georgiou has less stocks whose prices were manipu- December 2006 through in or about Sep- been criminally indicted in the United lated to create the appearance that they tember 2008", according to the indictment. States for allegedly defrauding two Baha- had significant value, according to the "Defendant George Georgiou and his co mas-based broker-dealers of at least $29 indictment. -schemers took steps to artificially inflate million in a securities scam. In order to carry out the scheme, and maintain the prices of Neutron and Georgiou, 39, masterminded a scheme Georgiou controlled accounts that were Avicena stock, including making manipu- that caused losses of "approximately $25 established by his nominees – identified lative trades in the stocks to reach certain million" to Caledonia Corporate Manage- as "KW", "KG", "RW", and "RB" – at prices through matched trading and wash ment Group Limited and "at least $4 mil- Caledonia, Accuvest, another Bahamas- sales," it was alleged. lion" to Accuvest Ltd., according to an in- based broker called Alliance International "Defendant George Georgiou and his co dictment at the U. S. District Court for the Management Ltd., and a fourth offshore -schemers opened an account at Caledonia Eastern District of Pennsylvania on Febru- broker-dealer called Temple Securities in the name of an individual known to the ary 12, 2009, which came nearly five Ltd. in the Turks and Caicos Islands, it grand jury, and identified here as RW, that months after he was first arrested on Sep- was claimed. There is no suggestion in would enable them to trade on margin that tember 18, 2008 as part of the investigation. the indictment that Alliance International was purportedly secured by at least $15 Georgiou was indicted on one count of Management or Temple Securities lost million of Neutron and Avicena stock. De- conspiracy, four counts of securities fraud, any money or that any of the four off- fendant Georgiou and his co-schemers did and four counts of wire fraud. He has shore brokerages were knowingly in- not disclose to Caledonia that the shares of pleaded not guilty and is currently out on volved in the scheme. Neutron and Avicena stock that they had bail awaiting trial. A parallel civil com- The alleged fraud took place from "at pledged as collateral had been artificially plaint alleging securities fraud was filed least in or about April 2004 through in or inflated and were worth far less than $15 against him on the same day at the same about September 2008" and involved the million. court by the U. S. Securities and Exchange manipulation of four microcap compa- "Defendant George Georgiou and his co Commission. nies: Avicena Group, Inc., a Delaware -schemers used the artificially inflated While the losses at Caledonia, which corporation based in Palo Alto, Califor- stock prices to induce Caledonia to extend forced the company into liquidation last nia; Neutron Enterprises, Inc., a Nevada them credit by permitting them to trade on year, have been previously reported by Off- corporation based in Ontario, Canada; margin and by extending them cash loans. shoreAlert, the indictment is the first pub- Hydrogen Hybrid Technologies, Inc., a "Defendant George Georgiou and his co licly-available document that identifies Nevada corporation based in Ontario, -schemers used the credit that Caledonia Accuvest as an alleged victim. Canada; and Northern Ethanol, Inc., a had extended them to purchase stock, in- Georgiou and his co-conspirators per- Delaware corporation based in Ontario, cluding additional shares of Avicena and suaded Caledonia and Accuvest to lend Canada, it was claimed. Neutron, which furthered their goals to ma- them cash in return for either mere prom- The specific scheme to defraud Cale- nipulate the stocks and profit from their ises of security that never materialized or donia occurred from "at least in or about inflated prices. actual security that turned out to be worth- (Continued on page 2)

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Canadian defrauded two Bahamas brokers of $29 m, alleges indictment (Continued from page 1) of dollars worth of HYHY and Northern marking-the-close, arranging for wash sales "Defendant George Georgiou and his co Ethanol stock. In fact, defendant Geor- and matched trades, and paying illegal -schemers consistently made trades in the giou and his co-schemers never disclosed kickbacks in exchange for purchases. RW account that lost money and exceeded that they had artificially inflated the share ""Marking-the-close" is a form of mar- the margin percentages that Caledonia had prices of HYHY and Northern Ethanol ket manipulation that involves attempting offered to provide. stock and that they were worth far less to influence the closing price of a security "When Caledonia, on numerous occa- than they had represented. by executing purchase or sale orders at or sions, requested additional security to sup- "By falsely making it appear that there near the close of normal trading hours. port the credit in the RW account, defen- was valuable stock in the Zaitech account, Such activity can artificially inflate or de- dant George Georgiou and his co-schemers defendant George Georgiou and his co- press the closing price for the security and falsely represented to Caledonia that he and schemers fraudulently obtained margin can affect the price of "market-on-close" his “group” would transfer additional assets and cash loans of approximately $4 mil- orders. into the RW account. In fact, defendant lion from Accuvest. "A wash sale is an order to buy or sell Georgiou and his co-schemers never trans- "Defendant George Georgiou and his securities resulting in no change of benefi- ferred any other assets into the account. co-schemers did not repay the money that cial ownership for the purpose of (1) creat- "Defendant George Georgiou and his co they had borrowed on margin and in cash ing a false or misleading appearance of -schemers also took steps to prevent Cale- loans from Accuvest, and their artificially active trading in any publicly traded secu- donia from obtaining the Neutron and inflated stock did not cover the loans. As rity; or (2) creating a false or misleading Avicena stock that they had pledged as col- a result, defendant Georgiou and his co- appearance with respect to the market for lateral in the RW account. schemers caused Accuvest to lose at least any such security. "Specifically, defendant Georgiou and $4 million." "A matched trade is an order to buy or his co-schemers refused to authorize the Although Georgiou's alleged nomi- sell securities that is entered with knowl- transfer of the stock to Caledonia. nees in establishing the offshore accounts edge that a matching order on the opposite "As a result of the false representations were identified by their initials in the in- side of the transaction has been or will be of defendant George Georgiou and his co- dictment, the identities of two of them are entered for the purpose of (1) creating a schemers concerning the collateral for the known to OffshoreAlert: "KG" is Geor- false or misleading appearance of active Caledonia account and their failure to pro- giou's wife, Karen Georgiou, and "RW" is trading in any publicly traded security or vide additional assets, Caledonia was un- Ronald Wyles, of Lakeshore Road, Bur- (2) creating a false or misleading appear- able to cover the substantial deficits in the lington, Ontario. ance with respect to the market for any such RW account. Defendant Georgiou and his According to the SEC's complaint, security." co-schemers thus caused Caledonia to suf- "Georgiou compensated the nominees for Although he used nominees to open fer approximately $25 million in losses. allowing him or his associates to dictate accounts, Georgiou personally met with Because Caledonia was unable to cover their trading. At times, Georgiou directly representatives of Caledonia in the Baha- those massive losses, the firm could no paid nominees. Other times, he allowed mas and with Accuvest-affiliate William longer operate and was liquidated." them to sell shares at specified times in Wright Associates in California as part of The specific scheme to defraud Accu- order to profit in exchange for entering his alleged scheme, it was stated in the in- vest took place from "at least in or about trades at Georgiou’s direction. dictment. June 2007 through in or about September "Georgiou attempted to conceal his Georgiou likely used nominees in an 2008", according to the indictment. association with the nominee accounts attempt to conceal his long track record of "Defendant George Georgiou and his co that he directly and indirectly controlled regulatory and criminal problems, as previ- -schemers took steps to artificially inflate as much as possible. He also sought to ously reported by OffshoreAlert,. In 1995, and maintain the prices of HYHY and minimize records of communications. For Ontario police charged him with defrauding Northern Ethanol stock, including making example, Georgiou often directed the a businessman of $170,000, charges which manipulative trades in the stocks to reach manipulative trades only by cell phone or were withdrawn by the Crown on Novem- certain prices through matched trading and sent and received messages by way of ber 8, 1996 at the Ontario Superior Court of wash sales," it was alleged. BlackBerry PIN. When he did use e-mail, Justice, and, in May, 2000, the Investment "Defendant George Georgiou and his co he often used e-mail accounts in other Dealers Association of Canada fined him -schemers opened an account at Accuvest people's names to disguise his identity. CDN$50,000 and banned him from the in the name of Zaitech Enterprises. The Moreover, he avoided U.S. financial insti- brokerage industry for ten years – from trading in the account was to be handled tutions and moved cash in and out of his January 31, 1995 to January 31, 2005 – for through an advisory agreement with Wil- foreign accounts via wire transfers to a slew of violations of client trust from liam Wright Associates, an Accuvest affili- minimize any "paper trail". January 22, 1993 to November 19, 1993 ate based in California. "Through these accounts, and others, while he worked as a stock broker for Mid- "Defendant George Georgiou and his co Georgiou was able to engage in numerous land Walwyn Capital Inc. (now Merrill -schemers represented to Accuvest and manipulative practices and techniques Lynch Canada Inc.) and Levesque Securi- Wright that they would fund the Zaitech including controlling the trading volume ties Ltd. (now National Bank Financial account with what purported to be millions through promises of profits to nominees, (Continued on page 3)

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

(Continued from page 2) to privately settle complaints from clients Accuvest Ltd. and Caledonia Corporate Ltd.), both in Kitchener, Ontario. These "without the knowledge, consent or au- Management Group Ltd. prior to lending violations included conducting discretion- thorization" of his employer, effecting him and his nominees millions of dollars. ary trades in client accounts without their short sales in client accounts "while under On its web-site at www.accuvest.net, knowledge or authorization, effecting short restrictions" from his employer not to do Accuvest Ltd. identifies its "key" manage- sales in client accounts without first obtain- so without obtaining manager approval, ment as Robert Jensen, Founder and Man- ing signed margin agreements from the and providing a client with "false or mis- aging Director, and Sean Nottage, Director clients, making trading recommendations leading information regarding the client's and General Counsel. that were inappropriate for clients and not account". Before going into liquidation, Caledonia in keeping with their investment objectives, The many red flags that exist in Geor- Corporate Management Group Ltd. was and engaging in business conduct giou's background and his active involve- controlled by Matthew McNeilly, William "unbecoming or detrimental to the public ment in the operation of the alleged Jennings, and Paul King, who were all di- interest", including borrowing money from scheme raise question marks about the rectors. clients, entering into financial arrangements quality of due diligence conducted by

McGladrey & Pullen (Cayman) sued for $109 million by hedge fund investors Cayman Islands-based auditor McGladrey McGladrey's American certified public standards generally accepted in the United & Pullen is being sued for $109 million by accountant counterparts, McGladrey & States. investors in a failed offshore hedge fund. Pullen LLP and Altschuler Melvoin and "Indeed, on September 24, 2008, fol- Details are contained in a complaint that Glasser LLP. lowing the public announcement of a raid was filed at the Circuit Court of Cook "As part of the Fund's audited finan- by federal law enforcement officials on the County, Illinois on March 19, 2009 by cial statements in 2004 through 2008, offices of Petters Company and its principal Northwater Market-Neutral Trust, domi- McGladrey-purportedly conducting its and namesake, Thomas J. Petters ciled in Ontario, Canada; Northwater Five- audits in accordance with the auditing ("Petters"), Plaintiffs learned that the Fund Year Market-Neutral Fund Limited, East standards generally accepted in the had invested their assets in a fraudulent River Offshore Ltd., French River Offshore United States-issued unqualified opinions "Ponzi scheme" perpetrated by Petters and Limited, NewQuant Offshore Ltd. I, Spe- that the Fund's financial statements pre- his affiliates. cial Offshore Ltd. E, Trent River Offshore sented fairly, in all material respects, the "The federal government confirmed the Ltd., and Enhanced Investing Corporation Fund's financial position and results of its Ponzi scheme by using the basic auditing (Cayman) Ltd., which are all domiciled in operations, changes in partners' capital, practice of confirmation - that is, taking the the Cayman Islands. and cash flow for the year, in conformity simple step of asking the supposed Retail- McGladrey & Pullen (Cayman) is the with accounting principles generally ac- ers to confirm that they purchased high-end sole defendant. cepted in the United States. electronic goods from the SPY. This basic The plaintiffs are seeking compensatory "According to McGladrey, the Fund step led the investigators to uncover the damages of $109 million, punitive dam- invested its assets in collateralized short- Petters fraud in a short amount of time. ages, attorney's fees and costs, alleging term trade finance loans ("Notes"), which "Petters Company and its SPVs were fraud and accounting malpractice. financed a distributor of consumer goods, not purchasing goods from Suppliers and "Plaintiffs invested in excess of Petters Company, Inc. Petters Company reselling them to Retailers. In truth, Petters $109,000,000 in Lancelot Investors Fund, purportedly was using the loan proceeds and his affiliates were perpetrating a fraud Ltd. (the "Fund"), an investment fund or- to purchase high-end electronic goods by creating fictitious invoices, purchase ganized under the law of the Cayman Is- from suppliers (the "Suppliers") and then orders and other documents relating to non- lands," it was stated in the complaint. reselling the goods to major United States existent goods so that Petters could use the "Plaintiffs' decision to invest such a retailers such as Costco and Wal-Mart money from investors for his own purposes. significant amount of money in the Fund (the "Retailers"). The loans were made to As described in the September 19, 2008 was based on the audited financial state- a special purpose vehicle (the "SPV") affidavit of Special Agent Timothy Bis- ments prepared by defendant McGladrey & owned by Petters Company. swurm with the Federal Bureau of Investi- Pullen, Cayman, and a Cayman entity it "To help induce Plaintiffs to invest in gation, Petters and his cohorts were supply- acquired, Altschuler Melvoin and Glasser the Fund, McGladrey made false, material ing false invoices and purchase orders, (Cayman) (collectively, "McGladrey"). misrepresentations about the financial there were no goods being bought or sold, "McGladrey prepared the audited finan- position and operations of the Fund. and the money received by investors was cial statements at the conclusion of audits McGladrey's Independent Auditor Re- recycled by Petters to trick investors into performed by auditors that Plaintiffs be- ports represented that McGladrey con- lieve included auditors employed by ducted the audit according to the auditing (Continued on page 4)

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McGladrey & Pullen (Cayman) sued for $109 million by hedge fund investors (Continued from page 3) "Had McGladrey taken this basic au- Plaintiffs have lost over $109,000,000, believing that Petters was buying and re- diting step that Petters and others feared which they would not have lost had selling merchandise. and carried out its other professional obli- McGladrey met its obligations and pro- "As demonstrated by recordings of FBI- gations, the Fund could not and would not vided a truthful portrayal of the Fund's op- monitored conversations, the Petters con- have fallen victim to Petters' Ponzi erations and financial situation, and there- spirators knew that the basic auditing step scheme. Moreover, had McGladrey been fore seek restitution for all of their invest- of confirmation was a weakness of their truthful about the performance and opera- ment losses and such other relief as the scheme and discussed it among themselves, tions of the Fund, Plaintiffs would not Court finds just and reasonable." at one point admitting that "the scheme have invested in the Fund in the first would implode" as soon as "investors send place. auditors out to visit warehouses where the "As a result of McGladrey's misstate- merchandise is located." ments and professional misconduct,

Massachusetts regulator sues Bermuda investment adviser over Madoff fraud A Massachusetts regulator is seeking the Despite the fact that the Madoff group relationship whereby Madoff served as both return of hundreds of millions of dollars of did not conduct a single trade for at least the sub-custodian of the assets and the exe- fees that it claims a Bermuda-based invest- the last 13 years of its existence and was cuting broker, which made it so when Fair- ment adviser, a New York affiliate and their audited by a one-person firm operating field checked the custodian's records against principals received from managing the big- from a strip mall in New York City, Fair- the broker's records, it was checking infor- gest feeder funds for Bernard Madoff's field represented to investors that every- mation received from Madoff against other multi-billion dollar Ponzi scheme during an thing was above-board and "the due dili- information received from Madoff without 18-year relationship. gence Fairfield supposedly undertook with third-party corroboration. Both Amit Vijay- In an administrative complaint filed on respect to Madoff Investments was a cor- vergiya, Fairfield's Chief Risk Officer, and April 1, the Enforcement Section of the nerstone of its marketing efforts", accord- Dan Lipton, Fairfield's CFO, acknowledged Massachusetts Securities Division is also ing to the complaint. that this was a "risk" or a "risk factor", but seeking a fine and an order requiring re- However, the regulator claimed that that risk factor was not specifically dis- spondents Fairfield Greenwich (Bermuda) "the concept of due diligence was merely closed to investors. Ltd. and Manhattan-based Fairfield Green- part of Fairfield's marketing pitch, not an "Fairfield did not receive trade continua- wich Advisors LLC to pay full restitution to activity it meaningfully engaged in with tions from Madoff until three to five days all Massachusetts investors who put money respect to Madoff", despite the fact that after the trade had been entered, thus allow- into the feeder funds, named as Fairfield "over 95%" of the Sentry Fund's assets, ing Madoff ample time to fake the numbers, Sentry Limited, which is domiciled in the approximately $7 billion, was invested but did not inform its clients that its "daily" British Virgin Islands; Greenwich Sentry with Madoff. monitoring of positions and risk profiles had LP; and Greenwich Sentry Partners LP, "Fairfield and its key personnel claim a three-to-five day time lag. In addition, the which are both domiciled in Delaware. to have had no idea whatsoever that Mad- trade tickets received by Fairfield typically "This Complaint is based on a profound off was anything other than the legitimate contained not the prices at which a security disparity between the due diligence Fair- broker and brilliant market-timer they was bought or sold, but weighted average field represented to its investors that it promoted him as," stated the regulator. prices of a group -of securities supposedly would conduct with respect to Bernard L. "The Division's investigation attempted to bought and sold during the day. Madoff Investment Securities LLC and the discern how Fairfield possibly could not "Given the concentration of custodial due diligence it actually conducted, as well have discovered the fraud during their and brokerage functions at Madoff Invest- as misrepresentations to investors in its Sen- eighteen-year relationship. The answer, ments, and the fact that Fairfield had en- try funds about Fairfield's degree of knowl- quite simply, is that they were blinded by trusted Madoff with in excess of $7 billion edge and comfort with respect to Madoff's the fees they were earning, did not engage of its clients' money, it is all the more sur- operations," stated the regulator. "This in meaningful due diligence and turned a prising that Fairfield never made certain Complaint is also based on the lack of an blind eye to· any fact that would have basic checks such as insisting that Madoff arms-length relationship between Fairfield burst their lucrative bubble." provide it with the names of at least one of and Madoff Investments and the failure of The complaint went on: "In stark con- his options counterparties and confirming Fairfield to disclose to investors the inter- trast to the promises made in its marketing with that counterparty that Madoff was in connected relationship between Fairfield materials and in statements made to cli- fact buying and selling options from them. and Madoff Investments. Fairfield's com- ents, Fairfield neglected to do any mean- Neither Jeffrey Tucker, a Founding Partner plete disregard of its fiduciary duties to its ingful check into whether Madoff was of Fairfield, or Vijayvergiya could name investors and its flagrant and recurring mis- actually making the trades he said he was anybody at Madoff Investments involved in representations to its investors rises to the making or actually holding the assets he executing the split-strike conversion strat- level of fraud." said he was holding on behalf of Sentry egy other than Madoff himself or Frank clients. Fairfield acquiesced to the unusual (Continued on page 5)

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Massachusetts regulator sues Bermuda investment adviser over Madoff fraud (Continued from page 4) at Friehling & Horowitz (whose name members of the local chapters of DiPascali. They, as well as Dan Lipton, Lipton testified that he cannot remember, the CPA. Fairfield's Chief Financial Officer, had all but who must have been David Friehling, "When Vijayvergiya was asked how he received tours of Madoff's market making because he was the firm's only employee) knew that Friehling & Horowitz were inde- operation, yet none of them had actually in 2005. pendent auditors, he testified that "on the seen the floor, personnel or computers "Fairfield only made this one limited front of the report it said independent audi- where Madoff supposedly ran the SSC strat- inquiry in order to respond to a Sentry tor". On September 14, 2005, Gordon egy." client's question. In a September 5, 2005 McKenzie emailed Tucker, Lipton, McKee- Fairfield claims to have relied on the email from a Sentry client, the client fry and others at Fairfield. In the email he oversight of Madoff by the U. S. Securities asked the following question about Mad- stated: "It appears Friehling is the only em- and Exchange Commission and FINRA, off's auditor: "Bernard L. Madoff Securi- ployee" of Friehling and Horowitz. Jeffrey which is the largest independent securities ties LLC has employed a small accounting Tucker emailed back: "thank you". This regulator in the U. S. firm. Is that accounting firm checked and awareness did not prevent Fairfield from However, such reliance was approved by Fairfield Greenwich routinely presenting the supposed audits of "unfounded", stated the regulator, pointing Group?". Dan Lipton, on September 12, Friehling and Horowitz's to investors as out that, when the SEC was investigating 2005, sent the following statement for evidence that Madoff's operations were le- Madoff in 2005, apparently in response to Jeffrey Tucker to communicate to the cli- gitimate and the assets he was managing concerns raised by fraud investigator Harry ent: were properly supervised." Markopolos, Madoff coached Fairfield's "Friehling & Horowitz, CPAs are According to the Massachusetts regula- senior staff on how to respond to the SEC's a small to medium-sized finan- tor, Fairfield's relationship with Madoff was inquiries. cial services audit and tax firm so cozy that it gave Madoff proprietary in- The Massachusetts Securities Division specializing in broker/dealers and formation, including the names of specific produced a transcript of a telephone conver- other financial services firms. investors in the Sentry funds, and "even told sation that took place in December, 2005 They are located in Rockland him that it was suspending redemptions in between Madoff and Fairfield's General County, New York. They have two of its funds before Fairfield told the Counsel, Mark McKeefrey, and Chief Risk hundreds of clients and are investors in those funds", it was alleged. Officer, Amit Vijayvergiya, that began with well-respected "However, the most telling indicia of the Madoff stating "Obviously, first of all, this in the local community. interconnected, co-dependent relationship conversation never took place, Mark, [Emphasis added] between Fairfield and Madoff occurred okay?" and Vijayvergiya responding with: "In his on the record testimony before when things began to fall apart. "Yes, of course." the Division, Lipton testified as follows: "In October, November and December "Having received detailed instructions Q. How did you determine they of 2008, Madoff reversed his longstanding from Madoff as to what to tell SEC examin- had hundreds of clients? policy with Fairfield of limiting the amount ers, Fairfield could not possibly in good A. That's what the partner said on of money Fairfield could invest with Mad- faith have relied on the fact that Madoff had the phone to me. off and, instead, began to react angrily when a spotless record with the SEC as a basis for Q. Did you corroborate that in Fairfield gave him information regarding a believing its assets were being properly any other way? significant amount of redemptions in the supervised at Madoff Investments," stated A. No. Sentry fund. the Massachusetts regulator in its complaint. … "In response, Fairfield redoubled its Fairfield's additional reliance on audits Q. How did you determine that marketing efforts to "defend" against re- of Madoff prepared by Friehling & they were well-respected in the demptions. In addition, Fairfield personnel Horowitz was "equally absurd", it was local community?" . quickly worked with Madoff to set up new claimed. "Fairfield did not know a thing A. That's what our conversation funds – the BBH Emerald fund and the about this one-person auditing firm that was – my conversation with one of Greenwich Emerald fund – to funnel money operating out of a strip mall in New City, the partners at Friehling & to Madoff. The Emerald funds were mar- New York until 2005, other than having a Horowitz, that's what was told to keted to investors as an "enhanced" version copy of the publicly-available portion of the me. of the Sentry funds, with a modified version audits Friehling & Horowitz submitted to Q. So he told you they were well of the SSC that supposedly generated higher the SEC. When Fairfield finally did inquire -respected in the local commu- returns but with greater risk. However, in 2005, it found out that Friehling & nity? much of the money that went to Madoff on Horowitz only had one employee and ap- A. That's correct. December 1 was from Fairfield insiders. In proximately $180,000 in annual sales Q. And that's what you based this the words of Walter Noel, one of Fairfield's (which is certainly not consistent with per- statement on? founding partners, "we tried to help stem forming the function of auditing a $65 bil- A. Plus I had looked up on the things" and "we thought, well, we can help lion enterprise). No-one at Fairfield had Internet to see if he was in good him a bit if we give him some more ever spoken to anyone at Friehling & standing with the CPA license, money". In contrast, Jeffrey Tucker testified Horowitz other than a five-to ten-minute which he was and it listed that he that "he and his wife put money into the conversation Dan Lipton had with a partner – or members of the firm – were (Continued on page 6)

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Massachusetts regulator sues Bermuda investment adviser over Madoff fraud (Continued from page 5) • new UCITS III fund, lion and Tucker and Noel earned in excess Greenwich Emerald fund on December 1 launch Feb 2009 (target of $30 million. because they thought it was a good invest- ~$500mm in 12 months) "The vast bulk of the fees Fairfield ment. However, they made their investment earned were performance fees that were without had the benefit of any due diligence "We are aggressively cutting generated from gains derived from Madoff's with respect to the fund, without having effective fees for new subscrip- purported returns. Fairfield's purported seen any offering documents, without hav- tions through offering significant value added to its investors (upon which the ing signed a subscription agreement, with- fee-sharing incentives to our cli- assets-under-management fee and perform- out the Greenwich Emerald fund having ents, agents and finders." ance fees were based), was (a) the access to picked an auditor or custodian, and without The regulator noted: "Investors in the Madoff Investments that Fairfield provided having received any information about the Sentry funds were not made aware of to its investors, (b) the supposed due dili- fund other than a one-page sheet of sup- Fairfield's desperation. Right up until the - gence Fairfield performed on Madoff In- posed performance results from Madoff end, they were aggressively being told to vestments to make sure that it was a safe (which no-one at Fairfield double checked, purchase the Sentry and Emerald funds investment investors did not have to worry corroborated or did any due diligence with because they were good investments." about and (c) Fairfield's ongoing monitoring respect to) and having had only a five min- The Massachusetts regulator stated of Madoff's execution of the SSC strategy ute conversation with Madoff in which he that Fairfield relied upon Madoff's bogus based on guidelines provided by Bernard L. described the fund. claims of high returns, whereby he Madoff. "Despite the fact that they were able to "posted positive returns in 92% of the In the conclusion part of its complaint, solicit $14,800,000 in investments from months over the last 15 years, as a basis to the Massachusetts regulator stated: Fairfield insiders in the Greenwich Emerald charge investors "hundreds of millions of "Investors who trusted Fairfield and its sup- fund, no offering documents for that fund dollars" in fees. posedly rigorous due diligence lost billions ever existed. The Fairfield principals who The exact total of the fees is unknown of dollars. Had Fairfield engaged in the due invested did not even sign subscription to the regulator, which stated: "The Divi- diligence it represented to investors that it agreements-they merely sent their money to sion issued a subpoena requesting the pre- was undertaking, and had it been forthright an intermediary to send to Madoff." cise amount of the fees earned by Fairfield to investors about its level of understanding Fairfield's "desperate efforts to prop up from the Sentry Funds. Even though the and. comfort with respect to Madoff Invest- Madoff in the end" was chronicled in a let- date for response to that subpoena has ments, these losses could have been pre- ter from Jeffrey Tucker to Madoff on De- elapsed, the Division still has not received vented." cember 10, 2008 – just one day before Mad- that information. " In written "Standardized Responses" to off turned himself in to U. S. authorities, According to the regulator, "Fairfield questions from the regulator, Fairfield Sen- claimed the regulator. "Tellingly, the letter earned a fee of one percent of assets under try Limited stated that its investment man- states: management for assets invested in the ager, Fairfield Greenwich (Bermuda) Ltd. "We have taken a number of steps Sentry funds, and a performance fee of 20 was incorporated in Bermuda on June 13, with our other funds in order to put percent of the returns of those funds," 2003 and identified the following FGBL all of our investable capital in Sen- stated the regulator. "Jeffrey Tucker, a employees as being involved in the try and the new split-strike strategy founder of Fairfield, estimated that Fair- "management, operations, risk control and which we call Emerald. While the field earned approximately $100 million accounting" process for the Fund: Amit full results of this strategy will take per year from those fees in each of 2008, Vijayvergiya, Partner, Chief Risk Officer; a few months to take effect, they 2007 and 2006. Gordon McKenzie, Fair- Disha Attavar, Vice President, Analyst – will include: field Bermuda's controller, in his testi- Analytics, performance measurement and mony with the Division, put the figure at investor communications; Clare Wood, Sen- • investments in Sentry by over $100 million for each of 2008, 2007, ior Risk Officer – Risk Management; Bjorn existing Fairfield funds 2006 and 2005. Tucker testified that he Axelsson, Senior Vice President, Risk Ana- (~$100 mm) earned in the range of $100 million from lyst – Operations, Data and Investment • liquidating other Fairfield Fairfield's relationship with Madoff In- Compliance; and Ryan Amlin, Vice Presi- funds and transferring the vestments over the last ten years. dent, Senior Fund Accountant – Finance assets to Sentry and Emer- "However, documents produced to the and Accounting. FGBL's "Back Office ald (up to ~200 mm) Division indicate that the principals of Team" was identified as Gordon McKenzie, • purchase by the firm of Fairfield made substantially more. For Director and Controller – Finance and Ac- Sentry positions from cli- example, a document titled Partner Comp counting, and Ryan Amlin, while members ents rather than having Worksheets 2008 produced by Fairfield of Fairfield Sentry's risk department were them redeem from Sentry appears to indicate that in 2007 alone identified as Amit Vijayvergiya, Bjorn (~150mm) Andres Piedrahita (Fairfield Partner and Axelsson, Clare Wood, Disha Attavar, • investments by individual son-in-law of Fairfield founding partner Charles Oddy, Director, Senior Risk Offi- partners of the firm in Sen- Walter Noel) earned in excess of $45 mil- cer, and Elizabeth Cotlebrooke, VP, Risk try and Emerald (~50mm) Analyst.

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Millennium Bank accused of $68 m Ponzi scheme, goes into receivership A Receiver has been appointed for Millen- moting a one-year CD paying 7% inter- majority of the $68 million raised from nium Bank, which is licensed in St. Vin- est (compounded annually) and a five- investors was misappropriated by the De- cent & the Grenadines, after the offshore year CD paying 7.75% interest fendants, who enriched themselves and bank was accused of perpetrating a$68 (compounded annually). Those rates paid their personal expenses, while making million Ponzi scheme by the United States were 321% and 285% higher, respec- small Ponzi payments to investors— Securities and Exchange Commission. tively, than the national overnight aver- satisfying investors' liquidation requests Details of the alleged fraud are con- age for traditional banks. According to with recent deposits of new investors." tained in a civil complaint that was filed Bankrate.com, a well-known aggregator An order appointing Richard B. Roper, by the SEC at the U. S. District Court for of financial information, as of February a Dallas, Texas-based partner with the law the Northern District of Texas on March 23, 2009, the national overnight average firm of Thompson & Knight LLP, as Re- 26, 2009 against Millennium Bank Inc., its interest rate being offered on a one-year ceiver for the defendants was issued at the Swiss parent, United Trust of Switzerland CD was 2.18% and 2.71% for a five-year U. S. federal court on the same day that the SA; United T of S LLC, domiciled in Ne- CD." SEC's complaint was filed. vada, based in Napa, California; Millen- In a press release announcing the One day later, on March 27, 2009, the nium Financial Group, based in Raleigh, action, the SEC stated: "The solicitations International Financial Service Authority North Carolina; William J. Wise, 58, d.b.a. by the Defendants, which were distrib- in St. Vincent & the Grenadines an- Sterling Administration, Sterling Invest- uted on the bank's website, nounced that KPMG had been appointed ment Services, and Millennium Aviation, a www.mlnbank.com, and in advertise- "pursuant to Section 21(2)(e) of the Inter- resident of Raleigh, North Carolina and the ments in luxury lifestyle magazines, national Banks Act 2004 to assume control Caribbean and described as the person were replete with extensive and funda- over the licensee's affairs to preserve re- controlling Millennium Bank, Kristi M. mental misrepresentations about Millen- cords and assets". Hoegel, a.k.a. Kristi M. Christopher, a.k.a. nium Bank and its CDs, according to the Research by OffshoreAlert showed that Bessy Lu, 34, a resident of Napa, Califor- Commission's complaint. For example, the domain name 'mlnbank.com' was cre- nia; her mother, Jacqueline S. Hoegel, 52, Millennium Bank mass marketed its CDs ated on August 28, 2003 and is registered a resident of American Canyon, Califor- as safe and secure with guaranteed rates to Sheryl Hinds, of the Financial Services nia; Philippe Angeloni, 61, a resident of of return. Millennium Bank also claimed Centre, Stoney Ground, Kingstown, St. Raleigh, North Carolina, a director of Mil- to be "the benefactor of Swiss banking . . Vincent & the Grenadines, which is the lennium Bank; and Brijesh Chopra, resi- . as well as the vast global investment same address used by the bank. dence unknown, Managing Director of network that United Trust of Switzerland In the complaint against the defen- Millennium Bank. S.A. has built over the last 75 years." dants, it was stated of William Wise that: Relief defendants are Lynn P. Wise, According to the complaint, however, "In 2003, the Pennsylvania Securities 52, a resident of Raleigh, North Carolina; these assurances were false, because nei- Commission ordered Wise to comply with Daryl C. Hoegel, 54, a resident of Ameri- ther Millennium Bank nor UT of S, LLC state securities laws in connection with the can Canyon, California, husband of Jac- actually invested any of the money it sale of high return "deposit agreements" queline Hoegel; Ryan D. Hoegel, 29, a received from investors. Moreover, offered by a Grenada-based bank." resident of Lincoln, California, brother of United Trust of Switzerland S.A. is not a Research by OffshoreAlert showed that Kristi Hoegel; Laurie H. Walton, 46, a bank. In reality, investor funds were di- the regulatory action against Wise in Penn- resident of Raleigh, North Carolina; and verted to the Defendants and used for a sylvania was initiated on July 23, 1998 and four Las Vegas, Nevada-based entities: variety of illegitimate purposes. concerned his involvement with Chase United T of S, LLC, Sterling I.S., LLC, "The complaint alleges that, in order Mutual Investment Services Inc., a busi- Matrix Administration, LLC, and Jasmine to create the appearance of a legitimate ness based in Toronto, Ontario, Canada of Administration. offshore investment, Defendants in- which Wise was identified as President. In From July, 2004 to the present, the structed investors purchasing the so- that action, Wise and Dan J. Christante, defendants raised at least $68 million from called "CDs" to mail/Federal Express described as an investment consultant of over 375 investors "by promising return their checks to the offshore bank. Once Chase Mutual, were accused of soliciting rates up to 321% higher than legitimate received, the checks were packaged and funds from investors in Pennsylvania by bank-issued certificates of deposit", ac- mailed to UT of S, LLC's office in Napa, offering "returns of 80% in three years". cording to the complaint. California, where they were electroni- Investors were informed their funds would "Millennium Bank's website offers to cally deposited by a remote deposit ma- be used to capitalize "a private offshore the public-at-large high-yield CDs with "a chine into a UT of S, LLC operating ac- bank in Grenada" that was sponsored by guaranteed rate of return to avoid market count. The account, which is held at a Chase Mutual, according to the Pennsyl- fluctuations"," it was claimed. "The so- major U.S. financial institution, also re- vania Securities Commission. Wise settled called CDs promise high return rates that ceived tens of millions of dollars in in- the action on July 8, 2003 by agreeing to exceed those available for average bank- vestor funds via wire transfer. comply with the Pennsylvania Securities issued CDs. For example, in February "Furthermore, according to the com- Act. He was ordered to pay the investiga- 2009, Millennium Bank's website was pro- plaint, bank records establish that a vast tive and legal costs off the investigation.

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Truman Bodden-affiliated Cayman fund forced to withdraw from National Futures Association A Cayman Islands-based commodity pool other things, "distributing fraudulent pool ued to list Clifford as Magma's president, operator partly-owned – at least on paper – statements, lying to NFA and converting Clifford performed certain management by an affiliate of local law firm Truman investor funds", stated the NFA. "In a functions for Magma and Clifford directly Bodden & Company has settled a regula- related case brought by the Commodity or indirectly owned more than 10% of tory action in the United States in which it Futures Trading Commission, Lake Dow Magma. was accused of deceptive and dishonest was permanently enjoined from commit- "Beginning on or about June 6, 2008, practices by the National Futures Associa- ting fraud." Risk Capital Trading Group Magma failed to list Clifford as a principal tion, including concealing from investors was disciplined by the NFA in 2003 for, of Magma within twenty days of him be- the murky background of its two main ex- among other things, "sales practice and coming a principal." ecutives. Registration Rule violations. In addition, In explaining an allegation that Magma Magma Fund Advisors Ltd., of which a 2003 CFTC enforcement action against and Muthemba used "deceptive and unbal- Trulaw Corporate Services Ltd. is the only that firm resulted in a permanent injunc- anced promotional material", the NFA al- listed principal in regulatory filings with the tion and fine of more than $8 million." leged: "Magma and Muthemba were re- NFA, "agreed to be withdrawn from NFA When Magma first applied to become sponsible for reviewing and approving membership and to never again apply for an NFA Member Commodity Pool Op- Magma's promotional material. NFA membership or principal status with erator on September 18, 2007 through the "Muthemba approved, and Magma any NFA Member in the future", it was NFA's online registration system (ORS), used, promotional material that mentioned stated in a decision by the NFA's Business Clifford was identified as a principal of the possibility of profit without an accom- Conduct Committee on February 11, 2009. the firm and Magma sought his registra- panying equally prominent statement of the Additionally, Desmond M. Muthemba, tion as an Associated Person and Associ- risk of loss. Specifically, a fact sheet avail- who was described as a "principal" and ated Member, according to the complaint. able on the firm's website promoted "Associated Person" of Magma, "agreed to "Shortly after September 18, 2007, "consistent, superior absolute returns" and be withdrawn from Associate NFA mem- NFA placed a hold on Clifford's pending at the same time minimized downside risk. bership and principal status with an NFA registration and principal applications due "Muthemba approved, and Magma Member and that he would not apply for to unresolved issues raised by his associa- used, promotional material that included Associate NFA membership for two years tion with Lake Dow and informed Clif- reference to actual past trading profits with- and that he would not apply for NFA mem- ford's representative of the hold. As a out mentioning that past results are not nec- bership or principal status with any NFA consequence of the hold on Clifford, essarily indicative of future results. Specifi- Member for five years". Magma's pending application to become cally, the fact sheet showed rates of return, In settling the action, Magma and an NFA Member CPO was not approved but did not contain a comparably prominent Muthemba "neither admitted nor denied the at that time. disclaimer stating that past performance is allegations made against them" in a com- "On or about May 27, 2008, Magma not necessarily indicative of future results. plaint that the NFA filed with its Business applied through ORS seeking "Muthemba approved, and Magma Conduct Committee on December 22, Muthemba's registration as an AP and used, promotional material that contained 2008. NFA Associate sponsored by Magma and material misstatements of fact or which In the complaint, Magma was accused identifying him as a principal of Magma. Muthemba and Magma knew omitted facts, of knowingly providing materially false Muthemba was approved as a principal of the omission of which made the promo- information to the NFA, failing to register Magma on or about May 30, 2008 and as tional material misleading. Specifically, one of the firm's principals – Richard Clif- an AP and NFA Associate on or about Magma's July 2008 offering memorandum ford – with the regulator, and "failure to June 6, 2008. included background information about uphold high standards of commercial honor "On or about June 6, 2008, Clifford's Clifford, but failed to include the material and just and equitable principles of trade". pending registration and principal appli- information that he had been employed by Additionally, Magma and Muthemba were cations with Magma were withdrawn by Lake Dow and Risk Capital. The memoran- accused of using "deceptive and unbalanced Magma. dum also stated that Clifford is "a principal promotional material" and "failure to super- "On or about June 6, 2008, Magma's of the Investment Manager" although he vise" the conduct of Magma's commodity application to become an NFA Member had been previously delisted by Magma as futures business. CPO was approved. a principal of the firm in ORS and was not Most of Magma's problems stem from "Magma willfully submitted materi- disclosed as a principal in ORS in July. the prior involvement of both Clifford and ally false or misleading information to Furthermore, the memorandum referred to Muthemba with two NFA-regulated entities NFA concerning Clifford's role as a prin- Merchant Capital SA as a firm that Clifford that were also the targets of regulatory ac- cipal of the firm in that, when Magma founded, but failed to disclose orders issued tions, namely commodity pool operator withdrew Clifford from pending principal against Merchant in 2007 by several Cana- Lake Dow Capital LLC and introducing- and AP status on or about June 6, 2008, dian regulatory authorities. The offering broker Risk Capital Trading Group, Inc., Clifford continued to act in a manner that memorandum also failed to disclose according to the complaint. required his disclosure as a principal of Muthemba's prior employment with Lake Lake Dow Capital was permanently Magma in that Magma's organizational Dow and Risk Capital." barred from the NFA in 2006 for, among chart and offering memorandum contin- (Continued on page 9)

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

(Continued from page 8) tails about those loans or to provide NFA "In addition, Muthemba himself tele- In explaining its allegation of "failure to with copies of related loan agreements. phoned the NFA staff member and asked supervise", the NFA stated: "The diligent "Muthemba also provided inconsistent several questions about her interest in the supervision of Magma's employees and information to NFA concerning Magma's fund and the potential investment amount. agents in the conduct of their commodity solicitation of U.S. individuals. While he did inform her that Magma did futures activities for or on behalf of Magma Muthemba first indicated that U.S. inves- not currently have any funds open for U.S. required, in part, that Muthemba, as the tors did not have access to Magma's web- investors, he discussed Vesuvius and only principal of Magma who was also reg- site and that Magma was not providing its Magma's plans for launching a U.S. fund in istered as an AP, be knowledgeable about current promotional material to U.S. indi- the near future. In addition, Muthemba so- material information related to Magma's viduals. However, during the course of licited the NFA staff member to buy an business operations and its solicitation pro- NFA's investigation, an NFA staff mem- equity position and become a part owner of cedures. ber completed an electronic form on Magma – claiming that being an equity "Muthemba was not knowledgeable Magma's website requesting a login and owner was better than being an investor in about material information related to password to access the site listing a Ten- the fund and that Magma only offered eq- Magma's business operations in that he nessee address as her location and re- uity positions to its family, friends and as- could not provide substantive answers to ceived a login and password to enter sociates." several questions posed by NFA, such as Magma's website. Once on the website, Research by OffshoreAlert showed that, inquiries related to Trulaw and its owner- the staff member was able to access addi- in its registration details filed with the ship structure and wire transfers in and out tional information about Magma and its NFA, the only listed principal of Magma of Magma's bank account. He was also un- funds, such as performance information Fund Advisors Ltd. is Trulaw Corporate able to promptly provide certain informa- from November 2007 through October Services Ltd., which is affiliated with Tru- tion to NFA regarding Magma's ownership 2008 and an offering memorandum for a man Bodden & Company law firm, whose records and underlying bank statements. pool named Vesuvius Investment Fund directors are Truman M. Bodden, who is a Furthermore, while Muthemba identified [A Cayman Islands fund registered with Member of the Cayman Islands Legislative some wire transfers that related to loans the Cayman Islands Monetary Authority Assembly and a former Leader of Govern- that Magma had received from certain indi- on October 26, 2007]. ment Business; Chris Narborough, who is a viduals, he was unable to explain any de- 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 rial, whether via the Internet or by any Resources, Inc.), SBC Internet Services, Ltd., which claims to be part of a "private other means". Inc. (AT&T), and Verizon Online. wealth management" group that specializes On December 8, 2008, U. S. District In its complaint against the John Does, in "alternative investments" and has mutual Court Judge Patrick Michael Duffy en- Venulum described its "principal business" funds domiciled in the BVI, Cayman Is- tered an order permitting Venulum to as "dealing in fine wine and champagne on lands and Delaware, is suing the as-yet un- engage in discovery to try to identify the behalf of and for the benefit of its clients". known authors of several messages posted John Doe defendants, after which Venu- The BVI company stated that its action anonymously on a web-site run by World lum requested and received from World was filed in Charleston because "Venulum Law Direct that it claims falsely accuse the Law Direct the IP addresses and identities has over 10 clients within the State of firm of fraud. of Internet Service Providers used by the South Carolina and this Court's jurisdic- Venulum, which is controlled by 39- posters of messages that form the basis of tion". year-old British national Giles Cadman, the complaint. "John Does 1 through 40 are the uniden- filed a civil complaint against "John Does" On February 25, 2009, the judge is- tified and unregistered persons that have at the U. S. District Court for the District of sued another order authorizing subpoenas published defamatory statements concern- South Carolina on November 24, 2008. The to be served on the ISPs requiring them to ing Venulum on a website run by World counts are defamation against Does only provide the names and addresses of sub- Law Direct," stated the firm. "Their true and Intentional Interference with Business scribers suspected of posting the offend- names and capacities are unknown to Venu- Relations, and Negligent Interference with ing messages. The ISPs were identified as lum. When their true names and capacities Business Relations against all defendants. Bell South Telecommunications, Inc. are ascertained, Venulum will amend this Apart from unquantified monetary dam- (AT&T), Charter Communications, Inc., complaint by inserting the defendants' true ages, Venulum is also seeking an order Comcast Corporation (Comcast Cable names and capacities." restraining the defendants "from posting, Communications, LLC), Cox Communi- Explaining its count of defamation, disseminating, transferring, copying, or cations, Inc., Florida Information Re- Venulum stated: "On WLD's website otherwise communicating or publishing any sources Network (Hayes E-Government (www.worldlawdirect.com), it hosts forums false, misleading, and/or defamatory mate- (Continued on page 10)

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

(Continued from page 9) • "Same fraud/scam as archi- clude offices in five countries, with service in which various issues are discussed by tects of wine."; offices in a further two. Since 2002 Venu- messages being posted by various posters. • "They were supposedly in- lum's client base has expanded rapidly, and One of the forums is titled "Internet HYIP vesting my money in fine we now have a substantial number of Scams." The Internet HYIP forum contains wine but my accountant said United States based clients. a thread of posts entitled "Venulum, Archi- all the contracts look bo- Companies belonging to the group are tects of Wine and Seed International fraud." gus???"; identified as Venulum Ltd., domiciled in "A second forum exists on the WLD • "the contract they asked us to the BVI; Venulum Property Investments website called "Money Frauds and Scams," sign was utter rubbish, de- (BVI) Limited, a BVI-domiciled mutual and a string of posts within this forum are signed to cause you to forfeit fund; Venulum, Inc., which is described as entitled "venulum wines," "re: venulum your funds"; and Toronto-based "Canadian subsidiary"; wines fraud," "re: venulum wines scam," • "Your contract will mean you Venulum Ltd., in the United Kingdom; and "wine ‘futures' fraud." easily forfeit all your funds, Venulum Property Developments Limited, "These forums contain untrue and false beware". domicile not identified; Venulum Capital statements of fact regarding Venulum, in- "These forums contain untrue and LLC, described as a Delaware-domiciled cluding statements that Venulum is associ- false statements of fact regarding Venu- mutual fund; Venulum Property Invest- ated and/or affiliated with Architects of lum, including statements that the con- ments Ltd., described as a Cayman Islands- Wine and Seed International, is made up by tracts and papers that Venulum has clients domiciled mutual fund that is regulated by the same people, and comprises the same sign are fake and bogus and that the con- the Cayman Islands Monetary Authority; fraud, scam and pitch/sales tactics as Archi- tracts are designed to cause clients to for- Venulum Wine Limited, incorporated in tects of Wine and Seed International." feit their funds." England and Wales, and serving as "parent Some of the messages being com- Venulum added: "These forums con- company of the Group's Fine Wine sales plained about are: tain untrue and false statements of fact and marketing division"; Cadman Fine • "I see some of the same people regarding Venulum, including statements Wines Limited, incorporated in England are involved as were involved that Venulum scams people into thinking and Wales, and described as "the Venulum in Architects of Wine as de- that they are making money, pushes cli- Group's fine wine sales and marketing divi- scribed on this website."; ents to invest larger amounts, and then sion"; Fine Wines TV, domicile not identi- • "Same player, new scam."; refuses to repay them." fied; and Caribbean Sustainable Fisheries, • "Same pitch and same people The messages defamed Venulum by described as being involved with "a sustain- … They ask you to invest then "falsely suggesting (i) that Venulum en- able lobster farm in the British Virgin Is- you can never get the funds gages in fraudulent and criminal activity; lands". Although not listed on its web-site, back because of your supposed (ii) that Venulum's business is affiliated OffshoreAlert also found two other active ‘Futures' contract. A contract with Architects of Wine and Seed Interna- companies in England and Wales that have that has no meaning if you tional; and (iii) that Venulum requests Giles Cadman as a director – Venulum really examine it. This was the clients to purchase wine and champagne Limited and Venulum Semilong Limited – same thing the same people with the intention of taking the clients' and another BVI-domiciled mutual fund tried four years back."; funds." bearing the 'Venulum' name – Venulum En- • "Venulum/Cadman Fine Research by OffshoreAlert showed Primeur and Wine Investments Ltd. Wines/ is just another label for that the domain name It is stated on Venulum's web-site that the same old questionable gang 'worldlawdirect.com' is registered to the group has offices at PO Box 765, as far as I can tell."; "World Law Direct, Haskova 10, Prague 4th Floor, Rodus Building • "Oh brother, this is pure fraud 7" in the Czech Republic. The administra- Road Reef, Road Town, Tortola, British … See also the Architects of tive contact is Milan Rabiska, with an Virgin Islands; Encon House, Owl Close, Wine fraud - - same scam, addresses of 1504 Bay Road, Suite 1011, Moulton Park, Northampton, NN3 6HZ, same pitch."; Miami, Florida. England; Royal Trust Tower, 77 King • "Look what I found about the Meanwhile, on its web-site at Street West, P.O. Box 83, 31st Floor, To- old bucket shop they www.venulum.com, the "Venulum ronto, ON M5K 1G8, Canada; PO Box 309 [Venulum] used to run. Group" describes itself as "a multina- GT, Ugland House, South Church Street, tional private wealth management firm George Town, Grand Cayman, Cayman Investdrinks – Ocean – Seed – headquarted [sic] in the British Virgin Islands; and 17 Arataki Road, Havelock Heros Islands. The Group manages the wealth of North, Hawkes Bay 4201, New Zealand. high net worth individuals, and special- At least two of the "office" addresses This is crazy I cannot believe ises in alternative investments often not appear to be mail-drops, specifically the they would actually go after available to the general public. Venulum address in the BVI, which is the home of the same people with the exact helps high net worth individuals balance Sable Trust, and the address in the Cayman same sales tactic. Maybe crime their portfolios. The Venulum Group was actually does pay."; formed in 2002, and has expanded to in- (Continued on page 11)

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

(Continued from page 10) gin Islands, Contact: William Harris; Limited, Cadman Leisure Limited, Corkers Islands, which is the home of the law firm Bankers: First Caribbean International Limited, Fine Wines of Mayfair Limited, of Maples and Calder. Bank, Wickhams Cay 1, Road Town, Shinystar Plc, Wine Finds Limited, Calais The Venulum Group identifies its Tortola, British Virgin Islands, Contact: Direct Limited, Charter Building Company "Corporate Advisors" as: Venulum Inc Juliet Cupid; Accountants: Baker Tilley, Limited, Gold Street Estates Limited, and (Canada) – Lawyers: Dale & Lessmann PO Box 650, Tropic Isle Building, Nibbs Manor House Cogenhoe Limited. Follow- LLP, 181 University Avenue, Suite 2100, Street, Road Town, Tortola, Contact: ing an application by Christopher Johnson, Toronto, Ontario, Canada M5H 3M7; Con- Nigel MacPhail; Venulum Ltd. (UK) – who is the Cayman Islands-based joint liq- tact: Andrew Frei; Accountants: Garry W. Lawyers: Ross & Craig, 12A Upper Berk- uidator of the Architects of Wine group, Culverson Chartered Accountant, ING ley St., London W1H 7QE, England, Architects of Wine (UK) Limited was re- Tower Suite 2200, 181 University Avenue, Contact: Adrian Ring; Accountants: stored to the corporate register on March 4, Toronto, Ontario, Canada M5H 3M7, Con- Adler Shine LLP, Aston House, Cornwall 2008 so that it could pursue litigation tact: Garry Culverson; Bankers: Scotia Avenue, London N3 1LF, England, Con- against Corby Bottlers Plc and Coudent Bank, 44 King Street West, Toronto, On- tact: Daniel Garcia; Bankers: NatWest, Brothers and/or its current and former part- tario, Canada M5H 1H1, Contact: Lia Do- 167 St James Road, Northampton NN5 ners. Cadman was a director of Architects natelli; Venulum Ltd. (BVI) – Lawyers: 5LE, Contact: Andy Ellis. of Wine (UK) Limited from October 8, Maples & Calder, P.O. Box 173, Road Records maintained by Companies 1998 to April 3, 2001 – four-and-a-half- Town, Tortola, British Virgin Islands, Con- House for England and Wales show that years before it was struck off the register, tact: Antony Spencer; Administrators: Folio Cadman has been a director of at least ten effective August 30, 2005. Administrators Ltd., Folio Chambers, PO companies that have been dissolved since Box 800, Road Town, Tortola, British Vir- 1999, namely: Architects of Wine (UK)

Bahamas-based British-American Insurance Co. sued for $38 million in Florida Bahamas-domiciled British-American Insur- b. That certain Pledge and Security pany Ltd.; Brian Branker, as a director of ance Company Ltd. and British Virgin Islands Agreement executed by BAI in British American Isle of Venice (BVI) Ltd.; -domiciled British American Isle of Venice favor of Plaintiff through which and Charles Pratt, as manager of Green Island (BVI) Ltd. are being sued for $38 million at Holdings was granted a first prior- Holdings LLC. British American Insurance federal court in West Palm Beach, Florida. ity security interest in the Ventures Company Ltd. and British American Isle of Details are contained in a civil complaint membership interests that were sold Venice are identified in contracts as having that was filed by Green Islands Holdings to BAI.; the same address, i.e. c/o BA Management LLC, based in Palm Beach County, Florida, at c. That certain Guaranty executed by Services, Inc., 950 South Pine Island Road, the U. S. District Court for the Southern Dis- British American in favor of Hold- Suite A 150, Plantation, Florida. Another trict of Florida on February 19, 2009. ings; address for BA Management Services is given "This is an action to recover in excess of "On or about September 9, 2008, Hold- as 11-13 Fifth Street, Barataria, Trinidad $38,274,359.00 due and owing pursuant to a ings and BAI entered into that certain Note (Attention: Gabrielle Patrick). Research by Promissory Note, as amended by a Note Modification Agreement. OffshoreAlert showed that Brian Branker is Modification Agreement, as well as pursuant "Pursuant to the Note BAI was obli- the Chairman of British American Insurance to a Guaranty," it was stated in the complaint. gated to make a payment in the amount Company Limited, which is based in Trinidad "Moreover, through this action, Plaintiff seeks of$9,568,589.96 by or before January 15, and Tobago and is part of the CL Financial to foreclose on its security interest in 100% of 2009. Group, which was one of the largest local the membership interests in Green Island "BAI is in default of its obligations un- conglomerates in the Caribbean, claiming to Ventures, LLC. der the Note and Pledge and Security encompass 65 companies in 32 countries "Plaintiff, Holdings, was formerly the Agreement as a result of which a Default worldwide involved in banking, insurance, owner of 100% of the membership interests in Notice was sent to Defendants on January financial services, real estate, media, energy, Green Island Ventures, LLC, a Florida limited 30, 2009. manufacturing, retail and other sectors, until it liability company. "Pursuant to the Default Notice, the collapsed earlier this year. "On or about January 7, 2008, Holdings indebtedness evidenced by the Note was British-American Life Insurance Com- sold its membership interests in Ventures to accelerated as a result of which the entire pany Ltd. is licensed as a long-term insurer in BAI [British American Isle of Venice]. principal balance of $38,274,359.82 became the Bahamas. The company is unrelated to "In conjunction with the sale of Ventures' due and owing along with all interest at the British American Financial, a Bahamas-based membership interest to BAI, the following default rate of 18%." insurer that did business as British American documents were executed and delivered to Exhibits attached to the complaint show Insurance Company of the Bahamas Ltd. until Plaintiff: that the loan and guaranty agreements were a change of ownership occurred in 2007. a. That certain Purchase Money Promis- signed by Robert Fullerton, as a director of sory Note in the original principal both British American Isle of Venice (BVI) amount of $56,544,359.82; Ltd. and British-American Insurance Com-

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Cayman reinsurer obtains $4.7 m judgment against US claims administrator A Cayman Islands-licensed reinsurer has discovered the fraud and misrepresenta- insurance provided by the Lexington Insur- obtained summary judgment for $4.7 mil- tion of the Defendants," it was stated in ance Company, all liability was reinsured lion after allegedly being defrauded by a the complaint. on a first dollar basis by Plaintiff; J.P. third-party claims administrator. The fraudulent activity occurred be- Bender and Associates, Inc. and later The judgment in favor of Medilink In- gan in 2005 – 20 years into the business Bender, Inc. specifically served as claims surance Company Limited, which was li- relationship between the plaintiff and the handling agents in the State of Michigan on censed as an insurer in Cayman on July 31, defendants, it was claimed. behalf of Lexington Insurance Company 1985, was issued at the U. S. District Court "From approximately 1985, J.P. and on behalf of the physician insureds." for the Eastern District of Michigan on Bender and Associates, Inc. and John Research by OffshoreAlert showed that March 5, 2009. Bender, individually served as a third JP Bender and Associates Inc. and Bender Defendants John P. Bender, a resident party claims administrator or claims han- Inc. were incorporated on July 11, 1980 and of Milford, Michigan; JP Bender and Asso- dling agent on behalf of and for the bene- June 15, 2006, respectively, and are both ciates Inc., and Bender Inc., both Michigan fit of Plaintiff's reinsureds with regard to identified as "active" companies on the web corporations, were ordered to jointly and certain claims made against Plaintiff’s -site of the Michigan Department of En- severally pay $4,749,920. reinsureds, in the State of Michigan; upon ergy, Labor & Economic Growth. The complaint was filed on November information and belief within the past two OffshoreAlert found evidence that John 27, 2007 and, inter alia, alleged embezzle- years, approximately, Bender, Inc. has Bender may be preparing to operate under a ment, common law conversion, fraudulent taken over some or all of the duties of J.P. new name, namely Bender & Associates misrepresentation, civil conspiracy, breach Bender and Associates, Inc. as third party Consulting. The domain name of fiduciary duty, unjust enrichment, con- administrator and claims handling agent 'bendercon.com' was created on December structive trust, and negligence. on behalf of and for the benefit of Plain- 15, 2008, with the name of the registrant is According to the complaint, the defen- tiff’s reinsureds," it was stated in the hidden through a privacy-protecting com- dants submitted fraudulent claims to Medil- complaint. pany called Domains by Proxy Inc. How- ink in amounts that were higher than the "J.P. Bender and Associates, Inc. and ever, that John Bender is behind the enter- actual claims, submitted fraudulent expense later Bender, Inc., specifically served as prise is disclosed in a message at requests, failed to pass on to the reinsurer claims handling agents in the State of www.bendercon.com that states: "Welcome reinsurance recoveries and also converted Michigan for claims of general liability to Bender & Associates Consulting. We are for their own use funds that were paid by and professional liability made against a firm comprised of proven senior consult- Medilink pursuant to legitimate claims. Garden City Hospital, Osteopathic, ants, focused on helping compa- "During the time period from 2005 until Pontiac Osteopathic Hospital and Mt. nies "translate ideas into action". We are in approximately September, 2007, Plaintiff Clemens General Hospital, each of whom the process of building our website. In the was completely unaware of the actions of was reinsured for such risks by the Plain- meantime, please feel free to contact John the Defendants in fraudulently, intention- tiff. Bender at (408) 718-7613 for more infor- ally and by misrepresentation of fact secur- "In addition, certain physicians prac- mation." A search of corporate records in ing greater amounts than appropriate to pay ticing osteopathy and medicine in the Michigan showed there was no company settlements, judgments, costs and fees on State of Michigan were insured by the called Bender & Associates Consulting behalf of Plaintiff’s insureds; it was not Lexington Insurance Company, a Massa- incorporated in the state. until September, 2007, that the Plaintiff chusetts corporation. With respect to such

Madoff investors file class action against Cayman-based bank and hedge fund A Bernard Madoff-related class action law- versity, a graduate of Harvard Law ment firm, Bernard L. Madoff Investment suit has been filed in the United States School, a money manager and sole share- Securities, LLC ("BMIS"), and others, and against an offshore hedge fund and bank in holder of Gabriel Capital; Fortis Bank which was facilitated by defendants named the Cayman Islands and other parties. (Cayman) Ltd., Fortis Prime Solutions herein, who, recklessly or with gross negli- The complaint was filed at the U. S. (Cayman) Ltd., Fortis Bank, BDO Tor- gence and/or in breach of fiduciary duties District Court for the Southern District of tuga, and BDO International. owed to Plaintiff and other Class members, New York on March 4, 2009 by Nephrol- Causes of action are breach of fiduci- caused and permitted the Fund's assets to be ogy Associates PC Pension Plan, which ary duties, fraudulent concealment, negli- invested with Madoff absent performing the claims to have lost "in excess of $4 mil- gent misrepresentation, breach of con- requisite due diligence and investigation lion", on behalf of all investors in Ariel tract, gross negligence and mismanage- prior to and during the time defendants Fund Ltd., domiciled in Cayman. ment, unjust enrichment, and aiding and placed the Class's money with Madoff," it Defendants are Ariel Fund Ltd., Gabriel abetting breaches of fiduciary duty. was stated in the complaint. Capital Corporation, a Delaware corpora- "This case arises from a massive, "On December 10, 2008, Madoff alleg- tion based in New York; J. Ezra Merkin, fraudulent scheme perpetrated by Bernard edly informed his sons that his investment described as a graduate of Columbia Uni- L. Madoff ("Madoff') through his invest- (Continued on page 13)

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Madoff investors file class action against Cayman-based bank and hedge fund (Continued from page 12) lars of their clients' money with Madoff reckless and/or grossly negligent dereliction advisory business, BMIS, was a complete and his related entities without perform- of their fiduciary duties, and the complete fraud. Madoff stated that he was "finished," ing adequate due diligence despite the failure of the Fund's auditor (defined be- that he had "absolutely nothing," and that existence of obvious "red flags." These low), to perform adequate due diligence "it's all just one big lie." He confessed he red flags included, among others, the ab- despite the existence of myriad red flags had been running "basically, a giant Ponzi normally high and stable positive invest- indicating that a high concentration of the scheme." Madoff admitted that the business ment results reportedly obtained by Mad- Fund's assets were invested in Madoff- was insolvent and that it had been for years. off regardless of market conditions; in- related investments. Madoff also stated that he estimated the consistencies between BMIS's publicly "In fact, as a result of defendants' con- losses from this fraud to be approximately available financial information concern- duct, the Fund has been forced into liquida- $50 billion. Published reports now indicate ing its assets and the purported amounts tion, and most of Plaintiffs and the other that Madoff's estimate may be conservative that Madoff managed for clients; and the Class members' investments have been and the losses will not be fully known for fact that BMIS was audited by a small, decimated with losses exceeding 25% on some time. obscure accounting firm with no experi- Madoff-related investments alone. "On December 11, 2008, Madoff's fraud ence auditing entities of the apparent size "Plaintiff seeks to recover damages was publicly disclosed and the SEC and complexity of BMIS. Despite having caused to the Class by defendants' viola- charged both Madoff and BMIS with secu- failed to perform the most basic due dili- tions of common law fraud, contract, negli- rities fraud. Criminal charges were also gence, these FOFs, investment advisors gent misrepresentation and breach of fidu- filed against Madoff individually. When he and affiliates were paid large manage- ciary duty under New York law. Plaintiff is was arrested, Madoff was quoted as saying ment and advisory fees by their clients, not pursuing derivative claims on behalf of "there is no innocent explanation" for what often for doing little other than blindly the Fund because it is being liquidated at had happened and that he "paid investors handing over their clients' funds to Mad- the instruction of Gabriel Capital." with money that wasn't there." In short, off or his related entities, without disclos- The complaint was filed 73 days after Madoff operated a massive Ponzi scheme ing same to their clients. an action was filed at New York State Su- the likes of which are unparalleled. "Defendant Gabriel Capital Corp. is preme Court against the same defendants "Madoff was unable to perpetrate this wholly owned by defendant J. Ezra by another Ariel Fund investor, New York fraud on his own. Numerous funds of funds Merkin. Gabriel Capital is the investment University, which was seeking damages of ("FOF''), investment advisors, and affili- advisor to the Fund. As detailed below, $24 million. NYU did not ask that its com- ates, including the defendants, facilitated Plaintiff's investment in the Fund was plaint be certified as a class action. Madoff's fraud by investing billions of dol- decimated as a direct result of defendants'

Fraudster Nolon Bush receives 30-year prison term for Nevis-based scam A 30-year prison sentence and $30 million Bush is a flim flam man and he has been fraudulent high-yield scheme between 1998 financial penalty has been handed out to a since his college days. Everything that he and 2002. In 1998, Bush was a resident of 69-year-old fraudster who owned and oper- did was done with a purpose to build an Des Moines, Washington, and later Port ated a Nevis-based offshore group with image, a facade of success..." Orchard, Washington, where he operated former offshore providers Nigel Scott Grant Asking for a 30-year prison sentence, various investment entities such as Hula- and his son, Nicolas Grant St. James. Assistant U. S. Attorney Arlen Storm had man Management Services, Global Domin- Charles Nolon Bush, formerly of Port written to the court stating that "the cal- ion Financial Services, and Cornerstone Orchard, Washington, was sentenced at the lousness Bush expressed actually may Institute. Bush accepted more than $35 mil- U. S. District Court for the Western District exceed both the harm Bush caused and lion in investor funds. Bush promised high of Washington on March 20, 2009 – four the effort he put into the scheme. Every yield investments, when in fact only one- months after a jury convicted him on 27 time Bush leased a $3,000 per night villa third of investor money was placed into any counts of securities fraud, wire fraud, mail in Nevis, bought a luxury vehicle, or pur- investments. Bush used the remaining in- fraud, and money laundering regarding a chased an additional piece of art, he well vestor money, among other things, to fund $35 million Ponzi scheme. knew that at the other end of the money a lavish lifestyle and pay previous investors According to a press release issued by he spent were living, breathing investors in the form of a Ponzi scheme. Victims the U. S. Department of Justice, U.S. Dis- who may be required to spend the rest of speaking in court turned to Bush and said trict Judge Ronald B. Leighton said at sen- their lives trying to recoup from the losses "you're a liar, you're a thief, and you're a tencing: "This was an incredible enter- he inflicted. Nevertheless, Bush pro- coward." They described how he had prise.... He lied to people on a repeated ceeded with enthusiasm." robbed people of their health care and col- basis.... He was very calculated throughout It was stated in the DoJ press release lege funds." this enterprise... Throughout all of this the that: "According to testimony at trial and The release went on: "In order to lend one who got paid first was Nolan Bush." records filed in the case, Bush took mil- legitimacy to the investment scheme, after The judge was also quoted as saying: "Mr. lions of dollars in investor money in a (Continued on page 14)

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Fraudster Nolon Bush receives 30-year prison term for Nevis-based scam (Continued from page 13) When contacted prior to the publica- Bahamas and at Bank Crozier in Grenada. July 1999, Bush conducted business from tion of the expose, Nigel Scott Grant In addition, N.S.G. took all of the investor "View Park Golf Estate", a mansion on a claimed in writing that "I have nothing to files back to his law office in Coronado, private nine-hole golf course, and from a do with GDFS" and described Offsho- California. Shortly thereafter, Bush's assis- luxury suite at Safeco Field, while repre- reAlert as "a third rate tabloid" and its tants, L.T. and T.S., traveled from View senting to investors that he personally had publisher, David Marchant, as "a cow- Park to Coronado in order to organize the taken a vow of poverty. Bush recruited ardly ersatz journalist who denies his tar- investors' files in N.S.G.'s law office. other individuals, referred to as "financial gets any opportunity to respond fairly to "In order to complete the process of planners," to act as his agents in promoting charges that are sensationalist yet un- moving the scheme offshore, Bush and the scheme. founded". N.S.G. set up telephone lines to be used in "Towards the end of his scheme, Bush However, his and his son's roles were furtherance of the scheme in N.S.G.'s and represented that investor money was for outlined in the U. S. Government's Trial N.G.S.J.'s Nevis office. They also hired Cabo San Quintin, the name given to a des- Brief dated October 24, 2008, in which N.G.S.J. to run the scheme operations in tination resort which developers planned to they are referred to only as "N.S.G." and Nevis. In addition to hiring personnel to build on a peninsula located on the west "N.G.S.J.". operate the telephone lines and perform coast of Baja California, Mexico. Bush lied The Grants began helping Bush move other functions in Nevis, N.G.S.J. was re- to investors about the safety of the project his scheme offshore in 1999, according to sponsible for establishing LLCs in Nevis as an investment. the Government. "During July 1999, for all new investors – in order that the new "Bush was indicted by a federal grand N.S.G. and his son, N.G.S.J., leased Suite investors could submit their investments to jury in Seattle on August 9, 2006. During 10 at the Temple Building, Charlestown, Bank Crozier in the names of their Nevis July 2002, Bush left the U.S. for France, Nevis, for the purpose of establishing an LLCs, and thereby conceal their true identi- and traveled on to Warsaw, Poland. The "offshore financial services company" ties. Department of Justice requested Bush's called Inter-Caribbean Business Manage- "During this period, Bush and N.S.G. extradition from Poland on January 25, ment ("ICBM"). For the first month or so took extraordinary steps to conceal their 2007. During August 2007, Polish authori- that they leased this office, N.G.S.J. ran activity from the outside world. Bush re- ties arrested Bush and, though he fought ICBM while N.S.G. continued to run his peatedly hired R.C., of Domestic Interna- extradition, Bush was extradited from Po- law firm in Coronado [California]. Work- tional Consultants, to travel from Oregon in land and made his initial appearance on the ing together, they assisted clients in open- order to "debug" View Park and, on one indictment in U.S. District Court in Tacoma ing secret offshore bank accounts in Ne- occasion, paid R.C. to travel to Coronado in on January 22, 2008." vis. order to debug N.S.G.'s law office. In addi- OffshoreAlert first exposed Bush's "On August 13, 1999, September 8, tion to declining to discuss sensitive busi- fraudulent investment scheme on May 31, 1999, and October 30, 1999, N.S.G. met ness over the telephone, moreover, they 2001, when we revealed that "About 200 with Bush and others at View Park. Dur- employed devices called "egnimas" to people who invested more than $6 million ing these meetings, Bush and N.S.G. initi- scramble their wire communications and through Nevis-based Global Dominion Fi- ated efforts to move the trading program "super shredders" to destroy old emails." nancial Services are unable to redeem their scheme infrastructure to N.S.G.'s and Additionally, Nigel Scott Grant re- investments", further reporting that GDFS N.G.S.J.'s office in Charlestown, Nevis. ceived money from victims, maintained the was operated by British attorney Nigel Among other things, with N.G.S.J.'s as- scheme's web-site, issued false account Scott Grant, his son, Nicolas Grant-St. sistance, they established LLCs in Nevis statements to victims and, with his son and James; and Nolon Bush. and opened bank accounts in the name of Bush, helped to train promoters, it was the LLCs at Royal Bank of Canada in the claimed.

Lawsuit filed in New York over alleged Anguilla-based property scam A civil lawsuit has been filed in New York LLC, described as a "Domestic Limited Defendant Paul Foley and his company, An- by plaintiffs who claim they were defrauded Liability Company" based in Suffern, NY. guilla Holding Corp., which used and contin- of $1.7 million in a Ponzi scheme that was Defendants are Anguilla Holding Corp., ues to use monies invested by the Plaintiffs based around a land development project in described as a Connecticut company based for Defendant Foley's own personal benefit Anguilla. in Greenwich, CT; Paul Foley, described as and for the benefit of other corporate entities Details are contained in a complaint that a New York resident and a partner in An- the Defendant Foley controls," it was stated was filed at the U. S. District Court for the guilla Holding Corp.; and Claude P. Priolet, in the complaint. Southern District of New York on February described as a New York resident and "a "As a result of that corrupt scheme, De- 9, 2009 by Arlyne M. Goldstein, a resident of shareholder and/or officer" of Anguilla fendants Foley and Anguilla Holding have Suffern, New York; Goldstein Family Part- Holding Corp. defrauded the Plaintiffs, Arlyne M. Gold- nership LP, domiciled in Delaware, based in "The foundation of this action is the stein, Goldstein Family Partnership, L.P. and Suffern, NY; and Anguilla Development illegal and fraudulent "Ponzi" scheme of (Continued on page 15)

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Lawsuit filed in New York over alleged Anguilla-based property scam (Continued from page 14) was given the authority to manage the Joint entire transaction and threatening the contin- Anguilla Development, LLC out of hundreds Venture with the requirements that: (a) it ued viability of the affected Joint Venture. of thousands of dollars in investments and shall "at all times be subject to the direction "The Defendants, Foley, Anguilla Hold- financial opportunity. of' the Goldstein Family Partnership, L.P. ing and Claude P. Priolet have been asked "In the summer of 2007, for consideration and Anguilla Holding; (b) it shall consult repeatedly by the Plaintiffs, and their repre- of Two Million Dollars, Defendant Anguilla with Goldstein Family Partnership, L.P. ' s sentatives, to provide a complete accounting Holding obtained the right to purchase real designated representative "on a regular on- of the monies invested by the Plaintiffs in the property located at Registration Section going basis as to all matters concerning the Joint Venture. Despite repeated requests, the North Block 59018B Parcel 32, Schoal Bay, Joint Venture"; and (c) it shall obtain ap- Defendants have failed to sufficiently re- Anguilla, British West Indies (hereinafter the proval of Goldstein Family Partnership, spond to the Plaintiffs' questions concerning "Property") in order to develop the same into L.P. and Anguilla Holding for all "Major the inconsistencies between what they were luxury villas (hereinafter the "Project"). Decisions" as defined in the Joint Venture told their investment in the Joint Venture was "In the Fall of 2007, Defendant Foley Agreement. used for and what the actual application of approached the Plaintiffs about becoming a "Despite the clear intent of the Joint those funds by the Defendants Foley and 50% partner in the Project which was owned Venture Agreement – that the monies in- Anguilla Holding appeared to be. by his company, Anguilla Holding. vested would be used solely for the further- "By converting and diverting Joint Ven- "To entice the Plaintiffs, Defendant Foley ance of the ownership and development of ture assets to himself and/or other business represented that he had a partner in the De- the Property Defendant Foley has devised entities, Defendant Foley has inter alia: (1) fendant Anguilla Holding who was finan- and conducted an illegal and fraudulent defrauded the Plaintiffs and the Joint Ven- cially secure and was backing the Project scheme using the Plaintiffs' investments in ture; (2) violated various provisions of the financially. Upon information and belief, the the Joint Venture to pay for his personal Joint Venture Agreement; (3) willfully Defendant Foley has no such partner. investments and that of his other corporate breached the fiduciary duties owed to the "Based on representations made by De- entities (the "Scheme"). Plaintiffs; and (4) converted hundreds of fendant Foley, the Plaintiffs agreed to invest "Through this Scheme, Defendant Foley thousands of dollars of the Plaintiffs' and in the Project and the Plaintiff, Goldstein has repeatedly, systematically and continu- Joint Venture assets to Defendant Foley's Family Partnership, L.P., agreed to become a ously engaged in a pattern of unlawful con- own uses, which were wholly unrelated to the fifty percent owner in a Joint Venture by the duct in which he has, intentionally and will- business affairs of the Plaintiffs, the Joint name of Fountain Beach Development Group fully, and without Plaintiffs' knowledge or Venture and the Project. with Defendant Anguilla Holding, which was authorization, inter alia: (I) diverted hun- "Defendant Foley's fraudulent Scheme formed for the express and exclusive purpose dreds of thousands of dollars of Plaintiffs' has violated, and continues to violate, the of acquiring, owning, developing, construct- investment in the Joint Venture to non-Joint provisions of Title 18, Chapter 96 of the U.S. ing, operating, marketing, managing and sell- Venture uses; (2) engaged in numerous self Code, the federal Racketeer Influenced and ing the Property and Project. -dealing transactions, including but not Corrupt Organizations Act. "Between October 17, 2007 and June 4, limited to the unauthorized collection of "Defendant Foley's control over the Joint 2008, Plaintiff Arlyne M. Goldstein made service fees, the improper charging of legal Venture has allowed him to conceal the mag- nine payments to Defendant Anguilla Hold- and other overhead expenses, and the nitude of this Scheme from everyone except ing totaling One Million Seven Hundred Fifty charging of unrelated business and wholly his close inner circle. Along with Defendant One Thousand Six Hundred Eighteen and unrelated personal expenses to the Joint Foley, that inner close circle – made up of the 44/100 ($1,751,618.44) Dollars. Venture; (3) diverted Joint Venture re- remaining Defendants who have coordinated "On or about November 2, 2007, a joint sources to Foley's own unrelated uses; (4) and facilitated this Scheme – has illegally venture agreement was entered into between repeatedly failed to provide financial re- benefitted at the expense of the Plaintiffs." the Plaintiff Goldstein Family Partnership, ports to Plaintiff Goldstein Family Partner- In their complaint, the plaintiffs are, inter L.P. and Defendant Anguilla Holding. ship, L.P. for the Joint Venture, including alia, seeking compensatory and punitive dam- "On June 20, 2008, Plaintiff Goldstein the failure to provide a specific accounting ages, the disgorgement of "all distributions, Family Partnership, L.P. wired the total sum related to the diversion of Joint Venture salaries, management fees, partnership inter- of $100,000 to Defendant Anguilla Holding. monies and resources; (5) presented falsi- ests, shareholder interests and rents paid di- "In June, 2008, Anguilla Development, fied, fraudulent and/or misleading financial rectly or indirectly to Defendants" and decla- LLC, an entity which is 100% owned by information and reports to the Plaintiff rations that "all of the Defendants' rights, title Goldstein Family Partnership, L.P., was Goldstein Family Partnership, L.P. con- and interest in the Property, Project and Joint formed and its existence filed with the New cerning the business and financial affairs of Venture Agreement be transferred to the York State Department of State. the Joint Venture; (6) engaged in other acts Plaintiff Goldstein Family Partnership, L.P. "Between August 25, 2008 and January 9, and omissions constituting gross breaches or its designee", "the Plaintiff Goldstein Fam- 2009, Plaintiff Anguilla Development, LLC of Defendants' fiduciary duties and respon- ily Partnership, L.P., or its designee, be ap- made eight payments for the benefit of the sibilities to Plaintiff Goldstein Family Part- pointed the sole manager of the Property and Project totaling Four Hundred Eighty One nership, L.P., including but not limited to Project" and "the Plaintiff Goldstein Family Thousand Seven Hundred and no/100 acts and omissions which have placed the Partnership, L.P. is not in default of its Joint ($481,700.00) Dollars. Joint Venture in default, jeopardizing the Venture obligations". "Pursuant to the terms of the Joint Ven- ture Agreement, Defendant Anguilla Holding

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Cayman-licensed European Insurance sued in New York A Cayman Islands-licensed offshore insurer Islands, KY1-1102; EUIC SPC Ltd., Chimento and Miller sold their owner- is being sued in the United States for dam- a.k.a. European Underwriters Insurance ship interests in European Insurance on ages totaling $423,720 by two former own- Company SPC Ltd., with the same ad- August 1, 2006 and received promissory ers. dress in Cayman; European Insurance & notes of $180,000 and $90,000, respec- Details are contained in a civil com- Reinsurance Underwriters Group Inc., tively, with each note bearing annual inter- plaint that was filed at the Supreme Court a.k.a. European Insurance, based in est of 5% and maturing on August 1, 2008, of the State of New York, County of New Texas; Stanley Friedman, described as a according to the complaint. To date, no York on February 25, 2009 by Anthony resident of Staten Island, New York; and payments have been made under the terms Chimento, a resident of Cedar Park, Texas, Michelle Schlenker, described as a resi- of the note, claim the plaintiffs, who are and Travis D. Miller, a resident of Wimber- dent of Austin, Texas. seeking damages comprising principal, in- ley, Texas. The causes of action are breach of terest, and attorney's fees. Defendants are EUIC Holdings Ltd., promissory note, unjust enrichment, con- Research by OffshoreAlert showed that domiciled in the Cayman Islands, with an version, breach of implied duty of good European Underwriters Insurance Company address of HSBC Financial Services faith and fair dealing, tortious interference SPC Ltd. was licensed as an insurer by the (Cayman) Limited, PO Box 1109 GT, with contract, fraudulent transfer, piercing Cayman Islands Monetary Authority on Strathvale House, North Church Street, corporate veil, and co-signer liability/ April 12, 2006. George Town, Grand Cayman, Cayman damage to credit.

Japanese investors accuse BVI firms of $2.5 m fraud Three British Virgin Islands-domiciled K. Kao, believed to be a resident of Hong nipulate, or defraud Plaintiffs; and, who ran companies are among the defendants in a Kong and Washington state; Danny M. K. the day to day operations of the various civil complaint in which 20 Japanese plain- Wong, believed to be a resident of Hong entities used to facilitate the Investment tiffs claim they were defrauded of $2.5 mil- Kong; Karen Tsang, described as the sis- Scheme. lion in a Ponzi scheme. ter of Danny Wong and a resident of "Plaintiffs assert that the following indi- Details are contained in a civil com- North Carolina; and Frank Ho, believed vidual Defendants are Control Persons: plaint that was filed at the U. S. District to be a resident of Hong Kong. Brad Williams (son of defendant Dwight Court for the District of Utah on March 23, The plaintiffs are seeking compensa- Williams), Danny Wong; Dwight Williams, 2009. tory damages of $2.5 million and punitive Joseph Yao and Frank Ho. These persons Defendants are RichMark International damages of $7.5 million, citing securities knowingly and intentionally participated in (BVI), Dressel Investments Limited, Top fraud, racketeering, fraud, misrepresenta- the creation, orchestration and operation of and Top Ltd., all domiciled in the British tion, conspiracy, unjust enrichment, and the Ponzi Scheme for their personal profit. Virgin Islands; RichMark International intentional and negligent misrepresenta- These Control Persons knew that investors Management Ltd., domiciled in British Co- tion. were being robbed of millions and that lumbia, Canada; Asset Recovery Trust, It was alleged in the complaint that: funds were being diverted for their personal Liberty Lofts LLC, both domiciled in Utah; "This matter involves the creation, or- profit and that actual investments were not Dressel Investments Ltd. (USA) Inc., Dres- chestration, operation and concealment of being made as represented to investors. sel Portfolio Management Inc., Elite Portfo- a massive and highly successful fraudu- "Plaintiffs assert that the following indi- lio LLC, Elite Dynamics LLC, Dressel lent offer and sale of securities. A Ponzi vidual defendants acted as Facilitators: Consultants Inc., Options Limited LLC, Scheme. The Plaintiffs in this case were Blake Ostler, Karen Tsang and Brian Tonga Living LLC, DS Platinum LLC, The victimized by the Defendants in their na- Childs. Each of these Defendants knew Fucoidan Company Inc., Triple D Mining tive country of Japan but the illegal in- (and know) an illegal Investment Scheme Inc., Regal Financial Bank, all domiciled in vestment scheme which targeted them was in operation and made or caused to be Nevada; Integrity Office Support LLC, Top was created and perpetuated by Utah resi- made untrue statements of fact in further- & Top Limited Inc., Dressel Investment dents who used Utah banks, business and ance thereof. Each of these Defendants Limited (USA) Inc., Music Chamber Inter- real property to launder and conceal their knew that the Plaintiffs and others were national Inc., Korr Development Inc., Nora- ill-gotten investment capital. losing millions by the operation of the ille- nia Development LLC, all domiciled in "Plaintiffs assert that Defendants iden- gal Investment Scheme. Each of these De- Washington; N206WB LLC, Mining 3 Inc., tified individually can be divided into two fendants took no action to protect investors Mining 4 Inc., Rand Alaska Discovery & groups of equal culpability and responsi- or correct misrepresentations of fact as re- Mining Inc., all domiciled in Alaska; CCW bility. The first group will be called Con- quired by federal and state law. Each ac- International Ltd., domiciled in China; trol Persons. Control Persons are those tively assisted in the concealment and per- Dwight Williams, an attorney, and his son, who: actively marketed and sold securi- petuation of the illegal Investment Scheme Brad Williams, both described as residents ties in various capacities; made false rep- in exchange for payments or assets gener- of Salt Lake County, Utah; Brian Childs, resentations in connection with the sale of ated by its operation. believed to be a resident of Texas; Joseph securities; who intended to deceive, ma- (Continued on page 17)

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Japanese investors accuse BVI firms of $2.5 m fraud (Continued from page 16) Financial Bank, Inc, N206WB, LLC and "The Control Persons and Dressel In- "Plaintiffs assert that there are also two Liberty Lofts, LLC. vestments Ltd. (BVI) did not use the funds different groups of entity defendants. The "The Control Persons marketed, dis- invested by the Plaintiffs as represented. first group of entity defendants are the in- tributed and sold the Investment Scheme The vast majority of funds were used in one strumentalities of the illegal Investment by making untrue statements of material of three ways: A) diverted to various third Scheme and were used to obtain and con- fact. Each of these defendants worked in party entities in which the Plaintiffs had no ceal investor funds, proceeds or assets. concert as part of their fraudulent conspir- equity or shareholder rights and which were Each of these entity defendants are owned, acy to offer and sell the Investment in fact, owned or controlled by the Control operated or controlled by the Control Per- Scheme to the Plaintiffs. Each Control Persons privately; B) diverted to make in- sons and used by them to divert money and Person played a specific role in order to terest payments or "Priority Distributions" assets for their personal profit. These enti- create the false impression of financial to earlier investors; and C) diverted to make ties shall be identified as the Dressel Enti- success, business acumen, securities ex- under the table or undisclosed commissions ties. The Dressel Entities include for pur- perience and investment acumen. Most or other payments to agents working for the poses of these Indonesia Plaintiffs include: notably, the individual Control Persons Control Persons or others who convinced Dressel Investments, Ltd. (BVI); Dressel located in Utah were specifically selected investors to deliver funds to the Control Portfolio Management, Inc.; Integrity Of- to create an "American" look and feel so Persons and their Ponzi Scheme. Remain- fice Support, LLC; The Asset Recovery as to further induce the Plaintiffs to pur- ing funds were used by those same Control Trust ("ART"); N206WB, LLC (Alaska); chase securities. Persons to pay the operating expenses, legal Dressel Investments, Ltd. (USA), Inc. "The Control Persons identified above fees and to support the Control Persons. (Nevada); Top & Top, Ltd. (BVI); Elite in paragraph 3, marketed securities for the "The Control Persons failed to notify Portfolio, LLC; Elite Dynamics, LLC; Dressel Entities as a group of world class the Plaintiffs and other investors that at the Dressel Investment Consultants, Inc., Op- companies offering a unique investment time of their solicitation of securities, the tions Limited, LLC; Tonga Living, LLC; plan or program. They falsely claimed Dressel Entities were essentially insolvent. DS Platinum, LLC; The Fucoidan Com- that Plaintiffs funds would be used to The "token investments" made with the pany, Inc.; Triple D Mining, Inc.(Alaska); acquire, develop, and manage residential Plaintiffs (and other investor funds) had Rand Alaska Discovery & Mining, Inc.; and commercial real estate, agricultural failed to generate any real revenue and the Triple D. Mining, Inc. (Nevada); Top & projects, mining operations and other hard real estate, mining and other investments Top Limited, Inc. (Washington); Dressel assets. Additionally, the Control Persons never materialized into any equity or assets Investment Limited (USA), Inc. claimed expertise in international finance for the benefit of the investors. In further- (Washington); Mining 3, Inc.; Mining 4, and foreign currency trading. ance of their conspiracy, the Control Per- Inc.; Music Chamber International, Inc.; "The Control Persons collectively sons provided the Plaintiffs and others with Richmark International (BVI); Richmark recruited investors inclusive of the Plain- numerous false statements of financial sol- International Management Ltd. (Canada); tiffs with promises of a high rate of return vency, strength and ability to continue to Korr Development, Inc; Norania Develop- in collaboration with Dressel Entity acquire equity and value for the Plaintiffs. ment, LLC, CCW International, Ltd. For funds. In Japan, this was done by their "Instead of managing an innovative purposes of brevity, throughout the remain- Agent in Fact, Sunny World Co. Ltd., investment or "co-investment" program as der of this Complaint, the identification of a which was engaged by Danny Wong, represented by the Dressel Entities as they defendant as a Dressel Entity shall carry the Brad Williams and Dwight Williams to claimed, the Control Persons operated a meaning and Plaintiffs' assertion that it was further the Control Persons objectives and blatant Ponzi Scheme using new investor used by the Control Persons as an instru- investment scheme. The Control Persons funds obtained from the Plaintiffs and oth- mentality of fraud, to obtain, conceal and via Sunny World solicited investor funds ers to make interest payments or Priority divert monies, assets and other rights at the from Japan, specifically the Plaintiffs. Distributions to earlier investors from Utah, expense of Plaintiffs. It shall further mean The Control Persons and Dressel Entities or other states and countries around the that its acts and omissions were directed by told the Plaintiffs and other investors that world. the Control Persons and Facilitators here in the proceeds for their purchase of Dressel "This action has been filed by Plaintiffs the State of Utah. Entity securities would be used to fund who assert that the Defendants have oper- "Plaintiffs assert that the second group and acquire real estate developments, ated an illegal investment scheme by solic- of entity defendants are not owned and con- commercial properties, international fi- iting and selling securities to Plaintiffs that trolled exclusively by the Control Persons. nance, mining operations, agricultural had no monetary value. Defendants em- Nonetheless, they worked with or in con- projects and their participation in various ployed various illegal schemes to further cert with the Control Persons and the Dres- international finance trading programs. the Investment Scheme. Defendants' acts sel Entities to obtain monies, assets, con- The Plaintiffs understood that all assets include knowing misrepresentations regard- tractual rights, shares of stock, ownership, would be acquired and held in Dressel ing the value of the securities sold, the busi- real property and other proceeds of the Investments Ltd. (BVI) which was re- ness activities and operational standards of Plaintiffs by furthering the Investment flected or represented on the face of the the Defendants, the solvency of the Dressel Scheme. These Defendants include: Regal securities provided in exchange for their entities, the indented use of proceeds, and investment funds. This did not occur. (Continued on page 18)

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Japanese investors accuse BVI firms of $2.5 m fraud (Continued from page 17) tiffs without their knowledge or consent ART is an Alter Ego of the Control Persons the credibility of the investment fund, its in violation of federal and state law. and Dressel Entities and as such shares with directors, and managers. Defendants acted Plaintiffs reserve the right to amend this them a unity of interest and ownership with scienter, as evidenced by their opera- Amended Complaint to add additional which exists to the point where a separation tion of a Ponzi Scheme, money laundering, John Doe parties or entities that are dis- in the ART, the Dressel Entities and the mail and wire fraud, receipt of Plaintiffs covered to have acted for or in concert Control Persons fails to exist. Further, the monies and assets, and other illegal acts to with the Control Persons or the Dressel observance of the ART form would sanc- conceal investment capital obtained under Entities. tion a fraud, promote injustice and an ineq- these false pretenses. "The Asset Recovery Trust has been uitable result. "The Dressel Entities have been created, established to shield those individually "The Dressel Entities and the Control used and manipulated by the Control Per- identified Control Persons and Facilitators Persons used ART to conceal their activi- sons to effectuate their various illegal in- who are engaged in various illegal activi- ties, assert false and misleading statements vestment schemes, transfer monies between ties as set forth below. Under the watchful publicly and privately and acted in concert them domestically and internationally, and, eye of Dwight Williams, the Asset Re- with the intent to make permanent their benefit themselves personally at the ex- covery Trust was created with Robert diversion of the Plaintiffs invested funds." pense of the Plaintiffs and other investors. Jinks with the alleged purpose of Plaintiffs in the action are Markos Akio, The actions of these Control Persons, “marshalling the assets” of the Dressel Almir Maeda, Ulises Roque Valencia through the mechanism(s) of the Dressel Entities. Investor funds, assets and pro- Bendezu, Miyashiro Inafuko Fernando, Entities, violate 18 U.S.C., §§ 1956, 1957. ceeds were given to ART by assignment, Jose Saavedra Kurimoto, Kazuo Yoshizaki, In essence, the Dressel Entities have been though formal assignment has ever been Fujii Leonardo, Fujii Adrian, Silvio Akio created to receive and re-distribute fraudu- provided and ART has admitted that no Tateo, Francis Guimaraes Aoto, Fabio Jun- lently obtained investment funds from the consideration was paid for the assign- ior de Liz, Meykell Giorge da Silva Sato, Plaintiff for the benefit of the Control Per- ment. ART used the Utah Courts with the Maria Almeri da Silva Sato, Luciano Mas- sons and Facilitators directly or indirectly. assistance of Blake Ostler to conceal the sayuki Sakaue, Sam Prasad, Alain Borges, "Plaintiffs acknowledge and assert the ownership of Dressel investor funds and Ulf Bremer, Mirna Susanti, Kanagawa-Ken likelihood that the Control Persons will act assets. -Yoko-Shi Uragocho, and Ellen Yumi Ono. to create other entities in other countries "ART has obtained assets, rights and/ They were described as "either residents of and states of these United States in further- or investment capital directly or indirectly Japan or were recruited or solicited by the ance of their illegal investment schemes from the Dressel Entities and/or Control defendants through Sunny World, in Ja- and to conceal monies diverted from Plain- Persons by way of fraudulent conveyance. pan".

Jonathan Curshen found liable for securities fraud in SEC action Offshore provider Jonathan Curshen has 2009, the SEC stated: "Based on the tained factually baseless profit and revenue lost the first of two securities fraud com- Commission's evidence at the bench trial projections for Freedom Golf, which was in plaints filed against him by the United held on April 30 and May 1, 2007, the dire financial condition at the time. Curshen States Securities and Exchange Commis- Court concluded that in early 2000, Cur- posted a link to the report on Internet web- sion. shen knowingly or recklessly posted on sites, despite knowing of the company's Curshen, 42, a former Honorary Consul various Internet sites baseless projections poor financial condition. Furthermore, the for St. Kitts & Nevis in Costa Rica who is a and other financial information about Court found Curshen posted numerous U. S. and U. K. national with addresses in Freedom Golf Corporation, a now- messages touting Freedom Golf on various Costa Rica and Sarasota, Florida, was defunct Denver-based golf club manufac- Internet web sites without disclosing his found liable for an Internet-based 'pump turer. The Court further found that Cur- receipt and sale of Freedom Golf stock in and dump' scheme in a judgment that was shen knowingly failed to disclose that he exchange for promoting the company." rendered by U. S. Senior District Judge was being paid to promote Freedom Golf In his Findings of Fact, the judge stated: Walker D. Miller, sitting at the U. S. Dis- and was selling the company's stock at the "Except for the Defendant, the witnesses trict Court for the District of Colorado, on same time he was touting the company. who testified before me were generally March 3, 2009 – nearly two years after the "According to the Court's findings, credible. Given his demeanor and answers, two-day bench trial ended. Timothy Miles, a principal shareholder of the Defendant was not fully credible. He In a final judgment entered on March 6, Freedom Golf, arranged for the company repeatedly stated he did not recall matters Curshen was ordered to disgorge profits of to hire Carter Allen Jones and Curshen to which were clearly linked to him, such as e- $66,235, plus interest, and banned from promote Freedom Golf. Jones prepared an mail communications which were admit- participating in any future penny stock of- "investor report" touting Freedom Golf tedly sent from his computer or under his fering. based on information provided by the user name. He also suggested that messages In a press release issued on March 10, company's president. The report con- (Continued on page 19)

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Jonathan Curshen found liable for securities fraud in SEC action (Continued from page 18) • "Pump up the volume!!" charged with conspiracy to commit securi- could have been created by other individu- • "Get in now before the fireworks . ties fraud at the U. S. District Court for the als who from time to time used his com- . ." Southern District of New York on Septem- puter, including his Rabbi. There was no • "All aboard! This train is pulling ber 4, 2008. Six days later, they were also explanation, however, of why his Rabbi or out . . ." named as defendants in a civil complaint anyone else would be communicating mes- • "About to leave the launching that was filed by the U. S. Securities and sages concerning potential investments in pad." Exchange Commission at the same court. Freedom Golf. His testimony is in direct "Defendant’s promotional efforts were In both actions, Curshen and Grossman conflict with other witnesses who had no contemporaneous with his receipt and have been accused of participating in a self-interest in the particular issue such as sale of Freedom Golf stock for his bene- scheme to manipulate the common stock of Jose Pablo Jimenez, and Joseph Fernando. fit," stated the judge. Pink Sheets-listed Industrial Biotechnology By use of his passport, Defendant also In explaining his decision to ban Cur- Corp. by bribing registered representatives sought to distance himself from the Internet shen from the penny stock industry "in to buy IBOT shares in customer accounts postings by demonstrating that he fre- the public interest", the judge stated: over which the registered representatives quently traveled to Costa Rica during the "Defendant does not recognize any wrong had trading discretion. Both cases are ongo- early months of 2000. The passport mark- -doing, indeed denies it or declares the ing. ings, however, did not include dates of his inability to recall it. Given that history Research by OffshoreAlert showed that, departures from Costa Rica to enable a de- and attitude, I do not accept Defendant's in recent years, Curshen has been involved termination of the length of his stays in assurances against future violations or as an officer, director and/or consultant in Costa Rica. Accordingly, these efforts were that there is no likelihood that he will several businesses offering an array of off- inconclusive at best." have the opportunity to engage in similar shore and financial services, including Red The judge determined that Curshen had conduct. I also note that he was not a fully Sea Management Ltd., in Costa Rica; Sen- anonymously posted several messages on credible witness and his assurances are try Global Securities Ltd., in Nevis; South- web-sites at ragingbull.com and deja.com given little if any weight. Accordingly a ern Assurance Group Inc., in Florida; in an attempt to increase Freedom Golf's permanent injunction should enter." LPS&C Law, in Costa Rica; and Curshen share price, including the following: As previously reported by Offsho- and Associates, in Costa Rica and Miami, • "I hear rumblings that some very reAlert, Curshen and a business associate, Florida. powerful investor relations people Bruce L. Grossman, were criminally are going to get involved here."

$3 b class Madoff-related class action filed against Bank of Bermuda et al A class action lawsuit has been filed against tional Fund Plc, of Ireland; Primeo Select the largest Ponzi scheme in financial history. In several offshore entities and individuals on Fund and Primeo Executive Fund, which are fact, the government now says that it appears behalf of investors in four hedge funds who both sub-funds of the Primeo Fund;, Herald Madoff did not invest any of the money sent to allegedly lost over $3 billion in the Bernard USA Fund and/or Herald Luxemburg Fund him for over thirteen years. The U.S. Govern- Madoff fraud. (collectively "the Medici Funds") between ment has filed criminal charges against Madoff Among the offshore defendants are Bank of March 1, 2001 and December 10, 2008. and the SEC is investigating BMIS and related Bermuda subsidiaries in the Cayman Islands "Plaintiffs brings claims against some or entities. Investors' losses are estimated at $50 and Luxembourg, two Cayman-domiciled all defendants for violations of §§ 10(b) and billion. hedge funds – Primeo Fund and Herald Fund; 20(a) of the Securities and Exchange Act of "Following these revelations, a number of James E. O'Neill, a former Managing Director 1934, negligent misrepresentation, breach of investment funds disclosed that they were little of Bank Austria (Cayman Islands) (now fiduciary duty, violation of General Business more than feeder funds for Madoff and BMIS. UniCredit Bank); Cayman Islands resident Law §349, gross negligence, unjust enrich- Such funds included the Medici Funds. The Michael Wheaton, and British Virgin Islands- ment, and aiding and abetting breach of fidu- Medici Funds each sought contributions di- domiciled investment adviser BA Worldwide ciary duty," it was stated in the complaint. rectly from investors, and delivered, or fed, the Fund Management Ltd. Also named as defen- "This action arises from defendants' investments they received to Madoff. Bank dants are Ernst & Young, whose Cayman office wrongful conduct in connection with the Medici AG, controlled the Medici Funds, and allegedly audited one of the funds, and Price- fraud and Ponzi scheme run by Bernard L. caused these funds to be fed into Madoff's waterhouseCoopers. Madoff through his investment firm Bernard Ponzi scheme. Sonja Kohn, the founder of The complaint was filed at the U. S. Dis- L. Madoff Investment Securities LLC. On Medici, its chairperson, and a 75% owner; Pe- trict Court for the Southern District of New December 11, 2008, Madoff's Ponzi scheme ter Scheithauer, the former Chief Executive York on March 19, 2009 by specimen plaintiffs was disclosed to the public and Madoff was Officer of Medici; Werner Tripolt a former Fabian Perrone, a resident of Argentina, and arrested by federal authorities. Madoff and director of Medici; John Holliwell, another Chia-Hung Kao, a resident of Taiwan. BMIS had fraudulently reported steady, posi- director of Medici; UniCredit S.A., an Italian The action was filed on behalf of "all per- tive returns on billions of dollars in invest- bank which owned 25% of Medici through its sons or entities" who purchased shares of the ments they controlled when, in fact, they had subsidiary Bank Austria Creditanstalt, Bank Thema Fund, a sub-fund of Thema Interna- lost most, if not all, of the investors' money in (Continued on page 20)

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$3 b class Madoff-related class action filed against Bank of Bermuda et al (Continued from page 19) they reported; scribed as the parent company of the adminis- Austria itself (collectively the "Medici Defen- (g) one of Madoff s competitors, Harry trator and administrator of the Thema Fund" dants") were all control persons of Medici. Markopolos, sent two letters to the and "a control person of the Thema Fund and "The Medici Defendants, and Pioneer Al- SEC, one in 1999 claiming that Primeo Fund"; HSBC Institutional Trust Ser- ternative Investments (collectively the "Fund "Madoff Securities is the world's vices (Ireland) Ltd., described as the custodian Managers"), who at all relevant times was largest Ponzi Scheme" and another in of the Thema Fund; HSBC Securities Services owned by UniCredit and owned the Primeo 2005 stating "The World's Largest (Ireland) Ltd., described as the "administrator, Fund, represented to investors that their money Hedge Fund is a Fraud;" registrar, transfer agent, and secretary of the would be invested in the securities market. The (h) BMIS's auditor, Freihling & Thema Fund"; HSBC Securities Services Fund Managers touted profits made by current Horowitz, consisted of one office in (Luxembourg) SA, described as "the custodian, investors, thereby encouraging investment by Rockland County, New York, with service agent and listing agent of the Herald new and existing investors. However, the Fund three employees, one of whom was Funds and custodian for the Primeo Fund"; Managers did not inform their investors that the 78 years old and lived in Florida, and Bank Medici AG, described as a "closely-held Medici Funds were acting as feeder funds for a one of whom was a secretary; merchant bank" based in Austria which Ponzi scheme. (i) regulatory filings of the Medici Funds "owned, acted as investment manager for, and "Equally, defendants the Herald Fund Di- showed very small positions in equi- marketed the Herald Funds, controlled the rectors, Primeo Fund Directors, and Thema ties, which the Medici Funds ex- Primeo Fund …, was the manager of the Fund Directors, along with the Medici Funds' plained was due to Madoff's strategy Thema Fund beginning in 2006, and caused advisers, administrators, managers and custodi- of converting all the assets to case each of these to become feeder funds for Mad- ans, as defined infra, were control persons of equivalents at the end of every quar- off's Ponzi scheme based in Austria"; Bank their respective funds and misled investors by ter, but there was no record of the Austria Creditanstalt, described as "Austria's failing to inform them that they were investing estimated $13 billion in assets being largest bank"; Pioneer Alternative Investment in Madoff's Ponzi scheme through feeder funds. moved all at once; and Management Limited, described as an invest- "Defendant Ernst & Young was the auditor (j) BMIS's comptroller was based in ment manager based in Ireland; Pricewater- for the Herald and Primeo Funds and Defen- Bermuda, while most mainstream houseCoopers, described as the auditor of the dant PricewaterhouseCoopers was the auditor hedge funds have in-house comptrol- Thema Fund; UniCredit S.A., described as an for the Thema Fund (collectively the "Auditor lers. Italian bank which owned 25% of Bank Medici Defendants"). The Auditor Defendants falsely "As a result of defendants' wrongdoing, through its subsidiary Bank Austria; Nigel H. represented to plaintiffs and the Class that their plaintiffs unknowingly invested in a Ponzi Fielding, Karl E. Kaniak, Declan Murray, Jo- investments were secure and gaining value. The scheme indirectly through one of the Medici hannes P. Spalek, Michael Wheaton, and Auditor Defendants ignored or failed to do Funds known as the Thema Fund. The vast Ursula Radel-Leszczynski, all described as reasonable due diligence to uncover the many majority of the capital of the Thema Fund directors of the Primeo Fund at one time or red flags which would have shown that these was invested with Madoff and his related another; Alfred Simon, described as President funds were not safe and growing, but were entities. Due to defendants' actions, plaintiffs and CEO of Primeo Fund "for a portion of the instead invested in a Ponzi scheme. have lost their investments in the Thema Class Period"; Alberto La Rocca, described as a "Moreover, all the defendants ignored Fund and Class members who invested in the director of the Primeo Fund "for a portion of many red flags that should have caused them, Medici Funds have lost over $3 billion. the Class Period" and "a Managing Director of as investment professionals, to conduct further "By contrast, defendants have received Pioneer Alternative Investment Management due diligence and/or alter their investment deci- millions of dollars in commissions and fees (Bermuda) Limited from at least December sions. These red flags included but were not throughout the Class Periods." 2002 through April 25, 2007"; James E. limited to the following: The defendants in the complaint are: O'Neill, described as a director of the Primeo (a) the lack of transparency into BMIS, Primeo Fund, described as a hedge fund Fund "for a portion of the class Period" and its including Madoff s refusal to disclose formed in the Cayman Islands on November adviser BA Worldwide Fund Management, Ltd. his investment strategy; 17, 2003, with Bank of Bermuda (Cayman) and a Managing Director of Bank Austria (b) BMIS's returns lacked the usual level of Limited as its registered office; Herald Fund (Cayman Islands) from 1998 to at least 2004; volatility, including only five months of SPC, domiciled in the Cayman Islands; Alberto Benbassat, Stephane Benbassat, Ge- negative returns in the past 12 years; Thema International Fund Plc, based in Ire- rald. J. P. Brady, David T. Smith, and Daniel (c) the inability of other funds using a land; BA Worldwide Fund Management Ltd., Morrissey, all described as directors of the "split-strike conversion" strategy described as an investment adviser to the Thema Fund; Helmuth E. Frey, described as (which Madoff purportedly used) to Primeo Fund with a registered office at HWR Chairman of Herald Fund Luxembourg and generate returns comparable to those Services P.O. Box 71, Road Town, Tortola, CEO of Investment at Bank Austria; Friedrich generated by Madoff; British Virgin Islands; Bank of Bermuda Pfeffer, described as a director of Herald Lux- (d) Madoff acted as his own prime broker, (Cayman) Limited, described as the adminis- embourg Fund; Franco Mugnai, described as a while most hedge funds use outside trator and registrar of the Primeo Fund; Bank director of Herald Luxembourg Fund; Nicola large banks as their prime brokers; of Bermuda (Luxembourg) SA, described as A. Corsetti, Herald C. Nograsek, and Hannes (e) BMIS only generated revenue through the custodian of the Primeo Fund for a por- Saleta, all described as directors of BA World- transaction-based commission fees, tion of the Class Period; Ernst & Young, wide Fund Management; Sonja Kohn, de- unlike most hedge funds which charge described as auditor of the Herald and Primeo scribed as the founder of Bank Medici AG; investment management fees based on Funds, with its Cayman office allegedly au- John Holliwell, described as a director of Bank the performance of the fund; diting the Primeo Fund and its Luxembourg Medici; Werner Tripolt, described as a director (f) account statements sent to Madoff's office allegedly auditing the Herald Funds; of Bank Medici; and Peter Scheithauer, de- investors did not support the returns HSBC Holdings Plc, based in England, de- scribed as the CEO of Bank Medici.

This newsletter is for subscribers only. It is unlawful to reproduce this document. Page 20 Tel.: (305)372-6267; Fax: (305)372-8724; www.OffshoreAlert.com April, 2009 OffshoreAlert Recent Requests for Judicial Assistance in the United States "The instant Convention request has LATVIA been made by the Republic of Colombia, www.gold-cash.biz, Julija Berezovska, MLAT Round-Up the Central Authority for Colombia under Vladislavs Hveskovics, OptionsXpress, the Convention, in connection with a cur- Bancorp Bank, Digital Exchangers, Rie- rent criminal investigation by Prosecutor tumu Banka 14 of the Criminal Courts in and for the Circuit of Armenia, Quindío," it was Latvia is seeking information about a ficti- CANADA stated in the application. tious bank – using an address in Bermuda – Robert Waxman "According to the request, Colombian and other companies that were allegedly authorities are conducting an investiga- used to defraud a Connecticut resident of Canada has requested evidence from five tion involving the alleged illicit activity of US$151,730. residents of Michigan for a fraud and theft Mayor David Barros Velez. Allegedly, Details are contained in an application trial in Ontario. Barros Velez, along with Luz Isaza for the appointment of a Commissioner to Details are contained in an application Velasquez, managed an account which collect evidence – pursuant to a request for for the appointment of a Commissioner to was initially opened in May 5, 2006, with judicial assistance from Latvia – that was collect evidence – pursuant to a request for $50,000. When the account was closed in filed at the U. S. District Court for the Dis- judicial assistance from Canada – that was February 6, 2008, it had a balance of trict of Delaware on March 19, 2009. filed at the U. S. District Court for the East- $384,061,050 that was not declared as A resident of Norwalk, Connecticut had ern District of Michigan on March 16, income by Barros Velez. Due to the fact two online accounts with OptionsExpress, a 2009. that Barros Velez was having financial Chicago-based online broker, according to "The Department of Justice Canada, trouble prior to taking office it is believed the request for assistance. specifically the Attorney General of On- that the increase of funds in the account is On April 25, 2005, the account-holder tario, will be commencing trial against the result of criminal activity. discovered there had been unauthorized Robert K. Waxman on March 23, 2009 for "Colombian authorities seek our assis- access and that "unknown persons used his multiple count of Fraud Over $5,000 and tance in obtaining bank account records user name and password and did money Theft Over $5,000 and has asked for assis- from Bank of America, located in Miami, transferrals from his account", it was tance in obtaining the sworn testimony, by Florida, in furtherance of their investiga- claimed. It was found that, from March 9, means of video technology, of five wit- tion." 2005 to April 25, 2005, US$151,730 had nesses in the Eastern District of Michigan," According to the request for assis- been illegally transferred from his account it was stated in the application. "All five tance, Barros Velez and Isaza Velasquez at The Bancorp Bank, which is a FDIC- witnesses have agreed to appear voluntar- controlled a foreign currency trading ac- insured online commercial bank with an ily, although witness subpoenas will still be count at FIT International Group that was address of 405 Silverside Road, Suite 105, necessary." associated with the Bank of America ac- Wilmington, Delaware, to an e-gold ac- The identities of the witnesses were not count. count in the name of "Bancorp Bank", us- disclosed in court filings. Barros Velez served as municipal ing an address of Reid House, 31 Church mayor of the city of Armenia, in the re- Street, Hamilton, Bermuda, it was alleged. gion of Quindio, from 2004 to 2007, it Some of the funds ended up in an e-gold was stated in the request. He is being in- account registered to www.gold-cash.biz, COLOMBIA vestigated for "Illicit Enrichment of Pub- which was registered to Julija Berezovska David Barros Velez, Luz Isaza Velasquez, lic Servant". and has an address in Riga, Latvia, it was Bank of America, Blackman Overseas In its request, Colombia has asked for claimed. In 2003, her husband, Vladislavs Corp., FIT International Group details of any accounts at the Brickell Hveskovics, started an Internet currency Avenue, Miami branch of Bank of Amer- business called Digital Exchangers, which Colombia is seeking account records at ica in the names of David Barros Velez was domiciled in the United States, oper- Bank of America, in Miami, and informa- and Blackman Overseas Corp., described ated a web-site at www.gold-cash.ru and tion about a British Virgin Islands- as a company domiciled in the British had an account at Rietumu Banka, stated domiciled IBC called Blackman Overseas Virgin Islands with an address of 782 investigators, who added that he sold Digi- Corp. as part of a criminal investigation Lejeune Road, Miami, FL 33126, and for tal Exchangers to an Italian company in into alleged corruption by a former mayor evidence as to whether Blackman Over- 2005. of the city of Armenia. seas Corp. operates from 782 Lejeune In its request for assistance, Latvia re- Details are contained in an application Road, Miami, Florida and has any links to quested the following information: Details for the appointment of a Commissioner to Barros and Luz Elena Isaza Velasquez. about OptionsXpress, of 39 S. LaSalle collect evidence – pursuant to a request for Street, Chicago, Illinois; Bancorp Bank, of judicial assistance from Colombia – that 405 Silverside Road, Suite 105, Wilming- was filed at the U. S. District Court for the ton, Delaware; Bancorp Bank, Reid House, Southern District of Florida on March 3, 2009. (Continued on page 22)

This newsletter is for subscribers only. It is unlawful to reproduce this document. Page 21 Tel.: (305)372-6267; Fax: (305)372-8724; www.OffshoreAlert.com April, 2009 OffshoreAlert Recent Requests for Judicial Assistance in the United States "The officials of "Niratons" LLC, was filed at the U. S. District Court for the "Forever Auto" LLC, "Arhidom" LLC, Southern District of Florida on March 18, MLAT Round-Up ''M.Art Studija" LLC confirmed that they 2009. had never carried out any commercial "The instant Treaty Request has been activity in the companies and had never made by the Republic of Panama Ministry concluded any deals with any company," of Government and Justice, the Competent it was stated in the request. Authority under Article 4 of the Treaty, in (Continued from page 21) Funds were transferred to accounts in connection with a criminal investigation by of 31 Church Street, Hamilton, Bermuda; the names of ARTE ET LLC, Dinakts the Office of the Fourteenth Circuit Public and Digital Exchangers. LLC, Nordval Baltic LLC, and Style & Prosecutor of the First Judicial Circuit of Research by OffshoreAlert showed that Interior LLC at Rietumu Banka and were Panama," it was stated in the application. the domain name gold-cash.biz is now reg- further transferred to the accounts of "Panamanian authorities are conducting an istered to Kam Chun Man, with an address "Langa, Northstar System Corporation investigation into an unauthorized money in Kowloon, Hong Kong. and other companies registered abroad", it transfer. was alleged. "According to the request, Lia Lasso de The purpose for the transfer of funds Chiari worked at Towerbank International, was given as "for construction materials Inc., in Panama. On December 6, 2006, she LATVIA or for promissory notes" but there are received a fax allegedly sent by account- Latcelt LLC, a.k.a. Laceit LLC; Forever "reasonable doubts" that deals ARTE ET holder Alberto Ignacio Paz, requesting the Auto LLC, Niratons LLC, M.Art Studija LLC, Dinakts LLC, Nordval Baltic LLC, wire transfer of 28,300 Balboas from his LLC, Arhidom LLC, Sen LLC, ARTE ET and Style & Interior LLC purportedly account at Towerbank to an account at Ban- LLC, Dinakts LLC, Nordval Baltic LLC, transaction with foreign companies such kAtlantic in Miami, Florida, in the name of Style & Interior LLC, Ekobild LLC, Credit as Langa, Northstar System Corporation, Ariel Marcelo Soto. On January 26, 2007, Suisse Premium Finance LLC, Langa USA, and Credit Suisse Premium Finance LLC after receiving his account statement and Northstar System Corporation, Leonid never took place, it was claimed. seeing the wire transfer, Paz denied that he Paliitchouk, Elita Zolotovska, Pavels Latvia is seeking information about requested any funds to be transferred. Lasso Kadirkovs, Alexander A. Dubitsky, Tatjana Credit Suisse Premium Finance LLC, de Chiari told law enforcement officers that Mihailuka, Dmitrijs Osokins, Kristina with an address of 11 Madison Avenue, the fax was the first time Paz had requested Kokina, Arvids Morozs, Rasids Sultanovs, New York, NY 10010; Langa USA, with a transfer via fax. Rieutuma Banka an address of 1912 Capitol Avenue, "Based on these facts and in furtherance Cheyenne, WY 82001; and Northstar of their investigation, the Republic of Pa- Latvia has requested information about System Corporation, with an address of nama requests our assistance in obtaining several companies with addresses in the Suite 606, 1220 North Market Street, Wil- bank records from BankAtlantic." United States as part of a criminal investi- mington, DE 19801 and for witnesses to According to the request, Panama is gation into alleged tax evasion and money be asked questions about a number of investigating a "crime against the national laundering. businesses and individuals, including economy, committed in [sic] the detriment Details are contained in an application Leonid Paliitchouk, Elita Zolotovska, of Jose Campa". for the appointment of a Commissioner to Pavels Kadirkovs, Alexander A. Dubit- collect evidence – pursuant to a request for sky, Tatjana Mihailuka, Dmitrijs Osokins, judicial assistance from Latvia – that was Kristina Kokina, Arvids Morozs, and Ra- filed at the U. S. District Court for the Dis- sids Sultanovs. PARAGUAY trict of Delaware on March 19, 2009. Nilo Sancir Lima Alvarez, Citibank, Susana A pre-trial investigation determined that Anahi Ayala Lima "a group of persons" was executing ficti- tious transactions with a view to commit- PANAMA Paraguay is seeking information about an ting value added tax fraud and legalizing Jose Campa, Lia Lasso de Chiari, Alberto account at Citibank from which it is alleged the proceeds of criminal activity "on a Ignacio Paz, Ariel Marcelo Soto, Tower- that at least one withdrawal was made 12 grand scale", it was alleged, bank International, Inc., BankAtlantic days after the account-holder died. Investigators stated that, during the in- Details are contained in an application vestigation, several "fictive" companies Panama is seeking information about an for the appointment of a Commissioner to were discovered, including Latcelt LLC, account at BankAtlantic in Miami as part collect evidence – pursuant to a request for also identified as Laceit LLC; Forever Auto of a criminal investigation into alleged judicial assistance from Paraguay – that LLC, Niratons LLC, M.Art Studija LLC, fraud. was filed at the U. S. District Court for the Arhidom LLC, Sen LLC, ARTE ET LLC, Details are contained in an application Southern District of Florida on March 18, Dinakts LLC, Nordval Baltic LLC, Style & for the appointment of a Commissioner to 2009. Interior LLC, and Ekobild LLC. collect evidence – pursuant to a request for judicial assistance from Panama – that (Continued on page 23)

This newsletter is for subscribers only. It is unlawful to reproduce this document. Page 22 Tel.: (305)372-6267; Fax: (305)372-8724; www.OffshoreAlert.com April, 2009 OffshoreAlert Recent Requests for Judicial Assistance in the United States Paraguay," it was stated in the applica- "In furtherance of their investigation, tion. Paraguayan authorities seek our assistance MLAT Round-Up "According to the request, Paraguayan in obtaining bank account records from authorities are investigating the complaint Citibank." of Susana Anahi Ayala Lima, grand- The criminal investigation began after a daughter of now deceased Nilo Sancir complaint by Susana Anahi Ayala Lima, a Lima Alvarez. Lima Alvarez died on De- grand-daughter of the deceased and one of (Continued from page 22) cember 17, 2003. According to the re- the heirs of his estate, according to the re- "The instant Convention request has quest, Ayala Lima declared in the succes- quest for assistance. been made by the Ministry of Public Af- sion trial the existence of three bank ac- Investigators alleged that US$21,000 fairs, the Central Authority for Paraguay counts in her grandfather's name that re- was withdrawn from the deceased's account under the Convention, in connection with a mained open and continued to have on December 29, 2003 – 12 days after his current criminal investigation by Sonia movement of withdrawals and transfers death and that activity in the account con- Maria Mora Franco, State Prosecutor of until February 25, 2004. One of these tinued until February 25, 2004. Criminal Unit No.2 of the State Prosecu- accounts is an account at a Citibank tor's General Office of the Republic of branch located in Miami, Florida.

Petters-related class action against Ernst & Young (Bermuda)

A class action complaint has been filed Ernst & clubs, including Sam's Club, Costco Wholesale, e. "Require payment of the accounts receiv- Young (Bermuda) in the United States on behalf of and BJ's Wholesale Club. Phony purchase orders able into a lock-box account"; and investors in a hedge fund for which it was the audi- and invoices were prepared and provided to per- f. "Perform ongoing quantitative and qualita- tor. sons who loaned money to the Petters Group, tive analysis of the consumer goods mar- The action was filed at the U. S. District Court including numerous investment funds, which had kets, the short-term commercial credit for the District of Connecticut on March 9, 2009 by in turn obtained money from private investors as market and the financial condition of the Susan Quinn, who claims to have invested approxi- their fiduciaries. Distribution Company and its retailer cus- mately $1.8 million in Stewardship Credit Arbitrage "In the federal investigation, FBI agents took tomers." Fund LLC. the phony purchase orders and invoices directly to "Defendants did none of these things, however. Defendants are Ernst & Young LLP, a Delaware Sam's Club and Costco Wholesale to obtain con- While a simple telephone call to any of Petters' sup- partnership based in New York, NY; Ernst & Young firmation of their legitimacy, and were immedi- posed "retailer customers" would have immediately Ltd., in Bermuda; Stewardship Credit Arbitrage ately informed that they were completely bogus. revealed that the subject notes were entirely bogus, Fund LLC, Stewardship Investment Advisors LLC, Indeed, according to an affidavit executed by an Defendants performed no due diligence whatsoever, and Acorn Capital Group LLC, all Delaware corpo- FBI Special Agent, Petters and their co- despite their fiduciary duties to Plaintiff and the rations based in Greenwich, Connecticut; and Mar- conspirators knew this could happen and discussed other Class members. lon Quan, an investment manager believed to reside it among themselves: "[I]f investors send auditors "Defendants' abject failure to conduct any pro- in Connecticut and the founder and principal officer out to visit warehouses where the merchandise is cedures to verify the legitimacy of the notes and the of both SIA and Acorn. located, ...the scheme would implode." transactions underlying them is all the more egre- The causes of action against all defendants are "The Private Placement Memorandum for gious given that Petters was the only distribution breach of fiduciary duty and negligence. SCAF (the "Memorandum") states that one of the company in which the Fund had invested Plaintiff's "Plaintiff is an investor in Defendant Steward- Fund's "primary investment strategies" would be and other Class members' money. As set forth in the ship Credit Arbitrage Fund, LLC, which is managed the purchase of short-term notes from Memorandum, all of the Fund's "financing activities by Defendants Marlon Quan and his company, Stew- "merchandise distributers," like Petters, "who are will nothing to investigate the legitimacy of the ardship Investment Advisors, LLC," it was stated in engaged in the business of buying excess high- notes. the complaint. Plaintiff and other members of the quality, consumer merchandise inventory arising, "Ernst and Young, LLP, and Ernst and Young Class purchased interests in the Fund. for example, from manufacturing overruns, whole- Ltd. Bermuda (together, "E&Y") served as the "During the Class Period, Defendants caused a sale inventory overages and retail bankruptcies, at Fund's primary outside auditors during the Class material share of the investment capital of the Fund distressed prices and selling the merchandise to Period. When a certified public accounting firm (approximately sixty percent (60%)) to be invested retailers at a profit." audits a client's financial statements, it has a duty to with Thomas J. Petters and Petters Group World- "With respect to all such distribution compa- exercise due professional care, professional skepti- wide, LLC, and its subsidiaries and affiliates nies and transactions, the Memorandum specifi- cism and objectivity, and to develop and follow (collectively, "Petters"). cally provides that SCAF would "undertake the procedures, analyses, and tests to verify the legiti- "During September 2008, a federal investigatory following procedures," among others, to ensure macy and accuracy of the client's assets, liabilities, task force assembled in the District of Minnesota the legitimacy of any short-term notes in which operations, and cash flow. uncovered a massive fraudulent Ponzi scheme perpe- the Fund invested: "E&Y, which is among the largest accounting trated by Petters. Petters and their co-conspirators a. "Receive a secured promissory note"; firms in the world, failed in these duties when it have been charged with multiple federal felonies and b. "Confirm that the consumer goods fall conducted its audits that were so superficial and more charges are expected. At present, the total into an acceptable category"; perfunctory that it failed to detect that approximately estimate involved in the swindle approaches a stag- c. "Confirm that the consumer goods have sixty percent (60%) of the assets reflected in the gering $3 billion. been pre-sold to a retailer with an 'A' or Fund's financial statements were a complete and "The essence of this scam was the completely better credit rating ...."; total sham. Had E&Y done its job, Plaintiff and the fictitious sale of high-definition flat screen television d. "Obtain a security interest in the con- other members of the Class would not be in the dire sets and other expensive electronic consumer prod- sumer goods and accounts receivable financial straits in which they find themselves to- ucts by the Petters organization to retail wholesale proceeds"; day."

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Latin America Round-Up

ARGENTINA is defined as one "whose financial institutions El Salvador is number 67 in the Corruption engage in currency transactions involving Perceptions Index of Transparency Interna- Fears of more laundering rise significant amounts of proceeds from interna- tional, with 180 the worst position in the world. tional narcotics trafficking." Almost 14% of the population said that it has An Argentine plan to increase tax revenue and been victimized by corruption in the past year, invigorate the economy by attracting offshore Bolivia is not a major regional banking cen- according to the 2008 TI report. assets, with a no-questions-asked policy, is ter, but it is a big cocaine processing and generating criticism from experts who say it producing country. The focus in considering could encourage money laundering instead. whether a country or jurisdiction should be GUATEMALA included in this category is "on the signifi- Argentine lawmakers began debating the bill cance of the amount of proceeds laundered, New tougher AML rules sent by President Cristina Fernandez last De- not of the anti-money laundering measures cember, and it has become law this month. taken," says the US State Department. This is From April 1, the Superintendence of Banks in a different approach taken than that of the Guatemala will implement new rules that affect With capital flight estimated at $20 billion this Financial Action Task Force's Non- more than 700 politicians, public officials and year and as much as $140 billion in Argentine Cooperative Countries and Territories their families (or Politically Exposed Persons funds held offshore, the government wishes to (NCCT) exercise, which focuses on a juris- known as PEPs), as part of a plan to fight offer chunky tax breaks to people and compa- diction's compliance with stated criteria re- money laundering. Transactions of $10,000 or nies who declare their offshore assets. The garding its legal and regulatory framework, more will have to be reported to the Superin- government has not said how much money it international cooperation, and resource allo- tendence. hopes to raise, but critics say the plan opens a cations. can of worms because people who repatriate funds they parked offshore would be free of Last December, Bolivia's Financial Intelli- MEXICO any enquiry into the source of the money. Some gence Unit (FIU) was expelled from the Eg- have called the bill |"an amnesty law for money mont Group. According to the US State De- Exchange of prisoners launderers." partment, "the goal of the Egmont Group is to provide a forum for FIUs around the world to Mexico and the US have exchanged 36 prison- Argentina's basic tax rate on earnings is 35%, improve support to their respective govern- ers who will have to serve the remainder of but the plan offers rates as low as 1% for assets ments in the fight against money laundering, their sentences in their own countries. A total that are repatriated and invested in national terrorist financing, and other financial crimes. of 10 US citizens convicted for homicide, industry, infrastructure or farming. The same This support includes expanding and sys- weapons possession and drug charges in Mex- bill also sets out tax breaks for companies that tematizing the exchange of financial intelli- ico were exchanged for 26 Mexicans serving put under-the-table workers on to the payroll. gence information, improving expertise and sentences for money laundering, drug charges In addition, the government would drop prose- capabilities of personnel employed by such or weapons possession. cution of individuals and companies who agree organizations, and fostering better and more to long-term, low-rate plans to pay off back secure communication among FIUs through A 1977 treaty allows inmates convicted in ei- taxes. the application of technology." ther country to serve out their sentences in their home countries. More information at http://www.state.gov/p/ BOLIVIA inl/rls/nrcrpt/2009/vol2/116550.htm. Sinaloa Cartel Leader Captured

Now with the Very Bad Guys Vicente "Vicentillo" Zambada Niebla – the EL SALVADOR drug-smuggler son of a leader of Mexico's Si- In the 2009 International Narcotics Control naloa cartel – was captured in Mexico. This is Strategy Report (INCSR), Bolivia –together Corruption – One of the main challenges one of the highest-profile catches of the gov- with Zimbabwe and Guinea-Bissay – has been ernment's two-year "war on drugs". Zambada moved to the "Jurisdictions of Primary Con- The main challenges faced by the new presi- Niebla is the son of Ismael "El Mayo" Zam- cern" category from the "Jurisdictions of Con- dent-elect Mauricio Funes are adopting meas- bada, coleader of the ruthless Sinaloa cartel, cern" category by the US State Department. ures to deal with the economic crisis, fighting along with the Mexico's most-wanted fugitive, against corruption and strengthening the Joaquin "Shorty" Guzmán. Zambada Niebla´s Bolivia is now on a list alongside with Brazil, country's institutions. According to local capture follows that of his uncle Jesús "The Colombia, Costa Rica, Dominican Republic, analysts, Funes of the Farabundo Martí Na- King" Zambada in 2008. Guatemala, Mexico, Panama, Paraguay, Uru- tional Liberation Front (FMLN) will have to guay and Venezuela, as well as other non-Latin act fast, even before he takes office on Jun 1, President Felipe Calderon´s army-backed, con- American countries. to generate confidence at the political level, troversial crackdown on drug cartels has be- Jurisdictions of Primary Concern are those that among the business community and in soci- come the biggest test of his presidency after are identified as "major money laundering ety at large. turf wars between rival cartels killed some countries." A major money laundering country (Continued on page 25)

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Latin America Round-Up

(Continued from page 24) Rodríguez Zabalbeascoa and Navarro are all Carlos Salinas), who was included in the US 6,300 people across Mexico last year, posing a facing charges of aggravated homicide. So Senate's Permanent Subcommittee on Investi- threat to investment and tourism. are non-commissioned officers César Alva- gations report Private Banking and Money rado and Pedro Santillán, former members of Laundering: A Case Study of Opportunities and Zambada Niebla ran smuggling operations in the Colina Group, and retired General Luis Vulnerabilities. Another case that is mentioned parts of the cartel´s territory and ordered execu- Pérez Documet, who played a key role in the is that of the Riggs Bank in Washington, tions of rivals, according to Mexican authori- La Cantuta killings. Alvarado has been under which, according to the report, "provides the ties. The Mexican attorney general´s office said house arrest for five years, Santillán for four ultimate textbook example of failure to conduct he is also wanted in the United States. years and Pérez Documet for five months. due diligence on politically exposed persons. The Washington bank, an august institution Retired General José Valdivia, accused of which had banked for Abraham Lincoln and PERU ordering the May 14, 1988 murder of 25 billed itself as the bank of presidents, fell apart peasant farmers in the village of Cayara in in 2004 after a US Senate committee investiga- Impunity for the Generals reprisal for an attack on a military convoy by tion and federal criminal investigators found it the Sendero Luminoso (Shining Path) Maoist had been holding accounts for President Obi- Retired military officers facing prosecution in guerrillas, also enjoys the benefit of house ang of Equatorial Guinea, his family members, Peru for cases of corruption or human rights arrest. and his corrupt government, as well as for Au- violations allegedly committed during the 1980 gusto Pinochet, the former Chilean dictator." -2000 civil war are awaiting trial in the comfort Colonel Flavio Gallegos, another of the offi- of their homes. cers accused in connection with the Cayara The banks doing business with corrupt custom- massacre, has been under arrest in his home ers include Barclays, Citibank, Deutsche Bank, Retired army lieutenant Juan Rivera, who for the past seven months. and HSBC. Nearly all of the banks that are headed a platoon accused of taking part in the featured in the report are major international massacre of 30 women, 23 children and 16 old Retired Generals Ricardo Sotero and Luis banks and all of them make broad claims about men in Accomarca, was let out of jail after less Cubas, who held high-level posts during the their commitments to social responsibility. Yet, than three months. He is facing a 30-year sen- Fujimori regime and are facing corruption according to the report, there is a huge mis- tence. Rivera was deported to Lima by the US trials, have also been under house arrest, for match between rhetoric and reality. government for immigration law violations on five and a half years and 11 months, respec- August 18, and was imprisoned in the Canto tively. The report prescribes essential reforms to the Grande prison. But in his appearance before financial regulatory system, which need to be Judge Teófilo Salvador, he argued that his par- adopted globally, with effective information ticipation in the massacre has not been proven, REGIONAL sharing across borders. These include the adop- and that he did not fire a single shot because he tion of explicit anti-money laundering laws that was not even near the scene of the crime. Judge Leading banks laundering poor call on banks to identify the natural person Salvador granted him house arrest. countries' criminal proceeds behind the funds, investigate the source of funds, and refuse the customer if they present a Also under house arrest are several former Some of the world's leading banks facilitate corruption risk. members of the so-called "Colina Group", a money laundering and corruption in the poor- death squad made up of Army Intelligence est countries, charges a new report by Global Another recommendation is for greater coop- Service (SIE) agents that killed 15 people at a Witness, an independent watchdog group. eration between governments to ensure that neighbourhood barbecue in the Lima district of Nothing new there. The study quotes from a national bank regulations become globally Barrios Altos in November 1991, and murdered 1999 US Senate's Permanent Subcommittee compatible, accountable and transparent, and nine students and a professor from La Cantuta on Investigations' report and other references are not hindered by bank secrecy laws. This University in July 1992. that point to the same conclusions. must begin with reforms to the inter- governmental body that oversees the anti- Retired colonel Víctor Silva, a former SIE The survey, "Undue Diligence: How banks money laundering regime, the Financial Action chief, has been under house arrest for six and a do business with corrupt regimes," shows Task Force (FATF), which sets the global stan- half years. Another retired colonel, Fernando how by doing business with dubious custom- dard for the anti-money laundering rules that Rodríguez Zabalbeascoa, who was the Colina ers in corrupt states, banks are facilitating are supposed to prevent flows of corrupt funds. Group's liaison with the National Intelligence laundering, corruption and state looting. The Service (SIN), the secret police apparatus run same lax regulation that created the current For more information, see Global Witness re- by Fujimori's powerful security adviser Vladi- credit crunch has let some of the world's big- port http://www.globalwitness.org/ miro Montesinos, has also been awaiting his gest banks facilitate the laundering of pro- media_library_detail.php/735/en/ sentence at home for four years. And a former ceeds from looting wealth from poor coun- un- sub-director of army intelligence, retired Gen- tries, according to the report. due_diligence_how_banks_do_business_with_c eral Federico Navarro, who has been implicated orrupt and Financial Action Task Force http:// in the Barrios Altos and La Cantuta cases, has The report mentions the case of Raul Salinas www.fatf-gafi.org/ been under house arrest for five months. Silva, (brother of the former president of Mexico,

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the TCI Minister for Natural Resources, McAllister Hanchell, in which he awarded Insider Talking himself Crown Land. The document read: In the take a number of urgent measures, includ- "Dear Honourable Hanchell, I refer to your very ing suspending the Territory's Constitu- request for a freehold title. I am pleased to first tion "for an indeterminate period" and inform you in accordance with Cabinet's edition replacing the local government with di- decision, it has been agreed freehold title of OffshoreAlert in February, 1997, we rect rule from London. He also recom- shall be granted. Yours sincerely, Honour- referred to TCI as the "Totally Corrupt Is- mended that steps be taken to recover able Hanchell." The Minister denied any lands" and commented that there was a public assets that are believed to have wrongdoing and said the document was presumption among knowledgeable busi- been misappropriated by politicians, their standard practice. The current scandal is nesspeople that TCI-domiciled companies families and associates. To handle the nothing new for the TCI. In 1985, three were 'crooked until proven otherwise', anticipated corruption cases resulting members of the TCI Government, namely prompting a local resident, Dale Peters, to from the Commission of Inquiry's full Chief Minister Norman Benjamin Saun- write a letter to the editor complaining findings, which are expected to be com- ders, Minister of Development Stafford about our "gratuitous comments". Peters pleted by the end of April, Auld recom- Allan Missick, and Alden Smith, a.k.a. Aul- ended with: "If the balance of your efforts mended an increase in the number of den Smith, were arrested in Miami, Florida bears no more resemblance to reality than courts, the appointment of more judges and charged with cocaine trafficking of- those with respect to the TCI I suggest the and court officers, the appointment of a fenses. Saunders and Missick were con- existence of the letter will be brief and its Special Prosecutor, and a "special proce- victed by a jury and sentenced to eight and demise swift, just and certain." Twelve dure of trial by judge alone for cases 10 years, respectively, in federal prison, years later, it is the Turks and Caicos Is- where trial with a jury would risk impair- while Smith pleaded guilty and also re- lands, not OffshoreAlert, which is on life ment of the administration of justice". ceived a prison term. The following year, in support. Twelve years later, it is the TCI, Auld also recommended the "speedy im- circumstances that resemble what is hap- not OffshoreAlert, which is on life support. plementation" of an Integrity Commission pening now, the Territory's Constitution The UK Overseas Territory is in chaos fol- Ordinance, which would set out specific was suspended and direct rule imposed lowing the publication of the "Interim Re- rules of conduct for public officials. It from London after a Commission of Inquiry port" of retired judge Sir Robin Auld, who was revealed during the Inquiry that the into corruption, arson and related matters headed a Commission of Inquiry into TCI Government has been discussing found three Government ministers, namely "possible corruption or other serious dis- such an Ordinance since 1976 without Chief Minister Nathaniel Francis, Minister honesty in relation to past and present ever passing one. Although dated Febru- of Health and Education Robert Hall and elected members of the Legislature in re- ary 28, 2009, Auld's Interim Report was Minister of Works Alden Durham, "guilty cent years". After an evidentiary-phase made public on March 16, 2009 and, of unconstitutional behavior and of ministe- comprising six months of "extensive writ- seven days later, Michael Misick resigned rial malpractices which rendered them unfit ten inquiries" and two months of oral hear- as the Territory's Premier. It came to light to exercise ministerial responsibilities" and ings in TCI that ended on February 11, during the Inquiry that 43-year-old two members of the Opposition, Lewis Ast- Auld stated in his Interim Report that he Misick had accumulated assets of ap- wood and Oswald Skippings, "guilty of the had determined there was a "high probabil- proximately $180 million by 2008, which most reprehensible conduct" and "unfit to ity of … systemic venality" and "clear signs was a massive increase from the $50,000 hold public office". Despite this, when Brit- of political amorality and immaturity and of that he declared when he became Chief ish direct rule ended in 1988, the local general administrative incompetence". The Minister in 2003 (a position converted population elected Skippings as their new Territory's Government is "at a near stand- into Premier in 2006). His new-found Chief Minister. As with many countries, still" and the Cabinet is "divided and unsta- wealth included approximately $20 mil- TCI has a history of acrimony between its ble", wrote Auld. The Territory's finances lion in undeclared loans from financial main political parties. However, all of that "are in dire straits and poorly controlled" institutions, foreign companies, and mem- was put aside in 1996 when, in a rare dis- and "the financial position is so bad that the bers of his government. At the same time play of unity, all 16 members of the Legis- Government cannot pay many of its bills as he was holding the public sector positions lative Council, include cocaine-trafficker they fall due", he added. "Governmental of Premier and ministers of tourism, civil Saunders, who had been re-elected after his and other audit recommendations lie ig- aviation and planning, the British-trained release from federal prison in the U. S., and nored and unattended. In short, there are attorney was operating in the private sec- unfit-for-office Skippings, signed a petition wide-spread fears on the part of the people tor as a real estate agent, a law firm con- calling for the removal of then Governor of the Territory that they are leaderless and sultant and a director of property compa- Martin Bourke after a British financial that their heritage is at risk of continuing to nies, the Commission of Inquiry heard. magazine published an article in which drain away." In short, OffshoreAlert's un- Evidence presented to the Commission Bourke spoke of the "moral indifference" of flattering description of the TCI 12 years suggested that one way Misick and his the TCI population and referred to the local earlier as the Totally corrupt Islands was associates had grown wealthy was by police as "slothful, indolent, corrupt". It is spot on. Auld recommended that the TCI's acquiring publicly-owned Crown Land apparent from Auld's report that nothing Governor, Gordon Wetherell, who repre- and selling it to developers. During the much has changed since then. sents the UK Government in the Territory, Inquiry, a document was produced from

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