Receiver Grant Thornton produced the 65 page document for presentation in court last month. The document, which has been seen by International Adviser, provides a detailed account of where the £120m of investors’ money was lent during the fund’s four years of existence, from October 2008 until its suspension in September 2012.
Most worrying, is the fact that around 75% of the fund’s assets were lent to just three so-called “panel law firms” (PLFs) – two of which, Ashton Fox and Tandem, are now in insolvency proceedings – indeed these two alone account for 62% of the total book, or £74m.
The fund was put into receivership in December last year, originally with KPMG appointed as receivers. KPMG also raised initial concerns about how the fund’s money had been lent.
The receiver’s report goes on to highlight concerns that audited 2010 accounts reveal “an individual who is also a director of the investment manager [redacted] is also a director of the only two law firms to have received loans in the period [redacted]”.
Both the name of the investment manager and the period are redacted but it has been suggested by Miami based publication Offshore Alert in the past that the person in question is Timothy Schools, a former director of Tangerine Investment Management – the former investment manager of the fund.
The “only two law firms” mentioned above are ATM and Emmetts which later became Ashton Fox.
‘Monies misused’
Furthermore, Grant Thornton points to substantial evidence that the money lent to the law firms was misused when, under the terms of strict litigation fund agreements, it should have been lent specifically to fund cases.
According to the report, “in some cases monies advanced were substantially used for entirely inappropriate purposes (as apparently, Ashton Fox) including the settlement of company debts being pursued by way of a winding up petition and settlement of pre existing bank debt”.
Perhaps less concerning than the misappropriation of the investors’ funds, but still very worrying, is that, according to Grant Thornton, many of the loans were made on the pretence of “overly optimistic” expectations as to when cases would complete.
Specifically, the fund’s supplementary offering memorandum (effectively the fund’s prospectus), stipulates in its investment criteria that loans must only be made for cases where there is a “high probability” it will be completed in under a year. Grant Thornton said this was “overly optimistic” given that most of the legal cases taken on by the PLFs would have had a life span of “at least 18 months to two years”.
Grant Thornton said it is currently negotiating with all the law firms involved and that some PLFs “suggest an ability to repay, providing that the debt can be rescheduled beyond its original terms”.
