Belvedere Management and its $16Bn: Now Looking More Like a Huge Collapsing Scam

Back in March, Offshore Alert made some very aggressive but plausible-looking claims:

Offshore fund group Belvedere Management, which claims to have $16 billion of assets under administration, management and advisory, appears to be one of the biggest criminal financial enterprises in history, headed by David Cosgrove, Cobus Kellermann and Kenneth Maillard, OffshoreAlert can reveal.

  • $130 million Cayman Ponzi scheme under Brighton SPC umbrella fund

  • City of London police investigating £100 m-plus Ponzi scheme by ‘CWM’

  • Both schemes part of rampant fraud by Belvedere Management Group

  • Group headed by David Cosgrove, Cobus Kellermann and Kenneth Maillard

  • Belvedere operates in many countries, particularly Mauritius, Guernsey, Cayman & South Africa

In early April, we wrote up the madly impudent CWM scam here, filled in as much as we could of the Belvedere back story here, and sat back to await developments. On the 18th, the story flickered briefly in The Economist:

IT IS not certain if or to what extent investors have been bilked, or who has done the bilking. Indeed, it is hard to establish very much at all, given the complexity of the case: authorities in the Cayman Islands, Guernsey and Mauritius are all looking into it and a South African financial regulator is following it closely.

Since then, there has been just one piece of relatively good news for Belvedere and CWM investors: CWM seems to have been downgraded from a £100Mn scam to a £20Mn scam.

All the rest of the news is bad. First up, there’s an affidavit from the Guernsey FSC (the financial services regulator), dated 22nd April 2014, applying to the Guernsey courts for administrators to be appointed to five Belvedere funds, on the grounds of investor protection. Its conclusions, which could have done with a spot of proofreading, are on p25:

a. There appears to be systemic failings in corporate governance and the application of law, regulation, code and principle to the management and function of GMF and the Managed Funds by Lancelot and the respective boards. This is evidenced by the matters relating to the failures relating to the management of the conflicts of interest.

b. Significant and systemic conflicts of interest exist in relation to certain cells of the GMF and their underlying assets. These conflicts of interest do not appear to have been dealt with appropriately by Lancelot. The failure to manage the conflicts of interest appropriately appears to have given rise to circumstances which have negatively impacted the value of the assets of certain cells of GMF. Such reduction in the value of the assets of certain cells has led to issues relating to the liquidity of these cells.

c. Mr Cosgrove sits on the boards of Lancelot and the Funds, the he is very much the controlling mind of these investment schemes. Mr Cosgrove in his actions does not appeared to have displayed all of the attributes required of a director of a licensee to be fit and proper and has not even responded to the Commission’s letter relating to proposed dates for an interview. Further the Commissions concern that this conduct has or may extend to the Managed Funds.

d. The remaining board members of Lancelot and GMF have failed to recognise the issues that brought about the suspension of the Strategic Cells.

e. In addition, the significant nature of the investigations by MFSC, which includes investigation into the financial position of funds into which GMF and the Managed Funds have been invested, gives rise to further concerns that Four Elements and other funds, may not be correctly valued. This gives further rise to concerns that the value of the underlying assets of cells of the Funds may not be correctly reflected. Further to this, the commonality of persons between Lancelot, the GMF and the Managed Funds and the entities under investigation by the MFSC show the significant conflict of interests which exist in respect Lancelot, the GMF and the underlying assets and investments. This conflict extends to a number of other Managed Funds which have advisers with similar ownerships or investments into Four Elements and Two Seasons.

f. The serious nature of the issues set out above and the known impact which these have had on certain cells of GMF has led the Commission to the view that there is a high risk that the behaviour which has caused this, including the failure to manage conflicts of interest, also affects the Managed Funds. Due to the risk of contagion, there is a risk that the value of the underlying assets of such funds are not accurately known and that the net asset value attributed to the various cells is incorrect.

Accordingly, the Commission has concerns that the value for redemptions of shares in cells of GFM as well as shares in other Managed Funds are being made, and the value at which shares in the cells of GMF and other Managed Funds are being issued, may not reflect the actual net asset value of such cells or funds (as relevant).

g. Further, due to the conflicts of interest relating to Lancelot, GMF and their advisors, and a failure to manage and mitigate these conflicts appropriately, the unacceptable standard of corporate governance and questions over suitability and integrity pertaining to certain key individuals in the management and operation of the funds, the Commission feels that it is necessary to take such steps to as necessary to:

i. prevent further devaluation of the funds and assets therein; and

ii. to protect investor and their assets.

h. Further, Lancelot’s apparent failure to deal with the conflicts of interest appropriately in relation to GMF and its advisers has led the Commission to the view that there is a high risk that the behaviour which has caused this also affects other Managed Funds. This concern is particularly acute where funds and their advisers have persons in common.

In short: to the Guernsey regulator, Belvedere looks crooked.

Here’s another telling observation: Kellerman and Cosgrove don’t seem to be trying very hard to get the toothpaste back in the tube. Asked by the Guernsey FSC to provide dates at which they could attend the Commission and assist investigations, neither responded. Accordingly, the Guernsey FSC has now set its own date for their appearances. I wonder if they will show up.

There are other highlights: the Commission delves into the lurid and tangled BK One/Basileus murder/ suicide/ Ponzi story (affidavit, pp 12ff) and discovers Kellerman, at the helm of Global Mutual Fund PCC Limited (“GMF”), driving a coach and horses though the corporate governance mechanisms supposedly upheld by GMF’s Designated Manager Lumiere Fund Services, by GMF’s Principal Manager Lancelot Management Limited (which just happens to have David Cosgrove on its board) and by GMF’s oblivious Custodian, Deutsche Bank.

Accordingly, Lumiere, Lancelot and Deutsche all cop it in the affidavit too (pp. 15 and 23).

Making that part of the picture murkier, it turns out that there’s some information that Lumiere suddenly don’t want you to see any more. They recently freaked out and removed from their website a whole bunch of PDFs about the dubious Belvedere funds they were formerly in charge of, here.

There’s more Ombre than Lumiere there, then. Fear not, dear reader: in mid April, sensing that such a sanitisation of the record might be imminent, we downloaded a good sample of the now-vanished PDFs. Inter alia, they document a number of board-level associations between the nearly-disgraced Kellerman and Cosgrove, and the top man at Lumiere, Paul Everitt. With transparency in mind, it seems only right to put some of those hyperlinks back up again, here at Naked Capitalism.

With all these stumbly fund management service providers strutting their stuff, it’s beginning to look as if, even through the haze, The Economist has a good first take on the broader issues raised by the Belvedere affair:

Whatever the outcome of the investigations into Belvedere and CWM, the affair raises awkward questions over the role of professional-services firms that advise and check the books of offshore financial groups. The long list of lawyers, auditors and fund administrators that have worked with or been engaged by Belvedere’s funds includes blue-chip names such as BDO and EY.

Auditors will certainly be in an awkward position (and could be open to lawsuits) if it turns out they signed off on a Ponzi scheme, says Jason Sharman of Griffith University in Australia.

Back to the Guernsey affidavit, which is backed up by over a thousand pages of documentation, and seems to have made an impression on the court: by the 24th, the Guernsey FSC had clearance to appoint administrators to three of the funds, the Global Mutual Fund PCC Limited, Worldwide Mutual Fund PCC Limited and Universal Mutual Fund Limited. Another bulletin from the FSC, issued on the 5th May, deals with some amusing but unsuccessful wriggling by Lancelot Management Limited:

On the 24 April the applications made by The Guernsey Financial Services Commission, under the Protection of Investors (Administration and Intervention) (Bailiwick of Guernsey) Ordinance, 2008 for the appointment of Administration Managers to Lancelot Management Limited and Trinity Global Fund were adjourned until the 1 May 2015.

During the interim period Mr Daryn Hutchinson a director of Lancelot Management Limited made application to the court, under Section 406 of The Companies (Guernsey) Law, 2008, for Lancelot Management Limited to be compulsorily wound up, and further to have Grant Thornton Limited appointed as liquidators. On 1st May 2015 The Bailiff, ordered that Lancelot Management Limited be compulsorily wound up pursuant to section 406 of the Companies Law.

Notwithstanding the interjection of the Liquidation application the Bailiff considered that the action of the Commission in bringing proceedings under the Administration and Intervention Ordinance was reasonable and ordered that the costs, charges and expenses incurred by the Commission as a consequence of it taking regulatory action are properly incurred in the compulsory winding up of Lancelot Management Limited and are payable from its assets in priority to all other claims pursuant to section 418 of the Companies Law.

…so, er, no, the Court thinks you don’t just get to stiff the regulator with the costs of its regulatory action by jumping in first with an application to liquidate…

The Court also ordered that the Company’s purported unilateral surrender on 21 April 2015 of the licence held by it pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (“POI Law”) was ineffective in law because the POI Law does not permit surrender of a licence granted to a licence holder. The Bailiff held that Lancelot Management Limited continues to hold a licence under the POI Law.

…and, er, no, you don’t get off the hook simply by turning your badge in voluntarily.

But you do get to look pretty sleazy, by playing games like that. There’s another sign of sleaze: Belvedere whistled up an unfastidious South African defamation lawyer, if that’s not a redundant formulation, to harass by far the most useful South African onshore source for all things Belvedere, Biznews:

David Marchant, whose hard-hitting expose attracted public attention to the duo, tells us: “I’ve still not had any complaints from Kellermann, Cosgrove or their representatives.” He is continuing to add to his raft of allegations with fresh articles.

With hindsight, the duo must be rue a decision at the outset not to engage after being sent timely warning of what was due to be published on Biznews. They appear to believe that proving their innocence lies in our hands.

They demanded Biznews publish a “prominent and full” retraction. You can read it all in the lengthy Werksmans letter which has been cut and pasted in full below.

I’ll spare you the details, but you can check out Werksmans’ handiwork, now hopelessly overtaken by events, at Biznews, who of course refused to retract any of their coverage. Clearly South African defamation lawyers, just like English ones, are paid by the yard, for their novelty toilet tissue designs.

Mindful of the governance and audit failures mercilessly documented by the Guernsey FSC, it occurs to me that MET Collective Investments may have jumped the gun a bit when, on 26th March, it affirmed that the South African onshore funds linked to Belvedere were safe. One of those funds is the MET Global Diversified Feeder Fund, a $16Mn fund that is 93% invested in the Trinity Global Fund, one of the subjects of the Guernsey FSC’s affidavit. Subject to the Guernsey court’s decision, I reckon MET Collective Investments and their investors might have to sweat it out just a little longer:

Matters pertaining to the Trinity Global Fund have been further adjourned until 7 May 2015.

The Commission continues to work closely with other regulatory partners and law enforcement authorities with regards to the global operation of companies linked to these matters, and investigations continue in that regard.

Indeed they do. The Cayman Islands Monetary Authority has yet to pronounce, but the FSB of South Africa have explained at length about how they’ve been helping out, and on the 29th April, the Mauritius Financial Services Commission canned the Management Licence of Belvedere’s Mauritius master company, Belvedere Management Limited.

So, how much of Belvedere’s claimed $16Bn under management has gone for a walk, then? We’ll have no idea for years. In the mean time, note that the answer will depend, in part, on how much of that $16Bn ever existed in the first place.

Last of all, I am sure this story will just get more and more complicated, and drag in more and more players. Watch out for further ramifications, in still more financial centres.

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  1. EoH

    Running afoul of a Channel Islands regulator for financial or tax fraud takes an Enron level of chutzpah. It’s like a bootlegger getting convicted of bootlegging in Capone’s Chicago.

    1. ScottB

      Yeah, the only thing less likely than being busted in Guernsey is being busted by Eric Holder. Of course, now he has retired with a perfect record.

  2. Procopius

    A bit off-topic here, but aren’t auditors in the U.S. immune from civil suit for certifying a Ponzi Scheme? As I vaguely recall from one chapter of ECONned, the Nine Wise Souls held that auditors’ certifications were to be considered personal opinion and protected by the First Amendment.

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