Civil Suit Filed Against Four Individuals and Companies in the Cayman Islands

GEORGE TOWN, Cayman Islands: Financial newsletter Offshore Alert has reported that a civil suit has been filed at the United States District Court for the Southern District of New York against four individuals and companies in the Cayman Islands.

The suit, filed on June 30, 2008, is an amended complaint to the original one filed on April 4 of this year, in which the new liquidators of two Cayman-registered hedge funds sponsored by US financial giant Bear Stearns are seeking to recover over US$1.5 billion in losses.

Walkers Fund Services Limited; two of its officers, Canadian national Scott Lennon and US national, Michelle Wilson-Clarke; and Deloitte & Touche (Cayman) were named in the amended complaint.
Walkers has been accused of aiding and abetting fraud, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. The causes of action against Deloitte and Touche (Cayman) include violation of the Securities and Exchange Act, fraud, professional malpractice, gross negligence, breach of contract, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty.

According to Offshore Alert, KPMG (Cayman) and two of its officers, Simon Whicker and Kristen Beighton were criticized in the amended complaint for their conduct as the former liquidators of the funds. However, they were not named as parties to the action.

Both individuals were reportedly removed as liquidators by the Grand Court of the Cayman Islands after certain investors in the funds claimed that they were not truly independent, but were, instead, “hand-picked” by Bear Stearns in an attempt to conceal illegal activity.

"This action seeks recovery of more than $1.5 billion of losses sustained by investors in the Overseas Funds and Domestic Funds (collectively, the "Funds") as a direct and proximate result of a sophisticated fraud perpetrated by the Bear Stearns Companies, Inc. ("Bear Steams Companies"), their co-defendant affiliates and subsidiaries, Bear, Stears & Co. Inc. ("Bear Stearns Co.") and Bear Stearns Asset Management ("BSAM", and together with the Bear Stearns Companies and Bear Stearns Co., "Bear Stearns"), and their officers, directors and employees, Ralph Cioffi, Matthew Tannin, Raymond McGarrigal, George Buxton, Barry Joseph Cohen, Gerald R. Cummins, David Sandelovsky, Greg Quental and Michael Ernest Guarasci (collectively, with Bear Steams, the "Bear Steams Defendants")," it was stated in the complaint.

“From their inception, the Funds were doomed to fail, because the Bear Stearns Defendants conceived, managed, and deceptively marketed them knowing that they would be viable so long as – but only so long as – the US housing market continued to experience an unprecedented rise,” the complaint stated. “The Bear Steams Defendants also knew, however, that so long as they were viable, the Funds would generate massive, unprecedented fees and other benefits for each of the Bear Steams Defendants.

“In short, in orchestrating this fraud, it appears that the Bear Steams Defendants did not fail to plan, but rather, planned to fail.”