The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian bank has now become embroiled as a “third-party defendant” in a lawsuit that alleges it may have had a ‘conflict of interest’ in its dealings over a purported Chinese real estate investment fraud.

Investment promoter, Benny Ping Wing Leung, and his company, First Toronto Realty, are effectively claiming that EFG Bank & Trust (Bahamas) acted for ‘both sides’ over a collective $3.75 million investment in a 36-storey Chinese office and retail tower, called Project Ningbo.

Besides acting as “investment adviser and negotiator” for other EFG clients who ultimately invested in Project Ningbo, the bank also allegedly served as “placement agent” for Cathexis Holding (Cayman), the company that issued the notes to investors.

Cathexis and Sirius V Asia Partners, both of which Leung admitted he was “affiliated” with, already enjoyed a “business relationship” with EFG, which held their deposits prior to the 2009-2010 deal over Project Ningbo.

“At various times, officers of EFG, who managed EFG’s relationship with Cathexis and Sirius, advised Leung as an officer of Cathexis and Sirius that other, high net worth customers of EFG had an appetite for high yield investment opportunities and invited Leung, Cathexis and Sirius to bring to EFG’s attention such opportunities,” Leung alleged.

Such an opportunity emerged via Project Ningbo in June 2009, and Leung further claimed: “EFG proposed to act in dual capacities as the investment advisor and negotiator for its other customers, and as placement agent for Cathexis.”

The promoter said he did not know the precise relationship between EFG and the investment entities that are suing him and First Toronto in the southern New York federal courts in a bid to recover their investments.

The investors include former EFG Bank & Trust (Bahamas) managing director, Steven Mackey, who Tribune Business previously revealed is alleging that he was defrauded of more than $200,000 by Leung over Project Ningbo.

The other investors, all corporate entities and Bahamas-domiciled, are Taupita Investment, Segue Corporation and Urbacon Buildings Group Corporation.

Leung is alleging that at least one, Taupita, is a front for, and is owned and controlled, by EFG Bank & Trust (Bahamas). It was used, he claims, to acquire the investment in Cathexis that was owned by another of its clients, Lawrence Wosskow.

“At the meeting held in the Bahamas in November 2013, EFG advised Leung that it intended to acquire the note held by Lawrence Wosskow for its own account. EFG identified Taupita as the proposed transferee from Wosskow only after that meeting,” Leung alleged.

“On information and belief, Taupita is a nominee for EFG itself. On information and belief, EFG and not Taupita was the source of funds for purchasing the investment position of Wosskow in his Cathexis note.

“On information and belief, the decision to acquire Wosskow’s position was made by EFG and not Taupita. On information and belief, EFG paid Wosskow for his investment position several months prior to November 2013.”

Leung is further claiming that EFG did not execute a formal placement agreement with Cathexis, which he described as “contrary to customary and usual practices involving private placements to be governed by New York law”.

He alleged that e-mails between the Bahamian bank and Cathexis formed the basis of an arrangement where EFG would receive a placement fee of $112,500, or 3 per cent, of the total $3.75 million placement.

Leung is seeking to ‘turn the tables’ on EFG Bank & Trust (Bahamas) via his amended complaint, filed on December 9, 2016, in which he is suing the bank for alleged ‘breach of contract’ and ‘induced breach of contract’.

He is effectively claiming that the Bahamian bank “communicated assurances” to Project Ningbo investors that were different or “contradictory” to those provided by Cathexis in the offering document.

As a result, Leung is alleging that EFG’s purported ‘misrepresentations’ have resulted in the investor lawsuits against him and, as a result, the bank has caused him more than $100,000 in damages as a result of having to defend their actions.

“By way of example, the second amended complaint [against Leung and First Toronto] alleges that Leung ‘represented’ that the notes were without risk or had little risk,” Leung alleged.

“The Note Purchase Agreement contains, to the contrary, the purchaser’s warranty in Paragraph 2(b)(iv) that ‘the purchaser understands that the purchaser’s investment in the note is speculative and involves an extremely high degree of risk’.”

Leung also claimed that EFG advised the investors not to take action against Cathexis, but that instead “their most likely source of prompt payment would be to put pressure on Leung by suing him”.

Leung’s claims, not surprisingly, prompted a scornful, dismissive response from EFG Bank & Trust (Bahamas), arguing that he was seeking to place blame for “the damages flowing from his fraud” on the bank.

Arguing that there was “extremely strong evidence of fraud”, EFG alleged: “Leung and his entity have attempted every possible manoeuvre to escape their obligations relative to Leung’s apparent fraud and the unreturned funds.

“These manoeuvres include arguing that plaintiffs, who invested in this Chinese project, are not even permitted to sue those that perpetrated a fraud upon them (Leung) - an, of course, preposterous notion.

“Leung and his entity, through their claims against EFG, now attempt to further avoid their liability. They argue that EFG is somehow responsible to indemnify them for any fraud judgment entered against them and the attorney’s fees they incur in defending against the fraud lawsuit even if found culpable.

“Leung, in short, argues that, even if a jury finds that he committed fraud, EFG (not him—the actual fraudster) should be responsible for the damages flowing from his fraud.”