The Tribune

• Bahamian provider to recover nearly 70% of claim

• Together with clients was struck by ‘serious fraud’

• Actions of fund’s Bahamian chair to face probe

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cayman judge has hailed a “first-of-its kind solution” that will enable a Bahamian financial institution and its clients to recover almost 70 percent of their $111m claim against “a serious fraud”.

Justice David Doyle, in a February 4, 2022, ruling said the compromise agreed between Mosaic Financial, US capital markets regulators and the liquidators for the Income Collecting 1-3 Months T-Bills Mutual Fund “marks a significant and progressive step” in protecting international creditors in cross-border insolvencies.

Further details on the payout deal between the Bahamian financial services provider and the Income Collecting fund’s liquidators, one of whom is EY (Ernst & Young) Bahamas partner and accountant, Igal Wizman, have been revealed on court filings that saw the Cayman-based insolvency case recognised as the main proceedings by the southern New York federal court.

Under the terms of the three-way deal, which also involves the Securities & Exchange Commission (SEC), the US regulator will arrange the lifting of an injunction that has frozen some $84m worth of Income Collecting fund assets held between three American broker/dealers and finance houses.

Attorneys for Mosaic Financial, which is by far the fund’s largest creditor, will receive the $84m into their trust account and then send these funds to the liquidators within 48 hours. The Income Collecting fund will then return “at least” $76.945m - or 69 percent of Mosaic’s total claim - to the Bahamian provider as an interim distribution from the liquidation estate.

Keiran Hutchison, the EY Cayman accountant and partner who is co-liquidator with Mr Wizman, alleged in a February 14, 2022, affidavit that Mosaic Financial and its investor clients were the main victims of what he described as “a serious fraud” involving the Income Collecting Fund.

“Since their appointment, the joint official liquidators have engaged in continuous and productive discussions with the SEC and Mosaic in hopes of reaching an agreement on a range of issues, including with respect to the freezing order and the distribution of the fund’s assets to its stakeholders.

“These co-operative discussions have resulted in a series of agreements among the fund, the SEC and Mosaic (all approved by the Cayman court) whereby a substantial majority of the fund’s assets currently subject to the freezing order will be distributed to Mosaic as an interim distribution on its allowed claim in the Cayman liquidation.”

Mr Hutchison revealed that the EY duo have accepted Mosaic Financial’s total $11.521m claim against the Income Collecting fund’s liquidation, meaning that some $34.521m remains outstanding once the interim dividend is paid.

“The joint official liquidators have evaluated the claim of Mosaic in the amount of $111.52m and accepted the claim in full,” he added. However, the EY Cayman partner said it was critical that the duo obtain “discovery rights” via the southern New York federal bankruptcy court so they could properly probe the events and actions that led to the Income Collecting fund’s insolvency.

This, Mr Hutchison said, would enable an “orderly and effective liquidation” given that most of the Income Collecting Fund’s books and records are currently still in the US. Access to these documents, he indicated, would enable the liquidators to determine whether they had potential claims against those who acted for the fund including its Freeport-based chairman.

Tribune Business reported earlier this week how Boisy Roberts, a partner at Independent Solutions Bahamas, signed the resolution placing the Income Collecting Fund into then-voluntary liquidation in June 2021.

While he has not been charged by either the SEC or the US federal authorities, who have brought criminal proceedings against the alleged mastermind, Ofer Aberbanel, the US regulator has alleged that Mr Roberts’ actions enabled the fraud to take place.

“During all relevant times, the fund’s director and chairman of the Board, Boisy Roberts, who oversaw the appointment of the joint voluntary liquidators, also signed numerous documents on behalf of the fund that the SEC alleges caused or contributed to the ability of the fund to engage in its fraudulent course of operations,” the US capital markets regulator claimed.

These documents included “a Board resolution signed by Mr Roberts giving Mr Abarbanel authority to ‘represent the Fund in all matters’”, and “a lending agreement between the fund” and one of Aberbanel’s shell companies that was also signed by the Income Collecting fund’s chairman.

Mr Hutchison, serving notice that the liquidators plan to investigate some of these events, asserted: “Discovery of information from third parties will at the very least illustrate the possibility of potential claims, or lack thereof, that the joint official liquidators could raise against such parties in order to achieve returns for creditors and investors.

“As just one example, an April 28, 2020, letter apparently signed by a director of the fund and addressed to one of the fund’s brokerages references a ‘motion’ made by the fund that appears to grant Abarbanel plenary authority with respect to the business between the fund and this broker.

“In discovery, the joint official liquidators may obtain additional information that could substantiate the indications in this letter that the fund’s director was aware of Abarbanel’s clandestine control of the fund,” he added.

“Similarly, the books and records (or other fund documents) may provide a clearer picture of the scheme purportedly orchestrated by Abarbanel to ignore Mosaic’s redemption request and instead transfer tens of millions of dollars to entities outside the control of the fund.”

Court filings by the SEC allege that Mosaic Financial and its investors, between March 2019 and February 2021, pumped a total $191m into the Income Collecting fund which was supposed to be invested primarily in US Treasury debt securities and other relatively safe, liquid investments.

However, the Income Collecting fund’s two principals, Israeli citizen, Abarbanel, and American, Victor Chilelli, have been accused by the SEC of misappropriating the monies invested by Mosaic Financial and its clients through instead diverting them via “unauthorised”, unsecured transactions into “nominee shell companies” that the duo controlled.

Some $106m invested by Mosaic Financial and its clients was still retained by the Income Collecting Fund when it was placed into voluntary liquidation in June 2021, the other $85m having already been redeemed. By that time, Abarbanel and Chilelli had been repeatedly stalling for more than a month on the Bahamian financial provider’s request for the return of the remaining $106m.