With the eyes of international parties set on the trial into the failure of a Bahamian-based multi-million dollar mutual fund, the fund’s administrator, Mees Pierson, now Fortis, has settled in the case, closing a chapter in the Oracle debacle that led to investors from around the world squabbling over the spoils after the collapse.
The $257 million-dollar Oracle Fund was registered in February 26, 1997 as an authorized mutual fund but collapsed a few years later, with the blame resting at the feet of Fortis. The case into Oracle’s failure opened in Nassau this week.
The collapse affected international financial institutions and high net worth individuals throughout Europe who invested in the fund.
A public notice from the Securities Commission dated January 23, 2001 said, “Members of the Commission having made certain enquiries pursuant to…the Mutual Funds Act, 1995…are satisfied…that Fortis Fund Services (Bahamas) Limited carried on business of administering the Oracle Fund Ltd., in a manner which was prejudicial to the investors and/or creditors of the said Mutual Fund.”
The Commission also issued an order preventing Fortis Fund from licensing any additional funds. Fortis, reportedly did not follow investment guidelines, which led to Oracle’s troubles.
Fortis, which reportedly owed some $173 million, settled this week. Paul Clarke and Maria Ferere of Ernst & Young Chartered Accountants took Fortis to court claiming damages.
The matter was heard before Justice John Lyons on Tuesday. It could have gotten even more bad publicity if the case had dragged on any longer.
But the legal troubles of Fortis aren’t over yet.
There’s another case involving $86 million against Fortis. Hong Kong Shanghai Banking Corporation (HSBC) which was a major investor in the Oracle Fund, is suing for $86 million.
Attorney Brian Moree is representing HSBC. This case is not ready for trial, the Bahama Journal has learnt. It is still in the interlocutory stage and it is hoped that the trial will take place later this year.
HSBC, one of the top ten banks in the world, lost a substantial amount of money in the failed fund, as did Union Bank of Switzerland.
There’s also another case that Fortis will have to answer to.
The third case is one in which Cantraid, a company owned by UBS is claiming losses of about $90 million. Cantraid is represented by Brian Simms of Lennox Paton. They also hope to go to trial this year.
Fortis, the fund’s administrator, reportedly made poor investments which ultimately led to Oracle’s demise, a source close to the case told the Bahama Journal. As a result, the fund lost a tremendous amount of value, he said.
The fund was reportedly suspended because there was a problem regarding the valuation of its assets. The auditors could not issue financial statements, as a result.
The Journal learnt that the fund’s administrator invested in a New Jersey-based company known as the Breen Capital Group, which issued promissory notes. The company then reportedly bought tax lien certificates with the intentions of fulfilling its obligations to pay off the debt. But that investment proved to be a bad one.
The Breen Group was reportedly making payments to Oracle based on a restructuring agreement signed last September.
Smaller investors joined larger investors from around the world in filing complaints to the Securities Commission following Oracle’s collapse. After a five-month investigation, the Commission came to the view that Fortis acted improperly.
In considering their options, Commission officials found after consultation with the Attorney General’s Office that their powers to impose fines of other disciplinary actions against the administrators were limited.
The Journal reported in August that three years after the multi-million dollar Bahamas-based mutual fund collapsed, shareholders were still fighting over some of the money recovered by the liquidators.
Ernst & Young, which was appointed liquidator of the Oracle Fund, which suspended in July 1999, at the time retrieved $78 million of the $257 million of the fund’s assets.
Last year, the firm was still attempting to collect more assets for investors and had taken legal action against Fortis Fund.
Some investors in the fund appealed a recent Supreme Court ruling that gave priority to holders of cumulative dividend preference shares, while paying fixed annual returns on investments.
As a result of the appeal, none of the investors was able to get any of the funds recovered.
Shortly after the collapse, a source close to the matter said the Securities Commission was unable to detect that a “financial blow up of monumental proportions” was brewing because it was under-sourced.
The Securities Commission has been roundly criticized for the handling of the mutual fund. It is believed that if the Commission had done its work, then this matter would not have progressed to where it has.
One member of the Commission, who spoke to the Bahama Journal on condition of anonymity, said that the Oracle collapse was “another example of instances which suggest that corporate governance in the Bahamas is poor.”
Since then, a new board of commissioners has been appointed after the terms of old board members, including former Chairman T. Baswell Donaldson, expired.
The Bahama Journal
