The mother of all paper chases
MinusFunds’ documents, depositions ordered
Game on. Fourteen former directors, officers and employees of the defunct PlusFunds have been ordered to “produce documents and appear for examination” by the SPhinX Funds Trust, which has—following approval of PlusFunds’ bankruptcy organization—set about recovering the SPhinX investor losses.
The order, signed by US Bankruptcy Court Judge James M. Peck last Friday, comes almost exactly two years since Refco announced, on Oct. 10 2005, that it had found a $430 million hole in its accounts. Two days later, PlusFunds’ founder Christopher Sugrue arranged for $312 million in SPhinX assets to be moved out of Refco, setting off a chain of events cost investors in the SPhinX funds, and especially its managed futures strategy, some $250 million. It also took out PlusFunds, and the S&P hedge fund index, which was tracked by the once near-$3 billion SPhinX complex.
On deck: similar orders for service providers including the funds’ administrator DPM-Mellon, along with its former chief executive Robert Aaron, and chief operating officer Guy Castranova; auditors Deloitte & Touche LLP and PricewaterhouseCoopers LLC; and a grab-bag of second-tier law firms, including Gibson Dunn & Crutcher LLP, Pillsbury Winthrop Shaw Pittman LLP, Seward & Kissel LLP, and Curtis Mallet-Prevost LLP.
PlusFunds’ directors named in the action include Sugrue; Mark Kavanagh, Sugrue’s brother-in-law and a major PlusFunds investor; and Brian Owens, finance director of Hardwicke Ltd, the Irish property developer controlled by Kavanagh and, at various times, a director of both the SPhinX funds, and PlusFunds.
Most of the other individuals named were PlusFunds employees at the time of Refco’s collapse.
They include Paul Aaronson, the former S&P managing director who was appointed chief executive of PlusFunds in May 2005; general counsel Patrick McMahon; and finance director Christopher Aliprindi. All resigned in Dec. 2005, after it was found that Refco had essentially bought PlusFunds, in what had been characterized as a buy-out of PlusFunds’ minority shareholders.
Other employees who will receive invitations include Timothy Parrott, who joined PlusFunds in Jun. 2005 as senior managing director responsible for global partnerships and was named to replace Aaronson; Peter Ewing, variously described as head of new product development and director of business development; Susan Staisil, Sugrue’s sister-in-law and a former Refco executive who held the general counsel title at various times; Tia Urban, the long-time director of operations, fired in Nov. 2005 in controversial circumstances; and her replacement, Keith Kemp, a Refco executive who had a bit-role in the controversial fund transfer.
The trustee also wants to speak to Gabriel Bousbib, chief executive officer of PlusFunds from 2001 until Dec. 2004; Diego Winegardner, a PlusFunds co-founder; and Randall Yanker, an early PlusFunds investor who never worked at the company but was a member of its advisory board. Their interests in PlusFunds were bought out in the March 2005 transactions.
The long list does have a couple of notable omissions: Christopher Rose, the company’s chief operating officer, and Robert Malchmann, the former Gibson Dunn partner who joined PlusFunds as general counsel in Jan. 2006.
In an outburst of judicial optimism, Judge Peck ordered the respondents to produce the required documents by Oct. 20; expect, at the very least, a long list of applications for extension of that deadline.
He has yet to approve the trustee’s application, filed Oct. 3, for similar orders for the service providers. According to that filing:
The purpose of the Rule 2004 discovery sought by this Motion is to (i) permit the Trustee to investigate the facts, circumstances and events that led to the collapse of the Debtor and whether the Trustee has viable claims against third parties arising therefrom, including claims for breach of fiduciary duty, fraud, conversion, negligence, gross negligence, negligent misrepresentation, breach of contract, breach of the duty of good faith and fair dealing, professional malpractice, fraudulent transfer and unjust enrichment, director liability, aiding and abetting and conspiracy, and (ii) to permit the Trustee to investigate avoidance and other potential claims of the Debtor’s estate...
..The Trustee would also like to obtain information regarding certain entities and individuals affiliated with the Debtor, and entities and individuals who engaged in business transactions with the Debtor, who may have taken part in or have knowledge of uses of the Sphinx Funds’ assets. The Trustee would like to investigate the potential use of Sphinx assets to fund: (i) the Bennett Round-Trip Transactions; and (ii) the Suffolk Loans made by a Refco affiliate to entities controlled by Kavanagh, Owens and Sugrue (three of Debtor’s directors), the proceeds of which were used to buy out the minority shareholders’ equity interests in the Debtor.
This will run and run. As, indeed, it already has.
Oh, and good luck with that Sugrue deposition.
In re: PlusFunds Group Inc
Reorganized Debtor
Order Directing Rule 2004 Examinations
Oct. 5 2007
Motion of Trustee for Rule 2004 Examinations
Oct. 3 2007
What Riddles the SPhinX May Still Pose [$$]
by Christopher Faille
HedgeWorld Oct. 10 2007
Kavanagh may have to use his first wife's life insurance monies to pay his bills after this one .. well that's if he hasn't given it all to needy politicians .. :0)
Posted by: phils mewitjoy | October 30, 2007 at 23:59