IT IS not certain if or to what extent investors have been bilked, or who has done the bilking. Indeed, it is hard to establish very much at all, given the complexity of the case: authorities in the Cayman Islands, Guernsey and Mauritius are all looking into it and a South African financial regulator is following it closely. Investigations are focused on various entities connected to Belvedere Management, a Mauritius-based group that claims to administer around 100 hedge funds and run several finance-related companies. David Marchant, editor of OffshoreAlert, a newsletter on financial crime, has identified numerous red flags in some of these funds, including several years of consistent, positive monthly returns, which can be a sign of a Ponzi scheme.
Belvedere’s bosses, Cobus Kellerman and David Cosgrove, deny all of the allegations of wrongdoing and criminal activity. Instead, Belvedere has told worried investors that Grant Thornton, an accounting firm, has been called in to wade through the complexities of the funds and “review your assets and to advise us and assist the relevant authorities”.
In the past, Belvedere has claimed to manage or advise on $16 billion in investments, for both institutional and retail customers.
One of its clients, an international financial-consulting group in South Africa called deVere, claims to be a victim of wrongdoing and says it has provided evidence of it to local authorities. (Many of Belvedere’s retail investors are also believed to be South African.)
Regulators are turning up the heat.
The Mauritian financial-services commission, which says it warned two of the group’s funds last year to take remedial action for several breaches and barred them from accepting new investors, last month revoked the licences of two of Belvedere’s funds and placed them under the care of PricewaterhouseCoopers, another accounting firm.
Guernsey’s financial regulator is looking into a related fund. South Africa’s regulator says it questioned Mr Kellerman late last year on investments coming out of offshore funds into South Africa.
Last month the offices of Capital World Markets (CWM), a financial-services provider, were raided by the City of London police, with 13 arrests made on suspicion of fraud by false representation, conspiracy to defraud and money-laundering.
Maria Woodall, the lead detective, said the arrests were meant to “stop what we believe was ongoing criminality” and asked investors, apparently lured by the promise of monthly returns of 5%, to come forward.
CWM strongly denies the police’s allegation that it is connected to fraud. Yet some claim the raid is tied to events at Belvedere because the two groups are linked. On a now-deleted part of its website, CWM stated it is part of the same group as Belvedere. Belvedere, however, says it merely provided services to CWM and that whatever allegations there may be against CWM have no bearing on Belvedere.
Whatever the outcome of the investigations into Belvedere and CWM, the affair raises awkward questions over the role of professional-services firms that advise and check the books of offshore financial groups. The long list of lawyers, auditors and fund administrators that have worked with or been engaged by Belvedere’s funds includes blue-chip names such as BDO and EY. In a statement deVere says it is deeply concerned that alarm bells were not rung until now and that worrying signs appear to have been “ignored by professional service providers trusted by deVere and other brokerages”. Auditors will certainly be in an awkward position (and could be open to lawsuits) if it turns out they signed off on a Ponzi scheme, says Jason Sharman of Griffith University in Australia.
In the coming months, as the shape of the affair becomes clearer, questions will also arise about how good a grip regulators have on money channelled through tax havens. Earlier this year Mauritius suffered another possible scandal involving Bramer Banking Corporation Ltd (BBCL), whose licence was revoked earlier this month “following strong evidence that BBCL is engaged in a Ponzi scheme which exceeds 25 billion rupees [$690m]”, according to the country’s prime minister. Partly under commercial pressure due to increased regulation and competition, offshore financial centres have begun to offer more complex funds and collective-investment schemes. These require more skill to regulate than the simpler trusts that have been their bread and butter. Mr Sharman, who studies offshore centres, says it is inevitable that, as they venture into more complex finance, they will become more vulnerable to scams.
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