The firm investigating Bermuda-based IPOC International Growth Fund has agreed to dismiss its court action against a US intelligence-gathering firm which it alleged had bribed a KPMG employee to secure information on IPOC.

IPOC is the Bermuda-based fund that has captured international media and regulatory scrutiny as a result of its acrimonious legal battle for a 25.1 percent stake in Russia's No. 3 mobile operator OAO MegaFon.

Finance Minister Paula Cox appointed KPMG and its managing directors Malcolm Butterfield and Michael Morrison to investigate IPOC after its legal adversaries alleged that the Bermuda-based fund was involved in money laundering and that its sole beneficiary is Russia's Telecommunications Minister Leonid Reiman.

Nine months after KPMG began its probe, it lodged a civil action against Washington-based Diligence LLC accusing the firm of bribing at least one KPMG FAS employee in Bermuda to disclose confidential information related to the investigation. In its civil suit filed with the US District Court for the District of Columbia last November, KPMG said Diligence was retained by "a business competitor and litigation adversary of IPOC to gather damaging information about IPOC" in order to "discredit and embarrass IPOC in pending litigation proceedings" and to "influence the outcome of the IPOC investigation". The court filings make it clear that KPMG believed Diligence was hired by LV Finance Group Ltd., one of the firms IPOC is battling with for the stake in Megafon.

Diligence denied it had done anything illegal or improper and earlier this year the newsletter OffshoreAlert reported that the firm intended to claim that the information it received on IPOC was passed on without financial inducement by a whistleblower within KPMG who was motivated by a concern that the as-yet unfinished KPMG report will whitewash the actions of IPOC's local service providers, which include Bermuda Commercial Bank, Wakefield Quin law firm and their affiliates, to spare them and Bermuda the negative consequences of being at the centre of one of the world's biggest money laundering operations. Offshore Alert reported that in a draft report last year, KPMG claimed that no Bermuda laws had been broken.

Details on what happened in the District Court after the initial proceedings are sketchy as the parties jointly asked the court to enter a protective order governing disclosure of confidential information. The matter was sent into mediation earlier this year and it appeared that all of the details of the case would eventually come out at trial, however all possibility of finding out what really happened ended this week with the dismissal order.

In the complaint it filed last year, KPMG sought $1 million in compensatory damages and $10 million in punitive damages, alleging fraud, conversion/misappropriation, and unjust enrichment.

This week, on the agreement of KPMG, its managing directors and Diligence, US District Court Judge Paul Friedman dismissed the action with prejudice without any admission or finding or wrongdoing by any party and without costs.

The dismissal carries a number of conditions for Diligence and its agents. Judge Friedman ordered that they have no contact with any employee or agent of KPMG Financial Services or KPMG LLP in any effort to obtain documents or information related to the IPOC investigation or to interfere with the IPOC investigation.

The judge also ordered Diligence and its employees not to disclose any of the confidential materials. Last night Minister of Finance Paula Cox said she was aware of the results of KPMG's case, but it would be inappropriate to make any further comments on IPOC until she receives KPMG's report. By statute, the matter must be conducted in private so she was not at liberty at this time to provide any specific details on the investigation.

"The appointment of inspectors to investigate the affairs of companies is taken seriously by this Ministry and it is my intention to take robust action if circumstances require that I do so," she said.

While IPOC International Growth Fund is the highest profile, it is just one of three international businesses that has come under her ministry's microscope of late.

Sphynx (Bermuda) Limited is the second company that went under the ministry's microscope lately.

The minister said that as a result of an investigation into its affairs a Court Order to wind up Sphynx (Bermuda) Limited was issued and the liquidation of the company is now proceeding.

She did not disclose the name of the third company that is subject to an investigation.