BCB and Paragon Trust sued after $7m trust fund investments go sour
Bermuda Commercial Bank Ltd, BCB Paragon Trust Ltd along with well-known cyclist Neil de ste Croix are among those being sued because of the alleged “brazen and extraordinary breach of their fiduciary and contractual obligations” which resulted in the assets of a $7 million trust fund being virtually all dissipated, according to a complaint filed in a US court.
Bermuda Commercial Bank Ltd (BCB), BCB Paragon Trust, Mr de ste Croix — named in the action as BCB's Trust and Corporate Services division leader — as well as Andrew Peat, Andrew Peat Finanz Consultants, Stanley Chesed, PROFCO International are all named as defendants in the judicial complaint, which was filed in the United States District Court Southern District of New York.
The beneficiaries of the LVAR, LP Trust are described as “senior citizen members of the same family and dependant on the distributions from the trust fund to cover their living expenses”, in the complaint, which was filed on December 27, 2013, and has been posted on the OffshoreAlert website (www.offshorealert.com).
It states: “As alleged herein, rather than acting to safeguard the assets of the Trust Fund, the BCB Defendants conspired with defendants Peat, Peat Finanz, Chesed and PROFCO (collectively, ‘Investment Advisors') to invest virtually all of the Trust Fund into risky and speculative investments, which were completely unsuitable for the Trust Fund and incompatible with its conservative investment objective of principal preservation.
“Moreover, in a brazen and extraordinary breach of their fiduciary and contractual obligations to the LVAR Trust, the BCB Defendants, acting in concert with the Investment Advisors, attempted to conceal their wrongdoing throughout the relevant time period by (i) providing illegible and falsified statements to the partners of the LVAR Trust; (ii) making materially false statements and omissions regarding the value of the Trust Fund and the nature of the investment portfolio in which it was invested; and (iii) failing to fully comply with Plaintiff's numerous requests for access to documentation and other information relating to the Trust Fund's investment portfolio.”
The complaint continues: “By reason of the foregoing, Plaintiff remained unaware until June 2013 that the Trust Fund's assets were concentrated in high-risk and speculative investment funds, that these investment funds were “suspended' and in liquidation and/or bankruptcy proceedings, and that virtually all of the $7,000,000 in Trust Fund assets had been dissipated.”
The LVAR Trust have asked the New York Court to make the defendants account for all the funds and property they have held or currently hold on their behalf, and also to preserve “whatever of the Trust Fund's assets, if any, remain in Defendants' possession, custody, and control”.
They are also asking for compensatory and punitive damages “in an amount to be determined at trial”.
The Bermuda defendants are expected to respond to the complaint in two weeks.
BCB declined to comment for this story, and a Bermuda Monetary Authority spokesman said: “The Authority does not comment on litigation or the activities of individual entities.”
What the LVAR Trust alleged in its complaint
— The trust fund’s investment portfolio was dramatically restructured, without the knowledge of the plaintiff, leading to assets being moved out of highly-rated and conservative UK insurance investment bonds into speculative and high-risk investments.
— The BCB defendants, acting in their capacities as trustee for the LVAR Trust, engaged the investment advisers (defendants Andrew Peat, Andrew Peat Finanz Consultants (aka Andrew Peat Group Holdings), Stanley Chesed and PROFCO International (aka Chesed Financial)) to obtain advice on reinvestment of the trust fund and delegated to them discretion to manage investments in the fund.
— In or about October 2009, the defendants orchestrated the reallocation of the LVAR Trust Fund portfolio and concentrated these assets into primarily two speculative investments — Argyle Funds SPC Inc (‘Argyle’) and Axiom Legal Financing Fund (‘Axiom’)
— As a result of the October 2009 reinvestments, over 80 percent of the LVAR Trust became invested in the Argyle and Axiom Funds. In other words, the trust fund no longer consisted of a diversified portfolio of safe financial vehicles.
— Argyle was heavily invested in New Solutions Financial Corporation — an Ontario, Canada investment firm which provided bridge loans and asset-based financing services to high risk entities, which has subsequently filed for bankruptcy.
— The investment advisers are the ’exclusive distributors’ of Argyle Funds, and, as such, stand to earn substantial fees and commissions from placing investors in these funds.