Doubts over litigation investment fund

Raid on former office of Buttonwood Legal Capital raises questions over claimed HK$1.2b fund as named business partners deny links

PUBLISHED : Monday, 14 April, 2014, 5:07am
UPDATED : Monday, 14 April, 2014, 5:07am

Concerns are growing about the viability of a litigation investment fund worth a reported HK$1.2 billion after Hong Kong regulators raided the company's former office and many of the fund's supposed business partners disavowed any dealings with it.

The firm in question is Buttonwood Legal Capital, the adviser of Centaur Litigation, an investment fund that underwrites lawsuits in various jurisdictions and takes a portion of any payout. Buttonwood has registered businesses in Hong Kong and the British Virgin Islands (BVI).

In mid-March, the Securities and Futures Commission served search warrants and removed documents and records from Buttonwood's former Hong Kong office and the office of Hong Kong Trust Company, the fund administrator for Centaur Litigation. The regulators also visited Allied Pickfords, Buttonwood's removals firm. Spokesmen for the Hong Kong Trust Company and Allied Pickfords confirmed the searches took place.

In an announcement sent to investors, Buttonwood directors wrote: "We understand that this investigation is in relation to whether named external parties have issued advertisements, invitations or documents relating to investments, contrary to section 103 of the Securities and Futures Ordinance."

Section 103 governs the sale of unlicensed funds. The fund was sold in Hong Kong but, because Centaur Litigation is unlicensed, an investor should have HK$8 million in liquid assets and meet the definition of professional investor under SFC rules. Buttonwood is not listed as an investment adviser on the SFC register.

An SFC spokesman declined to comment.

The raids took place one month after an exposé by David Marchant, an investigative journalist and editor of the Offshore Alert website, which raised red flags about the fund's operation and questioned how Centaur and Buttonwood directors could guarantee returns.

A Centaur client subscription agreement form seen by the South China Morning Post offers annualised "fixed returns" of between 11.75 per cent and 15 per cent.

On March 6, three weeks after the article's publication, Buttonwood announced its operations had moved to Australia, and the sole director of the firm's BVI operation, Brendan Terrill, had been joined by two new directors, Simon Franklin and Stuart Hackett, of Sydney-based corporate advisory firm Dequity Partners. Terrill remained the sole director of Buttonwood Hong Kong. The firm said an internal audit of accounts was due to finish on March 14. The results have not been made public.

In a memorandum to investors dated August 2012, Baker Tilly Hong Kong is named as the fund's auditor. Baker Tilly Hong Kong's managing director, Andrew Ross, said his firm was invited to provide an audit fee indication for Centaur Litigation Diversified Growth Portfolio Limited in September 2011. "But, since then, there has been no further communication from or to that company," Ross said.

The memorandum also named global insurance group Aon Insurance Managers as an insurance partner. Aon spokesman David Prosperi said there was no record of any business relationship with Centaur.

London-based law firm Bristows was named as a legal adviser to the fund's investment manager, Argentum Investment Management. Bristows was not associated with the firm, spokeswoman Katie Laws said.

Aon was also named in another memorandum to investors in February last year, which said the fund's auditor was Ernst & Young. Suki Kwong, a spokeswoman for the auditing giant, said company policy prohibited her from disclosing if Centaur was a client.

The memorandums do not name any individual fund managers or directors. On one accompanying document, Terrill is identified as a representative of Centaur.

According to fund documents, client money is protected by several layers of insurance that pay out if litigation fails.

In one hypothetical illustration shown to clients, the fund backs four failed cases and returns 100 per cent of the principal to clients.

According to the 2013 memorandum, the fund lends money to law firms at an annualised rate of 12 per cent to help finance cases. In the 2012 memorandum the rate quoted was 20 per cent.

Terrill did not respond to e-mails.

Franklin said that the firm would "only release information by way of formal company announcements".