Centaur Litigation funds 'misappropriated', backed failed lawsuits - report

Around £27 million (HK$340 million) of the £80 million raised by a litigation investment fund group was allegedly misappropriated, while much of the remainder has been lost backing failed lawsuits, an initial report by administrators reveals.

Centaur Litigation funds had not backed a single successful lawsuit and insurance policies and capital guarantee structures that investors were told would protect them in the event of a loss either did not exist or were for the most part issued by firms connected to the funds' founders and former directors and show little likelihood of being honoured, according to a report by Grant Thornton, the funds' court-appointed administrator.

A number of "irregular transactions" were identified where the "key beneficiaries of these transactions" were former directors or related parties, the report stated. Administrators were unsure how much money might be recoverable.

In one instance, the Cayman Islands-registered funds placed in trust £2.1m for a lawsuit that was later halted. £1.3m of the trust money went unspent but was then siphoned into an unrelated HSBC Hong Kong bank account rather than returned to the fund. The controlling entity behind the HSBC account is unclear, the report said.

A further £11m was used to buy a litigation investment firm controlled by one of the founders, despite the absence of any "sound basis or reasonable valuation assessment", wrote Grant Thornton. An application to place the funds into administration was made to the islands' high court in June.

Centaur raised about £80 million from August 2011 to December 2013 but according to administrators had no audited accounts and kept "poor financial records", raising doubts over due diligence conducted by financial advisory firms that sold it.

The sale of Centaur funds is under investigation by the Securities and Futures Commission.

Until late 2012, firms linked to Business Class Group - a Hong Kong-based holding company - sold stakes in Centaur, even though the fund was not licensed for sale in the city.

Business Class Group's chief executive is Mark Kirkham, a member of the general committee of the Confederation of Insurance Brokers, which regulates Hong Kong's insurance industry.

In an earlier South China Morning Post story Kirkham denied that any of his consultants sold Centaur funds. This was disputed by four investors who said they bought the fund through a division of Business Class Group called Lifestyle Brokers. Several former group consultants told the Post they either sold the fund or had attended training sessions on how to sell it. One consultant said the fund paid 8 per cent gross commission, an above-average rate in a market where many funds pay nothing.

According to Grant Thornton, Centaur paid an 11 per cent commission rate to a fund marketing company, which then split the money with financial advisers.

Grant Thornton declined to respond to a request for comment on the report.