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Fallen Centaur fund linked to regulatory executive

scmp_08dec10_bz_sfc2_k_y7016_19179801By Benjamin Robertson From South China Morning Post

The SFC allows unlicensed funds to be sold in Hong Kong provided that buyers sign a professional investor declaration form and prove that they have HK$8 million in liquid assets.

An unlicensed investment fund under investigation by the Securities and Futures Commission and in liquidation was sold by companies belonging to a senior member of Hong Kong’s insurance regulator.

Until late 2012, companies linked to Business Class Group – a Hong Kong-based holding company that includes insurance and property advisory firms – sold stakes in Centaur Litigation, a HK$1.2 billion fund based in the Cayman Islands.

The fund has been in liquidation proceedings in the islands’ high court since June after financial irregularities were discovered.

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

Kirkham denied that any of his consultants sold the fund in Hong Kong, where the fund was unlicensed.

None of Kirkham’s companies are licensed by the SFC, raising questions as to whether his group was allowed to sell funds directly to investors.

Kirkham said he had given a statement to the SFC. He did not reply to questions from the South China Morning Post on whether or not his firms were permitted to sell funds in Hong Kong. The SFC declined to comment.

An unknown number of Hong Kong residents invested in the Centaur fund.

A claim filed in the Cayman Islands court orders the fund’s founders to return “monies misapplied by them”. It is not known how much money is missing as that part of the claim document is not in the public record.

The fund was marketed to investors as a low-risk guaranteed return investment, fund documents say.

Centaur funds were not licensed for sale in the city. The SFC allows unlicensed funds to be sold in Hong Kong provided that buyers sign a professional investor declaration form and prove that they have HK$8 million in liquid assets.

Four investors interviewed for this article said they had not signed such a form. Each said they had bought Centaur through Lifestyle Brokers, a Hong Kong-based property and mortgage specialist which is a division of Business Class Group.

The group also includes Platinum Financial Services, a licensed insurance broker. All three firms share the same office.

Anthony Robson, a former Lifestyle consultant, said he sold Centaur and that he did so with Kirkham’s knowledge.

Robson said he was not licensed to sell funds, nor was Lifestyle. At the time he sold the fund, he said he had only recently arrived in Hong Kong and was unaware he needed a licence.

Robson said he had given a statement to the SFC.

He said he was dismissed last summer, a fact that Kirkham confirmed. The dismissal was because he had accepted a role at a competitor firm, and was not related to Centaur, Robson said.

Robson said he was suing his former employer in the labour tribunal courts for refusing to pay part of his salary and pension. Kirkham declined to respond to questions regarding the case.

Robson said he also sold the fund with Lifestyle managing director Gordon Franks. One investor, who spoke to the Post on condition of anonymity, said he met Robson and Franks together in 2012 to discuss Centaur.

Kirkham said he was not at the meeting and could not say what was discussed.

As a member of the CIB committee, Kirkham and his peers can draft and amend internal rules and regulations and help supervise member companies.

Kirkham is also on the general council of the Independent Financial Advisors Association. According to its website, the association aims to “cultivate the development of professional independent financial advisory services to further enhance Hong Kong”.

What made Centaur stand out was a guaranteed return structure. The fund is part of a novel investment vehicle that pools money to back litigation in return for a share of any payout.

The fund offered 15 per cent annual fixed returns, supposedly secured by insurance policies that would cover failed litigation attempts.

Insurance giant AON and accounting firm Baker Tilly were listed as business partners on Centaur client literature. Both firms denied any connection to Centaur when asked by the Post.

The fund paid 8 per cent gross commission to brokers, said Robson, an above-average rate in a market where many funds pay nothing. Robson said his clients invested about £650,000 (HK$8.5 million) into the fund.

Four former Business Class Group member company consultants, including Robson, said they attended training sessions concerning the fund. The sessions, at the company office, were hosted by Orion Litigation Intermediaries, a sales agent for Centaur.

Chris Keats, the managing director at Singapore-based Orion, declined to comment.

The Post has reviewed company emails Robson says were sent by Kirkham and a managing director to consultants in which Centaur is discussed and promoted. Kirkham declined to comment on the emails.

Centaur was not the first failed litigation fund promoted by Kirkham’s companies.

According to an article in Kirkham’s in-house newsletter, his companies recommended Axiom Legal Financing in 2012 as a “core holding across our model portfolios”.

Axiom collapsed later that year in similar circumstances to Centaur.

IMAGE: scmp_08dec10_bz_sfc2_k_y7016_19179801.jpg

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