May 28, 2022

Hedge fund auditor Marcum sued for $25 m by Cayman liquidators

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Hedge-Fund2From OffshoreAlert

August 01, 2014 – The Cayman Islands-based liquidators of a hedge fund group controlled by Long Island-based Corey Ribotsky that collapsed due to fraud are seeking damages of $25 million in a lawsuit against the funds’ auditor, Marcum & Kliegman.

For more on this story go to: http://www.offshorealert.com/ajw-fund-liquidators-sue-marcum-and-kliegman-for-auditing-negligence.aspx

Related story:

AJW Offshore Ltd. et al v. Marcus & Kliegman LLP et al: Complaint

From OffshoreAlert

Complaint in Ian Stokoe and David Walker, in their capacity as the Joint Official Liquidators of AJW Offshore Ltd., AJW Master Fund, Ltd., AJW Offshore II Ltd. and AJW Master Fund II, Ltd. v. Marcus & Kliegman LLP, Marcum & Kliegman (Cayman), and Marcum LLP at the New York State Supreme Court.

For more on this story go to: http://jpfundsfraud.com/GetDocument.aspx?id=50667

See also:

Cannonball Fund, Ltd. v Dutchess Capital Management, LLC

From The Judicial Review

Case No. 12-P-876 (MA Ct. App., Aug. 2, 2013)

This is the second suit brought individually and derivatively by investors in two “feeder” hedge funds against those who controlled or were involved in the operation of the feeder and master funds and a related entity, against one feeder fund’s accounting firm, and against the administrator of both feeder funds. The plaintiffs previously filed a substantially similar case in the Delaware Court of Chancery. After four of the defendants moved to dismiss the Delaware claims for lack of personal jurisdiction, the plaintiffs voluntarily dismissed the Delaware suit in its entirety. Almost eight months later, the plaintiffs then filed this case in the Superior Court.

The primary issue on appeal is whether the plaintiffs are entitled to the benefit of the Massachusetts savings statute, G.L. c. 260, § 32, which permits claims that were timely when originally filed to be refiled (despite the subsequent running of the limitations period) within one year after being dismissed “for any matter of form.” We conclude that voluntary dismissals are not per se excluded from the scope of the savings statute. We also conclude, however, that the record does not establish that all the claims dismissed in the Delaware action were dismissed for a matter of form. Those claims that were not dismissed for a matter of form were properly dismissed by the Superior Court judge as untimely. Those claims for which a sufficient question of fact was raised in the Superior Court, at least at the pleading stage, as to whether they were voluntarily dismissed in the Delaware action because the plaintiffs had an objectively reasonable expectation that the claims would be involuntarily dismissed by the Delaware court for lack of personal jurisdiction (and hence dismissed for a matter of form) should not have been dismissed by the Superior Court judge as untimely. Finally, we reject the defendants’ arguments that the complaint (a) contains insufficient allegations to establish the plaintiffs’ standing under Cayman Islands law to assert a breach of fiduciary duty claim derivatively on behalf of Dutchess Private Equities Cayman Fund Ltd. (Dutchess Ltd.), (b) does not sufficiently allege duty or causation with respect to the claim of professional negligence against Sullivan Bille PC (Sullivan Bille), and (c) does not meet the plaintiffs’ burden of a prima facie showing of personal jurisdiction over Dundee Leeds Management Services (Dundee Leeds).

1. Allegations of the complaint.

In broad summary, the plaintiffs allege that they were induced to invest (and to remain invested) in two feeder hedge funds based on false representations concerning the investment strategy, criteria, and approach of the funds.

For more on this story go to:

http://judicialview.com/State-Cases/massachusetts/Civil_Procedure/Cannonball-Fund-Ltd.-v-Dutchess-Capital-Management-LLC/10/584975

In more detail, the Delaware and Superior Court complaints alleged the following.

The plaintiffs invested in two feeder funds: Dutchess Private Equities Fund, L.P. (Dutchess L.P.), a Delaware limited partnership, and Dutchess Ltd., a Cayman Islands exempt corporation. Three of the plaintiffs (the Dutchess Ltd. plaintiffs) purchased shares in Dutchess Ltd., while the other three plaintiffs (the Dutchess L.P. plaintiffs) became limited partners in Dutchess L.P. The two feeder funds fed investor money to a master fund, Dutchess Private Equities Fund, Ltd., a Cayman Islands exempt corporation, which made all investments on their behalf.

The defendants are companies, professional service providers, and individuals who were involved with, and connected to, the feeder funds. Dutchess Capital Management, LLC (DCM), a Connecticut limited liability company, is the investment manager for both feeder funds, and is also the sole general partner of Dutchess L.P.   Dutchess Advisors, LLC (Dutchess Advisors), also a Connecticut limited liability company, provides consulting services for the companies in which the master fund invested on behalf of the feeder funds. The two feeder funds, the master fund, DCM, and Dutchess Advisors all operated out of the same shared office in Boston.

The Dutchess family of entities share the three individual defendants as common key personnel. Defendant Douglas Leighton, a Massachusetts citizen, and defendant Michael Novielli, a New York citizen, are cofounders, principals, and comanaging members of both DCM and Dutchess Advisors. They are also the sole directors of both Dutchess Ltd. and the master fund. In addition, they have full authority to conduct the affairs of Dutchess L.P. Defendant Theodore Smith, a Massachusetts citizen, holds various high-level offices within DCM, is the director of corporate finance for Dutchess L.P., and is the vice-president of business development for Dutchess Advisors.

Defendant Sullivan Bille is a Massachusetts professional corporation operating out of an office in Tewksbury. Sullivan Bille audited Dutchess L.P.’s statements of financial condition as of December 31, 2005, and December 31, 2006, and provided unqualified audit opinions for those periods dated March 3, 2006, and April 17, 2007, respectively. Defendant Dundee Leeds is a Cayman Islands corporation operating out of an office in George Town, Grand Cayman. Dundee Leeds is the fund administrator for the two feeder funds, and is responsible for calculating the funds’ net asset value (NAV) and providing that information to the funds.

Unable to improve upon the Superior Court judge’s excellent summary of the substantive allegations of the complaint, we accordingly set it out here:

“According to the complaint, the Dutchess defendants represented both orally and in writing that prospective investors’ investments in the funds would be protected in three ways. First, companies targeted for investment would have a positive cash flow with which they could repay the funds. Second, the funds would invest only in freely tradeable and liquid companies that would permit the funds to convert debt securities into newly-issued stock at less than market price. Third, the funds would lend money only to companies with sufficient assets to secure a substantial portion of the funds’ investments. The Dutchess defendants assured investors that their due diligence would involve evaluating the business forecast, performance and stability of the target companies. They also asserted that they would refrain from any conduct that would create a conflict of interest between [DCM] and Dutchess Advisors (and their individual members and directors) on the one hand and the funds and their investors on the other hand.

“The gist of the plaintiffs’ complaint is that the Dutchess defendants misrepresented their stated investment objectives and breached their fiduciary duties by making a series of questionable investments in two companies, Challenger Powerboats, Inc. [Challenger] and Siena Technologies [Siena], starting in 2003. The complaint alleges that the Dutchess defendants departed from their standards and procedures concerning conflicts of interest when, beginning in 2003, they caused Dutchess L.P. and Dutchess Ltd. to invest approximately $30 million in Challenger and Siena for the purpose of enriching themselves personally through fees, stock grants and other compensation. They did so despite auditors’ going concern qualifications for both companies year after year.[ ] After the Dutchess defendants’ efforts to salvage those companies failed, [DCM] by letter dated February 27, 2008, informed the plaintiffs that it would freeze their redemption rights in Dutchess L.P. and Dutchess Ltd. effective February 29, 2008. On April 16, 2008, the Dutchess defendants announced a $31 million write-down of three portfolios.[ , ]”

The plaintiffs bring both derivative and direct claims.   All plaintiffs make direct claims of fraud and negligent misrepresentation against DCM, Novielli, Leighton, and Smith (counts V-VII[2]). Derivatively, on behalf of both feeder funds, the plaintiffs claim that DCM, Novielli, Leighton, and Smith breached their fiduciary duties by not following the stated investment strategy and by enriching themselves at the expense of the plaintiffs (count I). Also in that capacity, they claim that the same defendants together with Dutchess Advisors were unjustly enriched (count IX). Finally, they bring a derivative professional malpractice claim against Dundee Leeds (count XI). The subgroup of Dutchess L.P. plaintiffs derivatively claim that DCM breached the covenant of good faith and fair dealing implied in the partnership agreement (count III), and that Sullivan Bille committed professional malpractice (count X). Directly, the Dutchess L.P. plaintiffs bring a claim against DCM for breach of contract (the partnership agreement) (count II).

To read more go to: http://www.courthousenews.com/AppellateOpinions/12P0876.doc

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