Facts about the case
The case in involves two parties, the first, Louisiana fund, the plaintiff who is suing for the damages caused by fletcher asset management fund. Fletcher fund had been operating with the company funds to pay investors, rather than using profits (Ponzi scheme) and, hence, as a result, ended up in debt crisis. Due to the position of the fletcher company, Louisiana funds pushed for an offshore court settlement since the company is run by investors from CaymanIslands.
The parties involved in the case
The parties involved are fletcher management hedge fund and the Louisiana pension fund.
The plaintiff’s allegations
A plaintiff is someone or a company who initiates a law suit against another by filing complaints relating to the loss aggrieved in the situation. In this situation, the plaintiff is the Louisiana pension and is asking an offshore court to order the liquidation of a fletcher asset management hedge fund. As a result of this, they have been pushing for the liquidation of this company. To them, this is as an effort to get their money back from the liquidation process.
They, therefore, have sought an offshore court settlement in the CaymanIslands. The petitioners are also claiming that fletcher management hedge fund had not audited its books, its financial statements since the year 2008. Since the year 2008, the company had seemed not to be having directors between November 21st 2011 and January 24th 2012. Because of the lack of proper overall management and the absence of financial statements, the company had become the subject of regulatory investigations. The Louisiana fund representative has said that they will continue pursuing every feasible solution to solve the case.
The location of the case
The case is an offshore petition and, therefore, is to be decided in the grand court of Cayman Islands.
Reason for choosing the location by the plaintiffs
The plaintiffs decided to choose their location as the grand court in the Cayman Islands where the petition was filed. The reason is that this was a way for investors in the Cayman based fund such as the fletcher fund where the pensions were invested, can request a court ordered liquidation as a measure of getting their cash back.
Thearising dispute over the terms of the contract
In the year 2008, a video was reviewed by the wall street journal of a Louisiana firefighter’s investment committee which had showed that a fletcher fund representative Mr. Kylie had promised 12% offer as a guarantee and also had acknowledged the risks that were to occur. Afterwards, the Fletcher fund had been declared that it was unable to pay its debts and, so as a result, it should have been wound up. Over a year ago, two of the pension funds had requested to withdraw money from the fletcher account the same year; it was believed that the Fletcher fund had not audited its financial statements since the year 2008.
Therefore, Louisiana fund had requested that the court to appoint consultants from earnest and young as the official liquidators of the fund. The dispute later on led to the contract was that Louisiana pension fund had asking for an offshore court order for liquidation of the Fletcher asset management funds; this was in their latest efforts to get their money from the fund.
The amount of money at risk
The amount of money that was at risk in this case was a combination of $100 million which the Louisiana funds had invested in March 2008. To this amount, Fletcher offered the fund a minimum of 12% annual return backing by the assets of other investors. Also, nearly a year ago, two of the pension funds had requested to withdraw money from the fletcher fund. According to the petition, the three funds required to cash out their total initial investment and accrued earnings that was a sum that equaled $144.5 million as of June 30th 2011 based on the monthly statements they received on the petition.
Reason as to why the parties had a different interpretation tothe contract terms
The parties to the contract had different interpretations to the contract terms which later on led to their disagreement. At the beginning, Fletcher asset management fund had offered Louisiana fund a contract of a minimum of 12 % annual return and was to be backed by the assets of other investors as the offer to the $100 million Louisiana had invested. It is seen that this was unusual deal since hedge funds typically did not offer clients minimum returns due to the vagaries of the market. Later on, we see that Louisiana fund claiming an amount that was a sum that equaled $144.5 million based on the statements they received on the petition form.
This shows that the true nature of the contract was not laid down by fletcher management and had been exaggerated by them to lure Louisiana to enter the contract. They even went further by offering the assets of other investors as additional offer which is against business law since other investors have minority rights to the contract they have entered in with the company. Fletcher fund was not committed to its terms of the contract by delivering the annual rate of return of 12%. The circumstances arising showed that Fletcher fund was not committed to the contract.
The parties were unlikely to disagree to the terms that were originally laid out since both parties were benefitting in an enormous way and were likely to continue with the contract if it had fulfilled its original agreement.
Set of terms that were to be included and agreed upon by both parties
The parties involved were to agree on a set of terms that were to guide the contract. They need to enter in a valid contract that complies with business law. Firstly, the contract should be in writing. This way, it could not be revoked easily since the writing would amount to grounds for petition and would also act as evidence to the existence of the contract. Secondly, the contract needs to be signed by both parties and should be left to operate openly without being conducted privately since we realize that the contract has offered a minimum return rate as was not the case with hedge funds. The contract should also have an enforceable option, whereby, the offer or promises to keep the offer open, as a result, makes the offer irrevocable. The contract should also have a stated time period within which it is recommended to be operational.
The statement of offered the funds a minimum annual return of 12% backed by the assets of other investors meant that the investment was to give annually returns of not less than 12% in the coming years. It could not deliver this amount but it had to be secured using the investors’ assets to fulfill the promise.
A Ponzi scheme
Does a fraudulent scheme/investment pay investors from their own money or from the other investors in the company? The investors should be paid from the profits earned from the individual running of the organization. In most cases, the investment is likely to collapse because the earnings are less than the payments; the idea was named after Charles Ponzi who was a schemer in company investments. He was notorious for using this technique in the 1920s.
Was this a Ponzi scheme?
Yes. This would qualify as a Ponzi scheme. It would qualify as Ponzi scheme since the Fletcher fund had promised the Louisiana pension fund a minimum annual return of 12% and was to be backed by the investors assets. As a result, the company ends up in debt.
Should investors believe the promise they are alleging the funds promised
The investors should not believe the funds that are promised of a minimum return of 12% annually, since it is possible to see that the hedge funds do not promise a minimum rate of return on their investments and, also, it was depending on the backing of the investors’ assets which was more of a Ponzi scheme.
What is a winding up petition and why are the plaintiffs requesting it?
A winding up petition is an order requiring that a company’s operations should be concluded and should be ended due to the reasons such as not carrying out the main objective of the company, not operating profitably, which is mainly in this case, and, also, carrying out fraudulent schemes, in this case, using subsequent investors funds to pay Louisiana fund. The plaintiff is requesting it so as to present to the court for it to be able to determine if the company is to be wound up on what grounds and if not why. If the case proceeds in a justified way, it may end up being wound up due to the operating fraudulently and also due to the non-operation of profitability. The plaintiff has an option of suing on the grounds of misrepresentation by Mr. Kylie.