Check out these two great stories from Kieran Flatt at Legal Week.

The first gives a run-down of recent developments in the offshore legal envrionment in key international financial hotspots such as Bermuda, the Cayman Islands, Guernse, the Isle of Man, and Jersey.

The second concerns an ingoing investigation into the role that Man Financial, the futures brokering subsidy of The Man Group, may have played in helping the now collapsed hedge fund, Philadelphia Alternative Asset Management Co. (PAAM) obscure the existance of $175 million shortfall.

The accusations against Man arise from a U.S. Commodity Futures Trading Commission inquiry into fraud at PAAM. PAAM and it's president Paul Eustace were sued in back in June 2005 by the CFTC. The SEC is also reportedly investigating. The CTFC lawsuit aledges that:

The CFTC alleges he did this by telling investors his commodity trading pool was increasing in value when, in fact, it had lost more than $140-million from February, 2005, to May. The CFTC alleged the fraud dates back to 2001 and that Mr. Eustace enticed clients to invest in one fund that did not exist by showing them fictitious monthly trading statements. He also allegedly co-mingled client money with his own accounts.

Clarke Hodgson, the reciever appointed by the CTFC to track down PAAM assets on behalf of investors, in court documents also points blame at Man Financial for the PAAM cover-up and names Man senior vice-president Thomas Gilmartin as the executive primarily responsible:

Mr. Hodgson alleged that Mr. Gilmartin, who worked in New York, handled trades for Mr. Eustace and was a part owner of PAAM. He also alleged Mr. Gilmartin doctored some trading records in order to boost the returns of some of PAAM's funds and that he covered up huge losses. Mr. Gilmartin was recently placed on administrative leave by Man Financial. Mr. Hodgson has filed a contempt motion against Man Financial alleging the company has violated an earlier court order by withholding key documents.

“Despite the suspicious trades between accounts, the unusual transfers between accounts and the back-dating of transactions that occurred at Man Financial, Man Financial has produced no records justifying why these trades, transfers and back-dated transactions took place,” he alleged in a court filing. “The documents produced to date suggest that Man Financial had knowledge of the conduct described [by the receiver] and consented to and assisted in that conduct.”

In a statement, Man Financial said it was “surprised and disappointed” by the receiver's actions. “We have provided more than 4,200 pages of documentation at the request of the receiver, and have offered to meet him to discuss any further requirements that he has — an offer that has to date been ignored. The receiver's actions are at odds with public statements he has made to the effect that he has received a ‘high degree of co-operation from most parties involved and no one has yet refused to provide documents requested,'” the company said...“We have an excellent record of regulatory engagement and compliance, and will co-operate fully with the SEC in connection with this review,” Man Group said.

Gilmartin, who was a shareholder in PAAM and their primary point of contact at Man Financial was suspended from his position in late September pending the results of the ongoing investigation.

-- MDT

Labels: CFTC