(1) Meridian Trust Company Ltd (2) American Associated Group Ltd Applicants v (1) Eike Fuhrken Batista Da Silva (Aka Eike Fuhrken Batista) (2) 63X Investments Ltd (3) 63X Fund (4) 63X Master Fund (5) Maples Corporate Services Ltd Respondents
| Jurisdiction | Cayman Islands |
| Judge | Hon. Justice Ingrid Mangatal |
| Judgment Date | 11 November 2016 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | Cause No. FSD 172 of 2016 (IMJ) |
| Date | 11 November 2016 |
In the Matter of Meridian Trust Company Limited
The Hon. Justice Ingrid Mangatal
S.11A of the Grand Court Law (2015 Revision) — Injunctive and Disclosure Orders Granted as Protective Measures in aid of Foreign Proceedings to be Commenced.
Mr. G Halkerston of Counsel instructed by Ms. L Hatfield and Mr. J McGee of Solomon Harris
Before the Court are applications for a worldwide freezing order (WFO) and ancillary disclosure relief arising from what the applicants claim is a remarkable fraud.
The core of the alleged fraud is the ramping up of the value of shares in a commodities company, in this case an oil company, by the dissemination of falsely positive information about the prospects of profitable commercial production and the deliberate suppression of information that would have permitted investors to form a negative view of the prospects of the business.
The First Applicant (Meridian) is a company incorporated under the laws of Nevis and is the trustee of a Nevis trust known as the Chrisly Trust (the Trust) which, through its investment adviser, invested some USD 17 million in the alleged fraudulent scheme described below. The Trust is for the benefit of an elderly, disabled beneficiary, Dr Paul Tien (the Beneficiary), and various family members of the Beneficiary.
The Second Applicant (American) is a company incorporated under the laws of the Cayman Islands which also holds investments for the Beneficiary. American, through its investment adviser, invested some USD 4 million in the alleged fraudulent scheme described below.
The First Respondent (Batista) is a Brazilian national. The Applicants allege that Batista was the mastermind of a multi-billion-dollar fraud, conducted between 2009 and 2013. The essence of the fraud was that Batista induced investors around the globe, in particular the USA, to invest money in his oil exploration company, OGX, on the basis of a series of fraudulent misrepresentations, including promises of immense oil discoveries (alongside suppression of negative information), and promises to provide finance to OGX on request. Formerly a publicly-traded company in Brazil, OGX's name changes were set out in the Affidavit of Mr. De Aroujo, a forensic accountant and Certified Fraud Examiner at Yip & Associates in Miami, Florida who has given detailed evidence on behalf of the Applicants. The Applicants say that the promises made were false, as Batista knew them to be. OGX collapsed in October 2013 and investors were unable to recover their money. However, prior to and since the collapse, the Applicants allege Batista has been dissipating his assets (including the proceeds of the alleged fraud) to offshore and other jurisdictions, including the Cayman Islands and Switzerland, in an attempt to evade creditors.
Batista (along with his associates) is the subject of a number of civil, regulatory and criminal proceedings in Brazil. Of particular note is the fact that a freezing order is in place against Batista's assets in support of the Brazilian criminal proceedings in the sum of BRL 162.6 million (USD 50.8 million). This order is currently limited to assets located in Brazil. In the course of the criminal proceedings, it has been alleged by the Brazilian authorities that Batista has continued to dissipate his assets.
The Second, Third, and Fourth Respondents (together, the Cayman Companies) are companies incorporated under the laws of the Cayman Islands. The Applicants allege that the Cayman Companies are controlled and beneficially owned by Batista and operate as his private investment fund vehicles for assets beneficially owned by Batista. The Applicants allege that the Cayman Companies were used by Batista to dissipate the proceeds of the fraud. Where context requires, the Cayman Companies are referred to individually and respectively as 63X Investments, 63X Fund, and 63X Master Fund.
The Applicants refer to Batista and the Cayman Companies together as the Respondents.
The Fifth Respondent (MCSL) is a company incorporated under the laws of the Cayman Islands. MCSL is the registered agent of the Cayman Companies and their local corporate services provider. It is joined as respondent to the disclosure application described below. No wrongdoing is alleged against MCSL.
The Brazilian companies concerned were part of an oil exploration group, OGX, which the Applicants allege to be controlled and substantially owned by the alleged key fraudster, Batista. The Applicants maintain that OGX's business, if there was a real business, was focussed mainly in Brazil with some other activities in South America. Between 2009 and 2011 OGX's market value and Batista's wealth grew incredibly. In October 2010, OGX had a market capitalisation of some USD 41 billion and by 2011, Batista's personal wealth was valued at USD 30 billion, putting him in the top ten of Forbes' global “rich list”.
But these numbers did not, the Applicants claim, reflect the true value of OGX and it is part of their case that Batista knew this to be the case. They say that in fact with extremely limited commercial reserves and production prospects, OGX was worth next to nothing. The Applicants have adduced evidence from an expert in the oil industry in order to confirm that this is the position.
When negative news did begin to emerge in 2012, Batista, it is alleged, spun further lies to prop up his ailing company until it finally defaulted on its debts and entered Brazilian insolvency restructuring processes in October 2013.
The Applicants maintain that, not only did Batista prop up the company by his lies at this stage, he also sold a large amount of shares in OGX and took steps to move hundreds of millions of dollars out of the reach of creditors, such as by transferring assets to friends and family.
Batista's fraud, and asset dissipation, the Applicants argue, led to the abuse of namely the Cayman Companies owned by him. Documents produced by the Brazilian prosecution authorities and apparently collated from tax declarations of Batista indicate that on 29 May 2013 (some four months before OGX was to collapse and at a time when Batista was liquidating his shares in the company), Batista transferred USD 572 million of his personal assets to the credit of 63X Fund in the Cayman Islands (the Cayman Transfer).
The evidence is that the Cayman Companies banked in the Bahamas. They may have banked in the Cayman Islands too, but there is to date, no evidence yet of this to hand.
The Applicants have obtained evidence that in the last days of the collapse of his empire, Batista tried to move USD 100 million from a Bahamas account to accounts in Florida but that dissipation of assets was frustrated by the intervention of bankers (the Attempted Transfer). Having been frustrated, Batista, the Applicants allege, transferred at least USD 90 million to a trust in Switzerland (the Swiss Transfers).
As a result of his alleged fraud, Batista (along with his associates) has been the subject of a number of civil, regulatory and criminal proceedings in Brazil. Many of these proceedings are ongoing and there is in place a domestic freezing injunction to the value of USD 60 million in support of Brazilian criminal proceedings currently limited to Batista's domestic assets. The Applicants contend that the evidence suggests that Batista has nevertheless continued to dissipate his assets.
The Applicants claim to be victims of Batista's fraud. Via their investment adviser in Florida they invested some USD 21 million in bonds issued within the OGX structure, specifically by an Austrian OGX company. Those bonds were ultimately close to worthless.
The Applicants have indicated that they intend to sue Batista, the Cayman Companies, and others associated with the OGX fraud, in Florida. Specifically the plan is to issue proceedings upon the conclusion of applications for freezing orders and information disclosure, initially in the Cayman Islands and the Bahamas.
The lawsuit in Florida is based upon the alleged fraudulent and criminal conduct of Batista and the assistance given to him by the Cayman Companies and others. The Applicants will aver that investors in the United States — in Florida particularly — were specifically targeted by Batista, and in one bond issue 78% of the OGX bonds were sold to US investors. The intended claims are set out in a draft Complaint which is before the Court (the Complaint). The Applicants have provided expert evidence on the strength of the key claims in the Complaint as a matter of Florida law.
The claims in Florida will be for some USD 63 million, namely for the underlying basic loss of some USD 21 million and for treble damages under Florida statutes.
Mr. Halkerston, who ably presented the arguments on behalf of the Applicants, submits that the relief sought by the Applicants to freeze the assets of the Cayman Companies up to USD 21 million falls squarely within the scope of the statutory jurisdiction as explained by the recent Grand Court cases which have considered and applied section 11A of the Grand Court Law (2015 Revision).
The application as against Batista seeks an order beyond that which has been granted on the limited Cayman case law to date in relation to the fairly recent section 11A statutory powers, namely a WFO against a foreign party to proceedings which are to take place in a third...
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