The Attorney General v Hk
| Jurisdiction | Cayman Islands |
| Judge | Smellie C.J. |
| Judgment Date | 11 May 2004 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | PCCL 3 of 2000 |
| Date | 11 May 2004 |
Smellie, C.J.
PCCL 3 of 2000
Grand Court
Civil Practice and Procedure - Restraint Order — Application by the liquidators seeking a variation of the restraint order to remove certain assets from the ambit of the order — Application by the joint receivers to allow them to enter into the protocol.
Mr. Tarboton of Appleby Spurling Hunter for the applicants the Nevis Companies (in liquidation).
Mr. Elliot Simpson of Ogier & Boxalls for the joint receivers of the estate of HK.
Mr. Alastair Malcolm QC and Mr. Clyde Allen for HK.
Mrs. Marlene Smith Aldalcio on behalf of the Crown.
HK is now a defendant to criminal charges in respect of which his trial by jury is about to commence.
Those charges allege his involvement in the laundering on behalf of others of the proceeds of a fraudulent scheme which was marketed to investors in a programme called “Cash 4 Titles”. HK is also alleged to have obtained payments into the Cash 4 Titles programme by means of fraudulent representations to investors. Very briefly described, the Cash 4 Titles (“C4T”) programme involved the acceptance of monies from investors with the representation to them that the monies were to be used to make many small loans to persons whose credit histories disqualified them from ordinary bank financing. The loans to them were secured against the titles to their motor vehicles. Being a recourse of last resort, the loans were accepted to be repaid to the programme at usuriously high interest rates; often as high as 20% per month.
The investors in the programme in turn were offered exceptionally high rates of return – at 4% per month — well beyond anything available from ordinary banking institutions. The differences between the high rates of interest which the investors were to be paid and the even higher rates which the borrowers were to be charged; were intended to pay the high rates of commission which the operators and marketers of the programme were to receive.
The C4T programme proved so attractive to investors, that there quickly came a point in time at which it was oversubscribed – more money being taken in than could be loaned out. Instead of turning away investors, it is alleged that HK and the others involved in the programme continued to accept millions of dollars which they used and diverted for other purposes, including for their own benefit. They were of course obliged to invest the money in the C4T programme once it was accepted for those purposes.
The allegations against HK involve his representations to investors that their investments were being put into the C4T programmes and would be repaid through it, at times when this was not the case and he knew it to be false as he was personally involved in the diversion or misappropriation of funds. It is said that he did this to enable the chief promoters of the C4T – EI and KS – to perpetuate the scheme from which he benefitted along with them.
HK also formed many investment companies for investors who became his clients through AD – a Cayman Islands company which he owned and operated. Some client companies were incorporated in the Cayman Islands but most were incorporated by HK on behalf of clients in Nevis.
Apart from the C4T programme which was actually operated, while it lasted, in certain Southern States of the United States; HK promoted other investments to clients. Principally these included CII, IRC and LSI. Clients were typically introduced to these programmes by intermediaries which were United States Organizations specializing in “wealth building” programmes and with which HK had formed a close personal relationship; i.e.: FGT and NTS. HK pooled investors' monies which he invested with FGT and NTS through ADN; a Nevis company which he formed for those purposes.
In addition, HK operated a number of companies (in Cayman and Nevis) which he either owned beneficially or controlled on behalf of his family members.
The liquidators of the various Nevis and Cayman Islands companies have tried to reconstruct the financial relationships between all HK companies but have failed to do so. They have reported finding a tangled web of accounting irregularities.
The construction of an accurate picture of the true financial interrelationships between all the companies which HK owned or operated has thus proved to be an impracticable task. The Courts here and in Nevis have therefore ordered the pooling of all assets and liabilities, such that all proven creditors will be able to recover against the pooled assets and all the expenses of the liquidation will be borne in common between the HK companies.
Following the collapse of the C4T scheme in October 1999 and the appointment of official liquidators over key C4T companies, the involvement of the AD companies in that scheme became apparent. AD was placed into liquidation on 24th October 2000. Creditors' claims against AD include claims by companies managed by HK through it, claiming to have been defrauded of their investments.
As the result of HK's alleged involvement in the various schemes promoted through the AD group, including those involving C4T for which he is criminally charged; a receiver was appointed under section 10 of the Proceeds of Criminal Conduct Law (“the PCCL”) over his estate; to administer and preserve his estate and to recover its assets which the Crown allege are realizable property within the meaning of the PCCL; as being the proceeds of crime.
That Order was made on 18th September 2000 and it included provisions restraining HK from disposing of or dealing with any of his assets, wherever they may be. The body and schedule of the Order listed specific assets and the Order is expressed to bind not only HK himself, but anyone within the jurisdiction of the Court having notice of the Order and coming in contact with any of the assets it restrains.
Among those assets are listed certain promissory notes having an original face value of USD 6.25 million, issued in favour of RST. This was one of the HK Nevis companies, through which it is asserted by the liquidators, HK channelled investments on behalf of AD clients.
The promissor of the notes is a United States company known as TLE, an entity promoted to carry on the same sort of title loan programme for which C4T was promoted and to which, because of its intended similar exorbitant rates of return; HK had advanced monies in return for the promissory Notes.
The liquidators assert that these sums advanced were not HK's but investor clients' monies. HK asserts a personal claim to the notes. He is the person in whose name the shares...
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