Broker denies earning $12M fees from ponzi fraud w/ Cayman connections
A UK broker has argued that investments made by three Cayman Island companies cannot be traced back to more than £12 million in fees it allegedly received from a suspect in a Ponzi-like fraud, hitting back at the companies’ lawsuit to recoup the money.
Equiti Capital UK Ltd. said in a defense filed with the High Court on Wednesday that it had no knowledge of a fraudulent international trading program that took investment from Dismatrix SPC and two other Cayman entities, Asyndeton and Polysyndeton.
Equiti received fees and commissions from accounts opened by Blue Isle Markets, which has since been caught up in a U.S. Securities and Exchange Commission investigation into a Ponzi-like fraud. The three companies claim in their October suit that it would be “unconscionable” for Equiti Capital to hold on to millions of dollars earned from transfers they allegedly made to Equiti brokerage accounts.
According to the SEC complaint, Blue Isle was one of a network of companies created by Michael Young, Michael Stewart and Bryant Sewall to help cover up how Mediatrix Capital Inc. was defrauding investors out of millions. Equiti said it had no knowledge of the existence or of the nature of the alleged relationship between Mediatrix and Blue Isle.
Equiti denied any wrongdoing and said that the fees and commissions it received in return for brokerage services “were not the traceable proceeds of the claimant’s alleged investment.”
The claimants’ investments were paid into a pooled fund in a bank account held in the name of Blue Isle 1 in which they were “commingled with other investor funds” before being passed to various third-party brokerages — including Equiti, the defense reads.
The Mediatrix principals raised over $125 million from third-party investors. The claimant’s investments “represented only a very small portion of the total investors’ sums transferred into the Blue Isle 1 Bank Account,” the defense reads. Many were “misappropriated without ever being transferred to the defendant,” the filing states.
Equiti also denied knowing that the money being transferred from the Blue Isle accounts came from third parties. Under a general terms agreement, Blue Isle said it was acting on its own behalf when entering into each transaction, the defense states.
The Cayman companies say the Blue Isle accounts consistently lost money, which should have been investigated by Equiti. But the broker denied that an account running up net losses is unusual or sufficient that it would alert it to potential fraud.
Leaving loss-making positions open is common practice, the defense reads, where the trading strategy is based on long-term exposure or there is an anticipation of recovery.
Mediatrix moved investors and their money through two unregistered offerings: managed account foreign-exchange funds, in which the investments would be pooled and traded in foreign currency markets, and an entity known by the SEC as “the Fund,” in which the investments would be pooled and put into a range of securities, derivatives and other investments.
Representatives for the parties were not immediately available for comment Friday.
The claimants are represented by Nicholas Medcroft QC and James Hart of Fountain Court Chambers, instructed by Mishcon de Reya LLP.
Equiti Capital is represented by Andrew George QC and Daniel Burgess, instructed by Linklaters LLP.
The case is Dismatrix SPC and others v. Equiti Capital UK Ltd., case number CL-2020-000712, in the commercial court of the High Court of Justice of England and Wales.