shepherds argues a closed-ended vehicle would be cheaper to administer
The Shepherds Group has asked the Isle of Man regulators for permission to convert the Traded Life Policy (TLP) fund into a closed-ended vehicle. Shepherds said a closed-ended vehicle would be cheaper to administer and therefore cost investors less money as the fund has been suspended since May 2004.
This follows Shepherds' decision to abandon attempts to move the TLP fund from the Isle of Man to the Cayman Islands and comes a month after the Shepherds Group shut its London office and website following the closure, suspension and delisting respectively of three of its funds.
Mike Abrahams, chairman of Shepherds Group, has not retired quietly, however. He is still a director of the TLP fund and has started legal action against four former senior employees of Shepherds through the High Court in London. The parties named by Abrahams are Andrew Walters (finance director), Alan Morgan Moodie (managing director), Mike Simmons (sales director) and Mark Hindle (investment director).
International Investment does not have the details of the legal action but it includes an accusation of a breach of contract. Abrahams has alleged the former employees began to set up the Assured TLP fund while still working at Shepherds in 2003. When contacted by International Investment, Morgan Moodie said he could not comment as the legal action is ongoing but admitted they are fighting it.
The open-ended TLP fund was suspended in May 2004 after the US Securities and Exchange Commission placed Mutual Benefits Corporation (MBC) into receivership and suspended its licence on 5 May 2004. The TLP fund bought between 80% and 85% of its traded life policies through MBC.
State and federal regulators have accused MBC of defrauding thousands of investors in the sale of life insurance policies belonging to the terminally ill who usually only have 36 to 48 months to live. Estimates suggest MBC raised about $1bn from nearly 30,000 investors.
The receiver of MBC is still paying premiums on its traded life policies. It has been reported that there is sufficient capital for the premiums to continue to be paid until 2007.
The receiver said all the death benefits on the policies collected are being kept by the receiver. It added: "All requests for the return of investors' money are being declined, regardless of whether those funds had been placed in policies, until the receiver is ordered to do otherwise by the court."
Abrahams, however, said that he expects the receiver to return around £6m to the TLP fund from escrow accounts held by MBC. This follows a decision by a Florida judge earlier this year that the money in escrow accounts, which has not been invested by MBC, should be returned to investors. Abrahams said the TLP fund also has £1.5m in cash out of £43m invested into the fund.
But Abrahams said the fund cannot return this £7.5m to investors. "The fund cannot return money to some investors and not to others. Furthermore, as MBC is suspended, it is impossible to value the underlying policies."
The TLP fund only owns fractions of traded life policies but Abrahams would like to change this. "We bought fractionalised policies. This is because we wanted diversification across lots of policies but did not have the capital initially to do this. We now want to offer to buy the rest of the policies of other investors to gain greater control. We may be able to buy these policies at distressed prices when the suspension on MBC is lifted."
state of play
TLP fund: The Isle of Man fund is still suspended while legal arguments continue over whether viaticals and life settlements can be classified as securities and therefore whether MBC is regulated by the SEC. The suspension on MBC's licence and the TLP fund will not be lifted until this is resolved.
Select High Security fund: Having been delisted from the Cayman Islands Stock Exchange on 11 February 2005, the management of the fund has now been transferred to Caymans-based Managing Partners Limited (MPL). Jeremy Leach, who was a director at Shepherds, is a director at MPC but Abrahams said that it is the only connection between Shepherds and the newly-managed fund.
Traded Endowment Policies (Tep) fund: The $4m Tep fund was closed last September and Abrahams said that it has been selling policies and returning money to investors.
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