In a Channel Islands stock exchange announcement on February 15, directors of the £53m Stirling Mortimer No 4 Cape Verde Cell say a 15 per cent penalty payment of sums invested in property contracts, held in escrow and due to the fund relating to unsold properties was not paid on the due date of January 31. It alleges this is due to misappropriation of the funds by a former partner of international law firm, ELS International Lawyers. The misappropriated money represents nearly 15 per cent of the net assets of the fund as at June 30, 2009.
The board and its advisers are considering further actions and a worldwide freezing order has been obtained by ELS in the UK High Court of Justice against the former ELS partner’s assets, according to the statement.
Based on information it has received, the board believes that the money will be reclaimed, says the statement.
After close of business on January 29, the fund’s board of directors were notified by a partner of ELS International Lawyers (formerly European Legal Solutions) that the £8m could not be paid.
The monies were being held in escrow by ELS pursuant to individual investment contracts for each property. The board says it had received regular confirmations from ELS up to and including December 3 that this cash amount was held in escrow by the firm.
Under the terms of the contracts, if individual properties were sold within 24 months with a return that exceeded 15 per cent of the initial purchase price, monies for each property sold would be released to property manager, Stately Investments International. If they were not sold by January 31 2010 then the monies would be paid to the fund by ELS.
According to the announcement, a further sum of £23m relating to two potential sales pending may also be payable if the sales do not proceed.
The board has deemed a market suspension of the shares listed on the Channel Islands Stock Exchange not to be advantageous to the fund or shareholders as there has not been a market in the shares and no shares have traded to date. However, this decision will be kept under review.
On February 1, the board engaged legal advisers in Guernsey and the UK and advised ELS of the fund’s claim in respect of the cash amount owed.
Stirling Mortimer is a marketing company offering financial products and overseas property investments. It has launched seven funds via two protected cell companies and two directly registered funds. These include the Majestic Village no.1,2 and 3 funds, the Cape Verde no 4 fund, Spain no. 5 fund, Morocco no. 6 fund, Cape Verde II no. 7 fund, Coratina fund and the UK land funds no.8 and 9.