![Headshot of Rachael Reynolds](/media/cpze4lsh/rachael-reynolds.jpg?cc=0.19925587768957756,0.15308882561178572,0.09731502129095997,0.14277794013449815&width=1440&height=960&quality=90)
Rachael Reynolds KC
Global Senior Partner | Legal
Cayman Islands
![Headshot of Rachael Reynolds](/media/cpze4lsh/rachael-reynolds.jpg?cc=0.344022972210293,0.14245157350579227,0.2181345126469322,0.20012723258613746&width=300&height=300&quality=90)
Rachael Reynolds KC
Global Senior Partner
Cayman Islands
Big things are happening at Ogier. Change is embedded in everything we do. It is redefining our talent, our ways of working, our platforms of delivery, our culture.
Services
We have the expertise to handle the most demanding transactions. Our commercial understanding and experience of working with leading financial institutions, professional advisers and regulatory bodies means we add real value to clients’ businesses.
Sectors
Our sector approach relies on smart collaboration between teams who have a deep understanding of related businesses and industry dynamics. The specific combination of our highly informed experts helps our clients to see around corners.
We have the expertise to handle the most demanding transactions. Our commercial understanding and experience of working with leading financial institutions, professional advisers and regulatory bodies means we add real value to clients’ businesses.
Legal
Corporate and Fiduciary
Consulting
Banking and Finance
Corporate
Dispute Resolution
Employment law
Intellectual Property
Investment Funds
Listing services
Local Legal Services
Accounting and Financial Reporting Services - Ogier Global
Cayman Islands AML/CFT training - Ogier Global
Corporate Services - Ogier Global
Regulatory and Compliance Services - Ogier Global
Sustainable Investment Consulting
Our sector approach relies on smart collaboration between teams who have a deep understanding of related businesses and industry dynamics. The specific combination of our highly informed experts helps our clients to see around corners.
Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Irish, Jersey and Luxembourg law through our global network of offices across the Asian, Caribbean and European timezones. Ogier is the only firm to advise on this unique combination of laws.
Keep up to date with industry insights, analysis and reviews. Find out about the work of our expert teams and subscribe to receive our newsletters straight to your inbox.
Fresh thinking, sharper opinion.
We get straight to the point, managing complexity to get to the essentials. Our global network of offices covers every time zone.
About us
Corporate social responsibility (CSR)
Diversity, equity and inclusion
Information security
Innovation
Sustainability
No Content Set
Exception:
Website.Models.ViewModels.Components.General.Banners.BannerComponentVm
Newsletter
15 February 2017
Cayman Islands
ON THIS PAGE
Fraud is rare, but it happens; and when it does it is likely to be as unexpected as it is unwelcome. Therefore, it is important for directors to be fully prepared to respond to an allegation of fraud quickly and effectively.
Fraud can arise in a number of scenarios in the fund context – including within the underlying portfolio of investments, or amongst service providers to the fund. Below are our top tips to help manage such situations.
Fraud / alleged fraud in the fund's underlying portfolio
Seek advice – it is crucial to seek advice at an early stage so that we can assist you in formulating an effective and proportionate strategy to deal with any allegations and the consequences. The priorities will be to prevent further losses, avoid a "run on the bank", and ensure that each investor is treated fairly.
Crystallise each investor's exposure - where the fraud or alleged fraud has occurred in an underlying asset, you would look to isolate that asset and crystallise each investor’s exposure. This can enable you to avoid wholesale suspension whilst buying time to investigate. Depending on the terms of the fund documents this can be effected by way of side pocket, a liquidating trust, liquidating account or liquidating special purpose vehicle or potentially a capitalisation and bonus share issuance.
Document each decision - once a fraud has been identified or is suspected each step needs to be documented, including the rationale and decision making process lying behind it, with a conscious appreciation that all actions (and any omissions) taken in response to the fraud may later be scrutinised by a liquidator and/the court.
Fraud / alleged fraud perpetrated by the Investment Manager
As above – seek advice, and seek it early.
Suspension - we would look to the Articles for three key powers:
1. the ability to suspend redemptions and subscriptions
2. the ability to suspend calculation of NAV
3. the ability to delay payment of redemption proceeds
If these are present then we look at the circumstances prescribed by the offering memorandum when such powers may be employed to ensure that the facts qualify.
If the decision is taken to suspend, then it is imperative that the resolutions to do so make clear what you are suspending and why. Notice must then be provided to investors as soon as practicable.
Indefinite suspension leaves the fund exposed to shareholder or creditor action. Indeed, whilst some funds have recovered from a suspension, that is the exception - suspension tends to be the first step on the road to liquidation.
Resignation
We usually advise directors against resigning upon discovery of a fraud, for four principal reasons. First, resigning will not preclude claims being brought against you if claims are brought against the rest of the board. Second, resigning will make it harder to enforce any indemnification right you might have. Third, staying on the board during a time of crisis may well enhance your reputation in the market. Fourth, remaining on the board allows you to influence strategy and the choice of liquidator, should one have to be appointed.
Consider the continued engagement of the manager
You will need to investigate urgently and consider appointing a forensic accountant to review the investment manager's actions and, depending on their initial findings, consider taking steps to appoint someone to take over provisional management of the assets. Consideration will need to be given to the terms of the fund documents as to the power to terminate the IMA, the ancillary consequences of such a step – including a review of side letter terms.
Conclusion
In summary, seek advice, stay on board and consider with counsel the powers under the fund documents to take action to protect the assets and the fund.
Where the allegation relates to the fund internally, consider suspension and the appointment of a forensic accountant to investigate without delay.
Finally, document, document, document.
Rachael Reynolds KC
Global Senior Partner | Legal
Cayman Islands
Rachael Reynolds KC
Global Senior Partner
Cayman Islands
Contact Rachael
Back
James Bergstrom
Partner | Legal
Cayman Islands
James Bergstrom
Partner
Cayman Islands
Contact James
Back
Nick Rogers
Partner | Legal
Cayman Islands
Nick Rogers
Partner
Cayman Islands
Contact Nick
Back
Justin Savage
Partner | Legal
Cayman Islands
Justin Savage
Partner
Cayman Islands
Contact Justin
Back
Giorgio Subiotto
Partner | Legal
Cayman Islands
Giorgio Subiotto
Partner
Cayman Islands
Contact Giorgio
Back
Sign up to receive updates and newsletters from us.
Sign up
No Content Set
Exception:
Website.Models.ViewModels.Blocks.SiteBlocks.CookiePolicySiteBlockVm