Funding fail: Argentum exits Association of Litigation Funders
30 April 2014 | By Kate Beioley
30 April 2014
17 February 2014
17 February 2014
18 September 2013
13 February 2014
A storm is brewing in the litigation funding market as questions are raised over the source of Argentum’s financial capital. Now the funder has exited the Association of Litigation Funders. Reporter Kate Beioley investigates.
The Association of Litigation Funders (ALF) is in a jam. When it lets in new members it can ask how much financial capacity they have to fund cases and it can ask who runs the fund; what it can’t do, however, is check where the capacity has come from.
The ALF is trying to promote litigation funding as a reputable, transparent market that could potentially change how all cases are funded (17 February 2014).
The current fly in the ointment is Argentum Capital, which until it was delisted in February, was on the Channel Islands Securities Exchange (CISE). Since the beginning of the year the funder has been dogged by controversy because of its connection to Cayman Islands-listed Centaur Litigation. (Centaur Litigation has no connection with Centaur Media, which owns The Lawyer.)
Last week the issue came to a head when the funder volunteered to exit the ALF, leaving it with seven UK members.
The timing couldn’t be more apposite for the ALF, which unveiled new rules at the beginning of the year designed to crack down on funders hiding behind opaque business structures an without suitable capital adequacy standards (13 February 2013).
Those issues have been perfectly exemplified in the case of Argentum, which volunteered to abandon its membership amid intense questioning by the ALF board.
Now there are questions about whether the funder still exists, it’s website has been shut down.
Argentum is known in the UK for its relationship with Stewarts Law in the mammoth RBS shareholder battle against the bank. In Australia it is better known for its role funding the multimillion-dollar equine flu class action (4 April 2013).
Questions were raised over the origin of its funds at the beginning of the year. Despite claiming to have raised $160m from investors, Argentum’s main investor Centaur Litigation is reported to be under investigation by the Hong Kong authorities following allegations in Offshore Alert magazine that its capital comes from a £90m Ponzi scheme run by Briton Brendan Terrill.
Then the funder was de-listed in Jersey. Argentum is understood to have been in breach of rules as none of its shares were actually in public hands but were in fact all owned instead by Centaur Capital, the Sydney Morning Herald in Australia reported.
According to the group’s accounts filed in 2013, “the immediate parent of the Class B shares is Centaur Litigation Ltd. The ultimate controlling parent of Centaur Litigation Ltd is Brendan Terrill, who is also the sole shareholder of Buttonwood Legal Capital Limited”.
Sources suggested that the ‘B shares’ should never have been listed in the first place, in breach as they were of the rules. It raises some serious challenges for a firms that were using the fund to get cases off the ground.
While many funders, including ALF chairman Leslie Perrin’s own Calunius Capital and other high-profile players like Burford Capital are listed and open to investigation by the Financial Conduct Authority, others are not so tightly regulated.
The ALF has instituted a raft of checks and balances for its members in the hope that it will weed out impecunious or disreputable members but its power to police potential funders is limited.
That is particularly true when it is not the funder itself but its investors that are in question.
Perrin said: “Since 18 February the Board of the ALF has been investigating press reports that were highly critical of the fundraising practices of Centaur Litigation SPC, an entity said to be closely associated with ALF member, Argentum Capital Ltd.
“The problem here seemed to relate to Centaur, an entity that was not itself a member of the ALF but was rather an investor in a member. The ALF had no direct jurisdiction over Centaur in those circumstances, nor does it seek such jurisdiction.
”The ALF has tried to wrestle more transparency out of its members with a revamped code, calling for a minimum capital requirement of £2m and an attempt to make clearer the links between funders and subsidiary companies.
”New rules will also bind together funds’ associated and subsidiary entities in a bid to prevent funders avoiding complaints by pinning the blame on a subsidiary company. The new code has replaced the team ‘funder’ with “funder’s subsidiary or associated entity”.
But those were not enough to prevent Argentum joining up. Perrin is quick to point out that the ALF has not received a single complaint about Argentum from its counterparties, including the Stewarts’ Law funded RBS parties.
But he says: “We have learned from this experience. We will oblige members to report resignations of Board members immediately and disclosure of reasons behind such departures.
“There were other bodies with regulatory functions that were directly involved in this situation. ACL was listed and regulated by the Channel Islands Stock Exchange. Hong Kong financial services regulators took action against Centaur.”
It is not the first funder to find itself in hot water, the most high-profile instance of funding gone wrong came last year with the finale of the legal battle between Excalibur and Texas and Gulf Keystone.
The outcome to the $1.6bn litigation saw Clifford Chance client Excalibur handed a crushing defeat and a £23.1m indemnified costs bill. A trio of funders had put up the cash for Excalibur’s case but only Psari Ltd and Platinum Partners remain solvent. With BlackRobe Capital having collapsed it is unclear who will come up with the extra funds.
At the time the funding market responded by saying that claimants should have turned instead to members of the ALF but that, it now seems, is not an iron-clad guarantee.
There is no doubt that sections of the funding market are flourishing. Calunius Capital closed a second fund this month, adding another £50m to its coffers and bringing the total raised to £90m. At the beginning of the year Australian litigation funder Bentham IMF Ltd also said it would start funding lawsuits in Europe in the next two to three months after signing a joint venture with US-based investment advisory firm Elliott Management Corp.
However many are still unnerved by the lack of transparency in the funding market and the difficulty of policing the disparate range of organisations willing to front up money for cases.
There is still cause for caution in the world of litigation funding.
Argentum could not be reached for comment.