Fletcher Bankruptcy Updates
On Friday, March 28, 2014, the United States Bankruptcy Court in the Southern District of New York confirmed the Trustee’s Second Amended Plan of Liquidation for Fletcher International, Ltd. The terms of the Plan include a claim pooling agreement through which the Trustee is pursuing, for the benefit of the Fund and others, recovery from Fletcher Asset Management (“FAM”), FAM insiders, and third party professionals who enabled the alleged fraud.
On Monday, March 31, 2014, the Trustee filed a post-confirmation law suit in the Supreme Court of the State of New York on behalf of the MBTARF and others against FAM and certain FAM insiders. This suit is in addition to the case, reported upon in our February 2014 update, filed in the Suffolk Superior Court against Grant Thornton and Eisner Amper, two of FAM’s auditors. The Trustee has indicated that he expects to bring additional claims against other parties potentially responsible for the Fund’s loss.
We will provide litigation updates as the cases progress.
The MBTARF continues to work closely with the Chapter 11 Trustee in the Fletcher bankruptcy to support his efforts to investigate and liquidate the Fletcher master fund, Fletcher International Ltd.
As the Trustee first reported on November 25, 2013, the MBTARF was a victim “of a fraud defined by the extensive use of wildly inflated valuations, the existence of fictitious assets under management numbers, the improper payment of excessive fees (and) the misuse of investor money…”. (Trustee’s Report at p. 4). The Trustee also reported that Fletcher’s fraud was enabled by its auditors and an administrator, who “seemed more interested in its own financial interests than in the Funds for which it had responsibility”. (Trustee’s Report at p. 8). The Trustee blamed the administrators and auditors who, unlike the MBTARF, had access to Fletcher’s internal financials, for failing to identify “red flags” which “should have caused the administrators and auditors to have investigated disclosed and stopped (Fletcher). None did.” (Trustee’s Report at pp 9-10).
Working with the Trustee to recover the money lost as a result of Fletcher’s service providers’ self interested behavior, on January 17, 2014, the MBTARF filed suit in the Suffolk Superior Court against two of Fletcher’s auditors and a valuation agent who enabled Fletcher to present inflated asset valuations upon which the MBTARF relied.
We will continue to post updates on the MBTARF’s recovery efforts as information is received concerning the bankruptcy and newly pending litigation.
In 2004, the Fund invested $10M in the Fletcher Income Arbitrage Fund, a hedge fund founded by Alphonse “Buddy” Fletcher. The Fund’s investment in the Fletcher Arbitrage fund was redeemed in 2008 for $12,509,503.24 (a net gain of $2,509,503.24). In 2007, the Fund made a follow on investment of $25M in another Fletcher hedge fund, the Fletcher Fixed Income Alpha Fund.
On June 29, 2012, Fletcher International Ltd, the master fund for the Fletcher group of funds, filed for Chapter 11 bankruptcy protection. After an independent Trustee was appointed, and significant investigation done, the Chapter 11 Trustee published the attached Report and Disclosure Statement dated November 25, 2013 detailing allegations of fraud committed by Fletcher and certain of his associates. After partial write downs of its Fletcher investment in 2011 and 2012, upon receipt of the Trustee’s report, the Fund has now written the investment value down to zero, which will be reflected in the year end 2013 financial statements.
As stated in the Trustee’s thorough report, Fund management is working closely with the Trustee in a collaborative effort to recover damages from both Fletcher and the potentially responsible third parties who enabled him. A more detailed update concerning the Fletcher bankruptcy and collection efforts will be provided in the 2013 Annual Report.