Citco Fund Services, one of the world's largest hedge fund administrators, has announced plans to open an office in Halifax, Canada with plans to eventually employ about 350 people.

Citco Fund Services has offices in Bermuda, most other offshore centres, London, the US and Asia. Citco has operated in Canada since 1992, and now employs about 350 people in Toronto, primarily as a back-office for its offshore centres.

"We see Halifax as a strategic centre to develop our Canadian operations," said William Keunen, global director of Citco Fund Services. "With Nova Scotia's education infrastructure and competitive advantages, we know it is the right place for our new office and training centre."

Citco is just the latest company with Bermuda connections to announce it is opening an office in Halifax, taking advantage of the ample university-educated work force and costs lower than those found in Bermuda.

Recently, Bermuda-based Bank of N.T. Butterfield & Sons Ltd. said its fund services unit would hire about 400 people in Halifax within the next seven years. Last year, Bermuda based fixed-income fund manager West End Capital Management agreed to create 75 positions in Halifax.

The Globe and Mail reports that their sources have indicated that the Bermuda based hedge fund administrator Olympia Capital International Inc. also plans to open an office that will hire about 150 people in Halifax, and that hiring commitments by Bermudian financial companies will soon reach almost 1,000 jobs.

 

John Deuss has been remanded in jail for a further 90 days in Holland.

Max Re Capital Ltd. has announced that Chairman and Chief Executive Robert Cooney resigned after an internal investigation into a controversial type of coverage known as finite reinsurance uncovered potential wrongdoing.

The company also said it has contacted the Securities and Exchange Commission about the matter.

Max Re said it has decided to restate quarterly and annual results from 2001 through 2005 to reflect concerns that oral side agreements had negated the supposed risk transfer in two finite insurance deals. Regulators such as New York Attorney General Eliot Spitzer and the SEC launched investigations in late 2004 and early 2005 into whether companies used finite reinsurance to manipulate their financial statements.

Ewart Brown has defeated former Premier Alex Scott to take the leadership of the Progressive Labour Party by a vote of 107-76 at the PLP delegates conference. Dr. Brown, who was Deputy Premier and Tourism and Transport Minister until his resignation from Cabinet two weeks ago, has now been sworn in as the Island's Premier (and the third PLP Premier).

UPDATE:  After being arrested without charge in Bermuda and then released on $10 million bail, John Deuss flew voluntarily to Holland (under a police escort). He was arrested on arrival and is now being questioned about the role of his Caribbean bank FCIB in a systematic EU tax evasion scheme called "carousel fraud".  A Dutch judge ordered that he be detained for 2 weeks. Deuss, a resident of Bermuda, denies any wrongdoing and has not been charged with any offence, but he is suspected by EU tax authorities of being in charge of a "criminal organisation".  The warrant for his arrest listed allegations of habitual or deliberate money laundering, handling of stolen property, and being in charge of a criminal organisation.

For an unsentimental profile of the man by David Marchant (as published in Bermuda's Royal Gazette) see here.

The Securities and Exchange Commission (SEC) has brought securities fraud charges against James N. Stanard and Martin J. Merritt, the former CEO and former controller, respectively, of RenaissanceRe Holdings Ltd. (RenRe) and also against Michael W. Cash, a former senior executive of RenRe’s wholly-owned subsidiary, Renaissance Reinsurance Ltd. The complaint, filed today in federal court in Manhattan, alleges that Stanard, Merritt, and Cash structured and executed a sham transaction that had no economic substance and no purpose other than to smooth and defer over $26 million of RenRe’s earnings from 2001 to 2002 and 2003. The SEC also announced a partial settlement of its charges against Merritt, who has consented to the entry of an antifraud injunction and other relief.

Mark K. Schonfeld, Director of the SEC’s Northeast Regional Office, said, "This is another case arising from our ongoing investigation of the misuse of finite reinsurance to commit securities fraud. The defendants enabled RenRe to take excess revenue from one good year and, in effect, “park” it with a counterparty so it would be available to bring back in a future year when the company’s financial picture was not as bright."

Stanard, age 57 and a resident of Maryland and Bermuda, was Ren Re's chairman and chief executive officer from 1993 until he resigned in November 2005.
 
Merritt, age 43 and a Bermuda resident, held various positions, including that of controller, at both the holding company and the subsidiary.
 
Cash, age 38 and a Bermuda resident, was a senior vice president of the subsidiary until he resigned in July 2005.

The Royal Gazette reports that John Deuss has been arrested in Bermuda and likely spent the weekend in custody at Hamilton Police Station.

A court hearing is expected to be held next week – possibly as early as Monday – to determine whether he should be bailed and/or released.

Mr. Deuss resigned from the board of BCB last week, along with his sister Tineke and president Timothy Ulrich, after FCIB was effectively shut down by authorities in Europe. Authorities in the Netherlands want Deuss extradited there for questioning and a Bermudian magistrate has granted a provisional warrant for his arrest. Deuss' lawyers made a second attempt, on Wednesday, in Supreme Court to overthrow that decison, arguing in open court, that it was unlawful for the warrant to have been granted in Bermuda because no extradition treaty exists between the two countries.

Meanwhile, the Royal Gazette reports that "The whereabouts of the oil tycoon himself, who denies any wrongdoing on the part of any of his companies, are not known and Police on the Island have asked the public to help trace him". Anyone with information about Mr. Deuss’ whereabouts should call Bermuda Police on 295-0011

John Deuss, Tineke Deuss and Timothy Ulrich have been obliged to step down from the board of Bermuda Commercial Bank (BCB), which is listed on the Bermuda Stock Exchange. Legal authorities in Holland and Curacao are conducting an investigation at the offices of First Curacao International Bank (FCIB), and at the offices of its Dutch administrative services provider in Holland, into FCIB's involvement in alleged money laundering activities by some of its clients and whether the activities of its Dutch service provider require a banking license. The investigation by legal authorities in Holland and Curacao has impacted BCB because FCIB is a significant shareholder in BCB.

John Deuss, Tineke Deuss and Mr. Ulrich who serve as directors of FCIB have advised the board of directors of BCB that they will temporarily step aside from their responsibilities as directors and officers of BCB until this matter is resolved.

John Deuss is a maverick businessman with major intrests in oil and gas (Transworld Oil) who is now trying to build a global electronic payments processing service called Transworld Payments. Formerly resident in Bermuda he is now rumoured to be resident in the US.

In light of the recent publicity, speculation and queries about the desire by Cable and Wireless to buy KeyTech Limited, KeyTech issued a statement to confirm that KeyTech has not received new or revised terms from C&W to purchase KeyTech Limited since a suggested value of $205 million was discussed at KeyTech’s Annual General Meeting on July 21st. C&W (formerly the sole provider of long distance telephony services in Bermuda) now competes with TeleBermuda for long distance. KeyTech is Bermuda's main domestic/fixed line telephone services provider.

At the AGM, the Chairman, Dr. James King, told shareholders that "having considered the inherent value for the KeyTech group’s operations, its various assets and its current strategic position your Board is not recommending this price as being in the shareholders’ best interests".  This statement was part of a letter to shareholders which outlined the Board’s reasons for considering that the proposal significantly under valued KeyTech.

The statement says that the Board of Directors will give careful consideration to any matter of significance that affects KeyTech and its shareholders.

In some good news for offshore centres with insurance industries, Bloomberg reports that the worldwide reinsurance industry will expand faster than the global economy as demand for insurance grows in emerging markets such as China, India and Brazil, said Inga Beale, chief executive of Converium Holding AG.

These countries show "the classical pattern of insurance demand expanding significantly faster than the overall economy," Beale said in Zurich. A new middle class "and their increasing purchasing power" is fuelling demand for assets including cars, homes and durable goods that need insurance. Converium, a Swiss reinsurer that’s been working to restore its credit rating since a reserve shortfall two years ago, competes with companies including Swiss Reinsurance Co. and Germany’s Munich Re by selling coverage to primary insurers. The insurance industry had its costliest year on record after the 2005 hurricane season caused $83 billion in insured damage, Munich Re said. Beale said demand for reinsurance also will increase as more assets are "concentrated in regions which are exposed to natural catastrophes."

A.M. Best, a rating agency has issued a report which states that fourteen of the world's 35 largest reinsurance companies in 2005 - two in five, or 40 percent - are Bermuda companies. Several more of the top companies had Bermuda operations, but are not headquartered on the Island.

The report, which provides an overview of the 2005 financial year and a preview of 2006, points to the growth in securitisations and cat bonds, the formation of sidecars (more than two-thirds of which are Bermudian-owned), and changes in methodology as the key developments in the market in 2005, along with the change of direction of the European market to a broader base.

The criterion for inclusion on the list was gross premiums written in 2005, which ruled out all of the "Class of 2005" start-up companies formed in Bermuda in the wake of Hurricanes Katrina, Rita and Wilma. Bermuda's representation in the 2006 list will, therefore, almost certainly be even more significant.

In its "2006 Annual Global Reinsurance Study", sub-titled "Reinsurers Humbled, But Most Not Broken, by Hurricane Losses", Best also reported that Bermuda carried a greater share of cost of 2005's insured losses than did the US or European markets.  "The adverse effects of the 2005 hurricanes were distributed unevenly across the globe, with US and Bermudian property reinsurers carrying more of the losses than their more diversified European counterparts," Best said. "Bermudian companies shouldered approximately $11 billion of the insured property losses, while US reinsurers' losses came in at an estimated $7.1 billion."

Best confirmed that the Bermuda market more than replenished its losses from last year's storms: "In response to the lost capital and the expectation of high returns from a hardening market, approximately $18 billion in new capital flowed into the Bermuda market, mostly in common and preferred equity," the report said. "Approximately $8 billion was invested in nine start-up companies and sidecars to form the "class of 2005". The rest went into existing reinsurers."

The report also contained a warning: "The market remains susceptible to competition as investor expectations run high," Best said. "Should the currently perceived market opportunity not hold for property catastrophe reinsurance, the new capital that flowed into the market may seek alternative investment strategies."

Commenting on Bermuda's strong showing in the list of the top 35 global reinsurers, Best said that changes should be expected in 2006. AXA Re is to transfer its book of business to Paris Re, a Bermuda company, further strengthening the Island's power in next year's Top 35, as well as the 2005 start-ups coming on line this year, several of whom should make a showing in next year's rankings.

The drop in aggregate gross premium for the 35 companies to $158 billion in the 2006 ranking, from $172 billion in the 2005 ranking, was primarily a currency translation issue, Best said, following changes in the power of the US dollar. Net of last year's dollar gains, the previous ranking's aggregate gross premiums would have been $160 billion on a comparable basis.

Canadians often ask me why I moved from Bermuda to Canada..........who can I sue, I wonder?

This story from the National Post, June 16th:

"They dreamed of Bermuda's pink sand beaches and snorkelling in sunny lagoons. They got "antiquing" and "beer tasting" in Saint John, N.B., "historical tours" and "pub hops" in Halifax, and "faced rainy, cloudy and foggy weather" in Atlantic Canada.

A group of American tourists were imagining a five-day trip to paradise when they booked a mid-summer cruise to Bermuda last year aboard a luxury liner owned by one of the leading ocean-tour companies in the United States. But when they prepared to climb aboard Royal Caribbean's Voyager of the Seas at a New Jersey port on July 24, they were told the plans had changed.

With a storm brewing in the south, they would be heading north instead, to Canada. And the flabbergasted passengers were warned that if they turned down the opportunity to see New Brunswick and Nova Scotia rather than King's Wharf, Bermuda, they'd forfeit the ticket price -- more than US$1,000 for some.

The bizarre saga of Canada's accidental tourists emerged yesterday after the State of New Jersey, on behalf of the Maritimes' most unwilling visitors of 2005, sued the Florida-based cruise line for its "unconscionable" actions.

The lawsuit, filed by New Jersey Attorney-General Zulima Farber and the state's Consumer Affairs director, Kimberly Ricketts, slammed Royal Caribbean for subjecting the plaintiffs to a "significantly cooler" Canada rather than the coral islands of Bermuda.

"It is unconscionable that consumers showed up for a cruise they paid for with their hard-earned money only to be sent somewhere they didn't want to go, without access to the amenities they paid for and activities they looked forward to, and were told there was nothing they could do about it," Ms. Ricketts said.

The lawsuit alleges Royal Caribbean overreacted to reports tropical storm Franklin could endanger Voyager of the Seas, which can carry more than 3,000 passengers, and states "other cruise ships scheduled to cruise to Bermuda at or around the same time did not change their itineraries."

Meanwhile, the lawsuit argues, "as a result of the itinerary change to Canada, passengers were forced to incur the additional expense of purchasing warmer clothing.""

Offshore law firms Appleby Spurling Hunter and Bailhache Labesse have announced that they will unite business operations on 1st September 2006.

The announcement claims that this merger will create the only offshore provider of legal, fiduciary and administrative services with a major foothold in four of the world’s leading offshore business centres - Bermuda, the British Virgin Islands, the Cayman Islands and Jersey - as well as a presence in the major financial centres of London and Hong Kong.

The combined group will be known as Appleby Hunter Bailhache and will have a projected staff worldwide of nearly 600 employees, including 44 partners.

EXTENDED RANGE FORECAST OF ATLANTIC SEASONAL HURRICANE ACTIVITY AND U.S. LANDFALL STRIKE PROBABILITY FOR 2006

By Philip J. Klotzbach and William M. Gray

"Information obtained through May 2006 continues to indicate that the 2006 Atlantic hurricane season will be much more active than the average 1950-2000 season.  We estimate that 2006 will have about 9 hurricanes (average is 5.9), 17 named storms (average is 9.6), 85 named storm days (average is 49.1), 45 hurricane days (average is 24.5), 5 intense (Category 3-4-5) hurricanes (average is 2.3) and 13 intense hurricane days (average is 5.0).  The probability of U.S. major hurricane landfall is estimated to be about 60 percent above the long-period average."

The order of the authorship of this year's forecast has been reversed from Gray and Klotzbach to Klotzbach and Gray. After 22 years of making these forecasts, Dr Gray is stepping back and letting Phil Klotzbach assume the primary responsibility for the seasonal, monthly and landfall probability forecasts.  According to this year's report, Klotzbach is now devoting more time to the improvement of the forecasts than Dr. Gray, who is now devoting more of his time to the global warming issue.

"They've been brainwashing us for 20 years," Gray says. "Starting with the nuclear winter and now with the global warming. This scare will also run its course. In 15-20 years, we'll look back and see what a hoax this was."

Dr. Gray is perhaps the world's foremost hurricane expert. His Tropical Storm Forecast sets the standard. Yet, his criticism of the global warming "hoax" makes him an outcast.

Gray acknowledges that we've had some warming the past 30 years. "I don't question that," he explains. "And humans might have caused a very slight amount of this warming. Very slight. But this warming trend is not going to keep on going. My belief is that three, four years from now, the globe will start to cool again, as it did from the middle '40s to the middle '70s."

Of course one of the metrics that proponents of the meme "global warming is a big man made catastrophe" keep citing is the increase in the number and intensity of Atlantic hurricanes in the last fews years. According to Al Gore, storms like last year's Katrina are the direct result of human activity and are indicative of a long term trend that will destroy the earth as we know it. Cooler heads, and more scientifically sound minds, like Dr Gray's, believe that the recent increase in Atlantic storm activity is part of a much shorter term and quite natural cycle (and a cycle that has occurred many times before).

What seems most important right now is that we enter into a proper, well informed debate about what is really going on - free from the politically motivated scaremongering of the left and the environmentalist lobby. Actually debating the issue before we set public policy may be inconvenient for Al Gore and his private jet chaterer, but it is crucial for the rest of the world.

Bloomberg reports that Man Group Plc's US brokerage and seven of its employees are being sued for fraud and racketeering by a court-appointed receiver seeking to recoup investor assets lost in the collapse of a Philadelphia Alternative Asset Management.

Man Financial was a broker for the Philadelphia hedge fund, which imploded last year after the Commodity Futures Trading Commission claimed it concealed more than $140 million in trading losses. Man Financial is accused of violating the Commodity Exchange Act and the Racketeer Influenced and Corrupt Organizations Act, or RICO, by letting the fund hide its losses in a brokerage account. The court-appointed receiver alledges that Man let Philadelphia fund's manager, Paul Eustace, shift losing trades to an account that wasn't shown to investors.

Paul Eustace used to trade with Trout Trading in Bermuda but is now based in Oakville, Ontario, Canada.

Update: The Scotsman reports that Man Financial Inc., the US arm of the investment firm Man Group Plc , said it will "vigorously defend itself". The article reports that Man Financial said in a statement that it (MFI) "regards the allegations to be outrageous and spurious."

The Investment Executive magazine in Canada reports that the provincial government in Nova Scotia is giving tax breaks to a Bermuda company to encourage more outsourcing of jobs to Halifax!

West End Capital, a Bermuda based hedge fund/insurance group, apparently has legal, accounting and software staff in Halifax - because qualified people are paid less there and it is difficult to get work permits on the Islands of Bermuda (and then difficult to retain good staff on the Islands).

Paragon Bermuda - a Bermudian application development company which has investors in common with West End Capital - has long had software developers in Nova Scotia for similar reasons.

Appelby Spurling Hunter has a released a client note that states, inter alia:

"Effective on 25 November 2005, the Companies Act 1981 (Ninth Schedule) Amendment Order 2005 designated the "business of collective investment schemes", commonly known as mutual funds, as an unrestricted business activity. The effect of removing the requirement that Bermuda’s Minister of Finance consent to mutual fund incorporations is that the time to incorporate a mutual fund is substantially decreased because the Bermuda Monetary Authority has the sole responsibility for approving mutual fund incorporations."

See the full article here.

The European Savings Tax Directive (EUSD) has now been in force for more than six months, so we are starting to see the effects of the new rules on peoples’ behaviour. As with many regulations designed to increase tax collection revenues there have been some unintended consequences.

Under the EUSD, which was introduced with effect from 1 July 2005, financial organisations (“Paying Agents”) in countries subject to the directive that make a cross border interest payment to an EU resident individual have to report information on the payment to the revenue authority in the EU state where the individual is resident or to withhold tax on the payment. The EUSD applies throughout the EU and in some non EU territories, in particular some of the offshore financial centres (Channel Islands, Cayman, Switzerland), which agreed – or where forced to- implement it.

Bermuda is currently not subject to the EUSD, apparently due to an oversight by the UK authorities. Neither Singapore nor Hong Kong is included. In addition, because the UK and Gibraltar are not separate member states within the EU, the EUSD does not apply between them. This effectively means that the “level-playing field” that was promised to all the other participants has not been delivered.

The Wall Street Journal now says that Singapore is now attracting huge amounts of capital from Europe as a direct result of the implementation of the EUSD. It seems that many EU investors prefer to move their money out of Europe rather than face withholding taxes or disclosure of their investments under the EUSD.

Ironically, another unintended consequence has had the opposite effect, boosting the hedge fund industry in the offshore centres that adopted the EUSD (like the Cayman Islands) rather than in the ones that have not adopted the EUSD (which many people assumed would benefit from not being included). This has occurred because the EUSD only applies to payments made to EU residents by Paying Agents on behalf of investment funds which are recognized as Undertakings for Collective Investments in Transferable Securities funds (or “UCITS funds” for short) or funds recognized as their equivalent. This means that payments made to EU residents by Paying Agents on behalf of investment funds which are considered as non-UCITS equivalent funds fall outside the scope of the EUSD Directive altogether. Under the rules, each jurisdiction is free to determine for itself which domestic funds are UCITS equivalent. The Cayman Islands have determined that the vast majority of its hedge funds are non-UCITS equivalent funds and therefore fall outside the scope of the EUSD Directive altogether. Investment funds established in countries or territories which are not party to the EUSD Directive and which have a Paying Agent in an EU member state or applicable third country and which makes payments to EU residents are caught by the EUSD Directive as they are located in jurisdictions which currently do not have any corresponding legislation determining what a non-UCITS equivalent fund is from their home country point of view. Thus, instead of boosting business in jurisdictions, like Bermuda, that are not subject to the EUSD, the rules have made the Cayman Islands more attractive as a jurisdiction.

The directive is so riddled with loopholes that it resembles a Swiss cheese – for example, it only applies to individuals (not trusts or companies). So many individuals are able to get around the legislation by simply setting up a company, trust or other legal entity, where the individual is the beneficial owner.

Of course, the Eurocrats response to this mess is not to abolish the directive, but rather to call for it to be extended to everyone and every payment!

Appleby Spurling Hunter has been recognised as a leading offshore law firm in a number of recently released international publications.

Chambers and Partners Global Directory awarded Appleby Spurling Hunter a number one ranking in Bermuda. Appleby was the only firm to receive rankings in all three of the key offshore jurisdictions of Bermuda, the Cayman Islands and the British Virgin Islands.

the Bermudian owners of a home rumoured to be worth around $45 million have launched a legal battle against a government ban preventing them selling it to a foreigner. GoldenEye, a ten-bedroom home on the so-called "billionaire’s row" in Tuckers Town had reportedly attracted interest from high profile international names (like Oprah Winfrey) before the new policy came in. The house is owned by Alan and Vera Marshall. The rule change was made in February 2005 and prevents Bermudians from selling houses to non-Bermudians.

Non-Bermudian property owners are still permitted to sell their homes to other non-Bermudians. Right now the palatial dwelling stands empty with $1 million annual maintenance costs. The case is being heard by the Supreme Court and Vera Marshall apparently told the court that she once turned down an offer of $33 million for the house before the ban was introduced but could not now sell it to a Bermudian for more than a "ridiculously low" price like $1 million.

Tourism is so weak in Bermuda at the moment that the Bermuda government and hotel owners are now paying tourists to come to the Islands!

From now until April 27, North American visitors can fly to Bermuda on a charter flight that costs just $49 one-way, from New York and Boston. The initiative has been subsidised by the Department of Tourism as well as hoteliers who have been asked to contribute $165 per booking.

Only passengers boarding in North America can take advantage of the cheap flights from TNT Vacations, which is chartering a plane from Xtra Airways to make the twice weekly flights between now and April 27. The inaugural flight had just 52 passengers on board, but the Tourism Minister believes the next two months of the $49 promotion will see higher uptake by visitors from Boston and New York.

The Securities and Exchange Commission (SEC) announced that it has filed an enforcement action against five former senior executives of General Re Corporation (Gen Re) and American International Group, Inc. (AIG) for helping AIG mislead investors through the use of fraudulent reinsurance transactions. Four of the former executives, Ronald Ferguson, Elizabeth Monrad, Robert Graham and Christopher Garand, were with Gen Re, while the fifth, Christian Milton, was with AIG. The complaint, filed today in federal court in Manhattan, alleges that the defendants and others aided and abetted AIG's violations of the antifraud and other provisions of the federal securities laws by helping AIG structure two sham reinsurance transactions that falsely increased AIG's loss reserves in the fourth quarter of 2000 and first quarter of 2001 by a total of $500 million. The transactions were initiated by AIG to quell criticism by analysts concerning a reduction in the company's loss reserves in the third quarter of 2000.

Lines Overseas Management (LOM) is challenging evidence presented by the US Securities and Exchange Commission in a US court.

In December 2005, The SEC produced a Status Report to update a US Judge on "significant developments" related to his review of a lower court's enforcement order of four subpoenas for information that were served on LOM and its managing director Scott Lines almost two years ago.

LOM has moved to strike the Status reort on the grounds that its allegations were "baseless", "defamatory" and "scandalous". The SEC said in a response last week that LOM's motion should be denied since each statement in the Status Report was "well founded" and "accurately reflected information that the Commission had obtained from credible and relevant sources". If the court does not strike the report, LOM has asked it to conduct an evidentiary hearing to resolve all the issues of fact disputed by LOM.

One of LOM's assertions is that the SEC has never properly served a subpoena on Donald Lines, the President of the LOM Group. The new SEC filing includes a sworn affidavit by a professional process server stating the details of his service of three subpoenas on Donald Lines while he was visiting Boston for medical treatment last year. Mr. Lines denies that he was actually served and has taken out a full page advertisement in local newspapers stating his version of the facts. The SEC said in its latest filing however there was "ample evidence to conclude that Lines was properly served with the SEC's subpoenas and was untruthful in his declaration to the contrary". In a declaration run in full in the Royal Gazette this week, professional process server Gerson Marciel from the Massachusetts firm of Stokes and Levin said that he personally served Mr. Lines at the Copley Hotel in Boston on November 10, 2005.

To learn more about these duelling full page ads, read this amusing article in the Royal Gazette and see whether you think Donald Lines was served or not - it all boils down to whether the man described by the process server was 185 lbs or 215 lbs (ie was it Donald Lines or not!).

Another of LOM's challenges relates to an SEC assertion that LOM "demanded" that the terms of a settlement with the Bermuda Monetary Authority (BMA) be kept confidential.

The settlement pertained to the BMA's investigation of LOM's role in the trading of Sedona Securities. That security is at the heart of an SEC probe into alleged market manipulation. For the past two years the SEC has been attempting to secure a court order to enforce subpoenas it served on LOM in order to obtain information relating to Sedona trades including materials from the BMA's investigations and settlement. According to the Royal Gazette, the Bermuda Supreme Court recently placed an injunction on some of the information requested by the SEC.

After the BMA completed its investigation in December last year, LOM reportedly told the Royal Gazette that the BMA had "certain regulatory issues with the regulated LOM companies arising out of Sedona and related matters. Those issues have been resolved to the satisfaction of the BMA by LOM companies having made changes to their management and control arrangements and having given undertakings to the BMA to further enhance their compliance regime and their management structure,"

LOM is listed and traded on the Bermuda Stock Exchange.

Bloomberg reports that American International Group Inc. (AIG), the world’s largest insurer, escalated its battle with ousted Chairman Maurice (Hank) Greenberg, accusing one of his private firms of using secret agreements to hijack AIG's business. Starr Technical Risks Agency, a unit of Greenberg’s C.V. Starr & Co. that has sold insurance in AIG’s name since 1992, entered into unauthorised reinsurance arrangements with Warren Buffett’s Berkshire Hathaway Inc., AIG said in a motion filed on Friday in New York State Supreme Court. The arrangements siphon premiums from AIG and hurt the company’s credibility with the reinsurers it has approved, the motion said.

Reinsurers share the premiums and claims of insurers, and the secret arrangement with Berkshire diverts premiums away from AIG’s reinsurers, the petition said. AIG said Starr Tech has also plotted to take direct business away from AIG by selling policies that Berkshire’s National Indemnity Co. unit "will share on the front end". The company asked a judge to stop Starr Tech’s business with Berkshire pending arbitration.

Update: AIG won court permission to temporarily block C.V Starr & Co. from luring insurance clients from AIG.Greenberg’s firm, C.V. Starr & Co., also claimed victory after New York State Supreme Court Justice Herman Cahn extended a Sunday order preventing AIG from denying access to client documents and office space. Both sides are also barred from removing documents. Cahn’s rulings apply through Thursday, 2 February, when another hearing is scheduled in his Manhattan courtroom.

Wayne Furbert has replaced Grant Gibbons as the leader of the UBP parliamentary group in mid-January. The UBP lost to the PLP in the 2003 national elections.

Hat tip to Susan Stirling for alerting me to this:

Minister of Finance the Hon. Paula A. Cox, JP, MP announced in December that the Ministry of Finance had successfully concluded discussions with Swiss tax authorities concerning the application of Swiss home country rules for purposes of the EU Savings Directive (EUSD) on Bermuda domiciled non-retail funds.

During the course of the discussions the Swiss tax authorities confirmed to the Ministry of Finance that funds exempted from Bermuda’s Collective Investment Scheme Regulations 1998 would be out of scope for purposes of the EUSD in Switzerland.

Consequently, the CIS Regulations have been modified to clarify that non-retail funds offered exclusively to sophisticated investors could seek exemption from classification. Such funds would be registered by the Bermuda Monetary Authority and would have to meet minimum criteria including appointing an auditor, appointing a recognised fund administrator and retaining a local representative in Bermuda.

This puts Bermuda on a par with other OFCs and should stem the previous outflow of funds moving from Bermuda to Cayman to avoid the EUSD.

Over 130 representatives of 55 governments, the Commonwealth Secretariat and the European Commission met on 15-16 November 2005 in Melbourne, Australia to review progress towards the OECD’s stated objective of transparency and effective exchange of information for tax purposes (the so called “level playing field based on high standards”). And what an extraordinary gathering it was, with tiny islands like Vanuatu and Niue sitting down at the same table as the US, the EU member states, and Canada!

The two day discussions, which were based upon the review of the legal and administrative frameworks on transparency and exchange of information in tax matters currently in place in over 80 countries, showed that a global level playing field in the areas of transparency and effective exchange of information in tax matters is gradually developing. However, the Forum’s discussions identified a number of areas where further progress needs to be made. The Forum’s review will be published as a formal report in 2006.

For a fuller article on the Forum and its outcome click here

Advisen, a leading provider of strategic information services to the commercial insurance industry, now projects that the total pre-tax insurance and reinsurance losses in respect of the three major hurricanes to hit the US this year will total $57.6 billion (comprising $40.4 billion for Katrina, $6.4 billion for Rita, and $10.8 billion for Wilma).

The combined losses from Katrina, Rita and Wilma amount to more than twice the annual total for other US natural disasters and one and a half times the losses from the 9/11 terrorist attacks of 2001.

Flood losses could elevate Advisen’s estimates by billions of dollars if lawsuits to force insurers to cover flood damage related to Hurricane Katrina are successful. Additionally, several hurricane-related pollution lawsuits could add hundreds of millions of dollars to the estimates.

Australia and Bermuda have signed a bilateral agreement to share tax information, a move welcomed by the Organisation of Economic Cooperation and Development (OECD) as a step "to counter abuse of the financial system". The announcement came as the OECD's Global Forum on Taxation to address harmful tax practices met in Melbourne, Australia (see subsequent post on this).

Under the agreement, the first such accord by Bermuda with any OECD country other than the United States, each party may request information from the other on a specific tax matter under investigation or audit. The agreement is the second tax sharing agreement signed by Bermuda, following a deal inked in 1988 with the United States. A similar agreement was also signed last month between The Netherlands and the British crown dependency the Isle of Man.

The Royal Gazette reports that the 10,000th fund to register with the Cayman Islands Monetary Authority was previously registered in Bermuda.

The article reports that the Rutland Fund is among 25 funds (representing a net asset value of $5.7 billion) that have left Bermuda since the European Union Directive on Tax Savings was implemented on July 1 2005. The EUSD requires paying agents to submit information about the savings income of EU citizens who are not resident in the country where they hold their account. Bermuda and other jurisdictions originally viewed their exclusion from the EUSD as an opportunity to develop their fund business at the expense of included jurisdictions such as Cayman. However, the opposite has happened because Cayman was able to negotiate to exempt approximately 98 percent of its funds from the reporting obligations of the directive. According to The Cayman Islands Financial Services Association, Rutland is among some 80 funds to transfer there since 1st July 2005.

Bermuda has seen 11 new large (class 4) re/insurers open up for business this year. These include, Amlin Bermuda Ltd. (formed by its namesake, Lloyd’s largest independent insurer) and Hiscox Insurance Company (Bermuda) Limited, also being formed by a parent active in the Lloyd’s of London market. The other companies are Ariel Reinsurance Company, Limited, Ascendant Reinsurance Ltd., Castellum Re Ltd., Flagstone Reinsurance Ltd., New Castle Reinsurance Company Ltd., Arrow Capital Reinsurance Company, Limited; Harbor Point Re Limited, Lancashire Insurance Company Limited and Validus Reinsurance Ltd.  All of these start-ups are looking to raise between US$750 m. and US$1 billion, which will bring upward of US$15 b. of new capital into the Bermuda market.

Amlin, Valdius and New Castle have all been awarded an A- (Excellent) financial strength rating from the ratings agency AM Best Co. Amlin, has an initial capitalisation of US$1 billion. Amlin’s initial $1 billion capitalisation is derived from its parent company, Amlin plc, which provided the funds from a rights issue, short-term bridging financing as well as from existing resources.

Lancashire has listed on the AIM market in the UK.

The Royal Gazette reports that the wave of 2005 start-ups are gearing up to take advantage of higher premium rates when insurance policies are renewed for 2006, jockeying to be ready for the busy January 1 renewal period.

In addition the wave of new Class 4 insurers, there have several others formed with significant capital to provide reinsurance to existing insureres, such as Cyrus Re, a $500 million reinsurer, Omega and Blue Ocean Reinsurance Ltd.

RenaissanceRe Holdings Ltd. (NYSE: RNR) has announced that Neill A. Currie will take over as Chief Executive Officer and W. James MacGinnitie as Non-Executive Chairman. These appointments are effective immediately. The Company also announced the resignation of James N. Stanard, Chairman and Chief Executive Officer, in light of the ongoing investigations resulting from the Company's restatement of its financial results earlier this year. The Company continues to cooperate with regulators on these investigations.

Chief Operating Officer and Chief Financial Officer, John M. Lummis will be retiring at the end of his contract term on June 30, 2006.

The Ontario Securities Commission (OSC) has launched proceedings against Portus Alternative Asset Management Inc. (Portus), alleging the hedge fund misled investors and engaged in illegal distribution of securities over a period of two years. The OSC said it is also filing charges with the Ontario Court of Justice against Boaz Manor, the hedge fund’s co-founder, alleging he destroyed material documents and submitted misleading information to the OSC in an attempt to impede the commission’s investigation of the matter. Manor, who fled to Israel in February after the OSC began its investigation of Portus, can be prosecuted in the Ontario court without being in attendance. He faces a maximum jail sentence of five years less a day for each of the three charges and fines up to C$15 million. Manor has refused to speak with KPMG’s investigators. His Israeli lawyer, Yehuda Weinstein, has said in letters to KPMG that Manor is too sick to be interviewed.

Until regulators shut it down in February, Portus was one of the fastest-growing hedge funds in Canada, raising in excess of $800 million through its various products from over 25,000 customer accounts. Portus was then put into receivership in March amid the ongoing regulatory investigations into its sales practices, freezing its assets and leaving thousands of investors in the lurch. The OSC also filed a civil complaint against Portus Alternative Asset Management; Manor; Portus co-founder Michael Mendelson; and compliance officers Michael Labanowich and John Ogg for failing to properly collect client information, keep records and price fund units. The OSC said it will hold a hearing on Nov. 14 to consider the charges

The Royal Gazette reports that forty-five Bermuda-based investors pumped almost $1.5 million dollars into Portus before it collapsed. While the total book value from the 45 Bermuda investors is nowhere near the $725 million invested by 24,519 Canadians, Bermuda’s book value leads foreign investments in Portus, according to court documents.

The court appointed receiver KPMG LLP, an accounting firm appointed by an Ontario court to trace money invested in Portus, is attempting to untangle the Portus transactions. KPMG has recovered all but $17.6 million of investors’ money that was moved to banks in the Caribbean but says that bankruptcy would make it easier to liquidate investments and distribute all recovered assets to shareholders. KPMG said it would be next to impossible to track individual investor accounts because Portus co-mingled client funds from every product.

Portus also took about $95.4 million, or 13.3 percent of the principal invested by clients before money was put into funds, and used it to pay for ongoing operations and management fees, the OSC said. Such use of investor funds "means that the operation was not sustainable without the infusion of new funds from the investors," the OSC said in a report. Manor converted $11 million into precious metals and gems that are difficult to trace, the OSC said. At least $6.4 million of that money was transferred on June 24 from a safe-deposit box at Credit Suisse Group bank in Zurich to MID (HK), a Hong Kong company, specializing in gems, KPMG’s lawyer John Finnigan told a Sept. 9 court hearing in Toronto. That transfer occurred a day after an Ontario judge ordered Manor to return $3.1 million that was moved from the Caribbean to Europe.

The FT reports that after several years of falling premiums, losses from hurricanes Katrina and Rita are putting pressure on insurers to raise prices. Insured losses from Katrina are estimated by Risk Management Solutions, a modelling company, at between $40bn and $60bn. AIR Worldwide, a risk modelling company, estimates insured losses from Rita at $2.5bn to $5bn.

Losses from Katrina could put pressure on the so-called catastrophe retrocession market, where reinsurers buy reinsurance. This in turn is likely to put pressure on the reinsurance market.  A Lloyd’s executive reportedly suggests that in some areas rate increases could be as high as 20-30 per cent for reinsurance.

In the insurance market, prices are expected to rise for commercial property that is exposed to windstorms, but this could also spill over to commercial property in the US and internationally. Another area expected to be hard hit by both Katrina and Rita is the energy insurance market.

LOM’s name has been dragged into the Portus scandal - a Canadian hedge fund fraud scandal - in the last two months. Until regulators shut it down in February, Portus Alternative Asset Management (Portus) was one of the fastest-growing hedge funds in Canada, raising in excess of $800 million through its various products from over 25,000 customer accounts.

Portus was forced into receivership last March by the Ontario Securities Commission and has been the subject of an RCMP criminal investigation since July. The court appointed receiver KPMG is attempting to untangle the transactions in the now-insolvent hedge fund.
In a report issued last month, KPMG said Portus managers skimmed roughly $90 million in undisclosed fees, moved money around offshore in various accounts – including an account with the Cayman arm of Bermuda-based LOM - and never followed the stated investment strategy of buying Canadian securities. KPMG alleged that no shares were ever bought and the money sent to brokerages including LOM were “commingled at various times with monies” from other Portus series. The scheme involved more than 130 Portus bank and investment accounts located in Canada, the Cayman Islands and the Turks and Caicos. The funds which flowed through the LOM Cayman accounts have now been accounted for, LOM said in a statement last month.

Meanwhile, LOM’s recently reported half year earnings of $251,139 for the first half of 2005 were $1.8 million off from the $2.1 million earned in the same period of 2004.

The Royal Gazette reports that LOM Holdings Limited saw earnings for the first six months of 2005 plummet 88 percent on a sharp decline in broking revenues, LOM’s withdrawal from the US OTC Bulletin Board markets and publicity from a US Securities and Exchange Commission probe into alleged securities fraud. The Bermuda-based firm has planned further cost cutting measures “and expects staff costs will again decline” during the second half of 2005. Managing director Scott Lines said in a letter to shareholders that the company had experienced a sharp decline in broking revenues in the 2005 period.  The group lost some business due to a combination of difficult markets and LOM curtailing client activity in the US bulletin board and pink sheet over the counter markets due to regulatory scrutiny and resulting negative publicity. Ongoing adverse publicity resulting from the SEC’s probe also saw the group lose some business during the first half of 2005, he said.

LOM recently claimed to have spent US$2.75 million in the past two years on legal fees associated with the SEC investigations into alleged securities fraud involving bulletin board listed SHEP Technologies Inc., HiEnergy Technologies Inc. and Sedona Software Solutions Inc.  Brian Lines, the president of LOM since 1992 and a co-founder of the company, recently retired in a bid to help LOM facilitate a settlement, but the SEC is continuing its legal battle to force LOM and Scott Lines to comply with four subpoenas for information.

Legal fees were primarily behind a $1 million bill for professional fees in the first half of 2005, a 65 percent increase over the same period in 2004 when professional fees were $657,213. The rise sent the period’s operating costs three percent higher year-on-year, ex-commission payments and jitney fees, which are directly related to brokerage revenue. Excluding these costs, overall operating expenses fell five percent year on year due to a reduction in staff numbers.

Mr Lines said: “Management has set targets for further cost cuts by year-end and therefore, we expect staff costs will again decline during the second half of the year.” First half net brokering revenues fell 36 percent from the same period of 2004 to represent 67 percent of net revenues. Less demand for margin loans resulted in a ten percent fall in interest earnings, while lower deal flow resulted in a 44 percent decline in corporate finance revenue. Other divisions of the group also suffered with asset management fees down six percent year on year and overall net revenues sliding 28 percent. Leasing activity however continued to grow with lease income revenues rising 19 percent.

Standard & Poor’s Ratings Services has affirmed its 'AA' long-term and 'A-1+' short-term sovereign credit ratings on Bermuda, reflecting the country’s record of prudent economic management. The outlook on the ratings remains stable.

"Bermuda benefits from many years of good economic management, based upon policies consistent with its fixed exchange rate", observed Standard & Poor’s credit analyst Lisa M. Schineller.

"The fixed exchange rate, favorable macroeconomic policy mix, and well regarded tax and regulatory regimes will continue to attract the international business sector  particularly insurance — thus ensuring its continuance as the main engine of economic growth in Bermuda,” she added. According to Ms. Schineller, the government has the fiscal and external flexibility to absorb a budgeted expansion in spending.

"As a net general government creditor, Bermuda can afford to increase spending in a cautious and prudent manner," she explained. The general government deficit is projected to rise to 2.5% of GDP in 2005-2006 from less than 1% of GDP in recent years. According to S&P, Bermuda remains a global leader in the reinsurance segment and this has helped offset a secular decline in tourism. GDP growth is projected at 2.5-3% in 2005 and 2006, after registering 3% growth in 2004.

"Sound policy and a favorable, stable investment climate are expected to support growth despite increased discussion about establishing independence from the UK," noted Ms. Schineller.

"The politically controversial debate that has already begun is expected to intensify in the run-up to the next general election due by 2008," she concluded.

Bermuda’s relationship with the UK will be on the agenda as Premier Alex Scott visits London this month. Mr. Scott has said that Bermudians should vote on Independence in the next election, which is due to be called by 2008.

Meanwhile, the Royal Gazette Reports that the Chairman of the Bermuda International Business Association, Greg Haycock has called on Government to move forward with a referendum on Independence because of concerns that “lingering discussion” on the controversial topic is scaring away prospective business. BIBA hired its overseas public relations agencies to conduct a confidential audit of opinion with firms that do business in Bermuda, or promote it as a financial centre to other businesses.

Mr. Haycock, in a BIBA-issued statement in early October, said that “The message back from our sources of business has been unequivocal: a lingering discussion of Independence breeds uncertainty and is encouraging existing and potential clients to look to other jurisdictions for their business”.

Now that the Bermuda Independence Commission report is public, Bermudians should be allowed to decide the question of sovereignty “at the earliest opportunity” and that it should be through a referendum, Mr. Haycock told The Royal Gazette. He also stated that whilst the timing of a referendum could only be decided by Government, BIBA would like to see it “sooner rather than later”.

Two former bosses of Tyco, chief executive Dennis Kozlowski and finance chief Mark Swartz, have been sentenced to up to 25 years in jail for stealing more than $150m from the company.

The former Tyco executives were taken from the court in handcuffs. The judge ordered them to pay $134m in restitution. In addition, Kozlowski was fined $70m and Swartz $35m.

Kozlowski, 58, and Swartz, 44, who denied the charges, were convicted in June on a retrial. The pair have said they will appeal against the verdicts.

The Bermuda Stock Exchange (BSX) has announced that it has been granted Designated Investment Exchange (DIE) status by the UK Financial Services Authority (FSA) with effect from 1 September 2005.

Designation by the FSA is a major step forward for the BSX which last month announced it had been granted Approved Stock Exchange status by the Australian tax authorities.

The importance of the designation can be summarized as follows:

The list of Designated Investment Exchanges provides UK investors and their brokers with a reference point for those non-UK exchanges which, while not carrying on a regulated activity in the UK, have appropriate standards of investor protection;

UKauthorized firms may treat transactions effected on a Designated Investment Exchange in the same way as transactions on a recognised investment exchange. The direct consequence for firms is that these transactions will attract a significantly lower position risk requirement and reduce their costs; and

A third benefit is that UK authorized firms may take advantage of the exemptions granted under Rule 30.10 of the US Commodity Futures Trading Commission's Rules and sell investments listed on a Designated Investment Exchange to customers located in the USA.