CL-2020-000117 - [2025] EWHC 1620 (Comm)

Between June and September 2016, Falcon paid €12.5m to each of two Luxembourg-registered companies, Median Trust SA (“Median”) and Viceroy Industrials SA (“Viceroy”), in each case for bonds issued by those companies (respectively hereafter “Median Bonds” and “Viceroy Bonds”). The circumstances of these payments and what became of those sums is set out in Mr Holt’s report which in turn is based on an analysis of the financial documents that are available being mainly those supplied by the Swedish prosecution authority. I accept this analysis in the absence of any alternative and because it is consistent with the contents of the contemporaneous documentation referred to by Mr Holt. At the time when these investments were made, both Median and Viceroy were in default and had entered insolvency procedures. Indeed, both had been in default under the bonds since May 2016.

In the result Falcon disposed of the bonds on 7 (Median) and 22 (Viceroy) November 2017 to Abalone Asset Management Limited (“Abalone”) by Falcon’s competent person KPMG for a total of €1m thereby suffering a net loss of €24m. The bonds were sold by Abalone to Mr Klas Göran Karlsson, who was a board member of the 12^th and 13^th defendants from 8 September 2017. He purchased them for €752,850 each on 15 November (Median) and 28 November (Viceroy) 2017. Mr Holt explains how the funds used by Mr Karlsson originated from, or are connected with, the same funds which Falcon had used to initially acquire the bonds in June and September 2016 by reason of various interconnected transactions and parties. It is not necessary that I set out in detail how this has been made good because it has not been disputed. In summary however, those funds originated from the 12^th defendant either directly or indirectly – see paras. 3.9-3.27 of Mr Holt’s third report and the contemporaneous documentation there referred to. Mr Karlsson then sold them in January 2018 (52 (Median) and 38 (Viceroy) days later) for €4,992,400 each. It is now apparent that this was orchestrated by Mr Serwin – see his email to Mr Karlsson of 1 November 2017. The sums so received were paid away as summarised in table 3 of Mr Holt’s third report. Again it is not necessary that I set out the detail. It is sufficient to note that the recipients included €3m transferred to an Estonia-registered company that is beneficially owned by Mr Karlsson and further sums appear to have been used either directly or indirectly to enable Mr Karlsson to purchase a property in Spain.

TAM provided what appears to be advice to Falcon to purchase the Median Bonds using its Balanced Fund in a document entitled “Final Security Analysis Summary” in which it described the bonds as being “Bearer Debenture Bonds” and the rationale for investing in them as being an opportunity:

“… to invest in and replicate the performance of a hedge fund called DB8 Opportunity Fund. DB8 is an investment vehicle that focuses on investments in the German residential and commercial real estate market, targeting primarily opportunities in Germany but is also selectively investing in other European countries.

It offers an opportunity to gain exposure to this high-growth/untapped market that should result in above market average returns. Investments will include the whole chain of possible investments such as equity, secured and unsecured senior and junior loans as well as mezzanine loans and convertibles but also direct holdings. DB8 will also consider investment in Private Equity and similar investments.”

The document appears to be dated or to be valid for a date range between 13 and 23 June 2016. It took no account of and did not mention that Median and Viceroy had been in default since May 2016, that it was not known in the market whether and if so when any further payments would be made under the bonds. The only risk factors identified were “Macro Economics Risk, Structural Risk, Counterparty Risk”. Whilst it would appear that the relevant information was drawn to the attention of Falcon by an email from the Bank of Valetta dated only 5 January 2017, it is to be inferred that the information would have been available to TAM and either they obtained and ignored it or did not seek it. It is elementary that before buying a bond paying periodically against coupons, enquiries can and should be made concerning payment history. More generally the recommendation contains no reference to the underlying asset and implies in the section quoted above that the investment would be an indirect investment into the DB8 Opportunity Fund. It does not disclose that there would be any exposure to unsecured investments or quantify the expected returns (to which the enquiries concerning past performance referred to earlier would have been relevant). It did not consider the amount to be invested or the unit price. The document concluded with a “Portfolio Managers recommendation” to buy.

A similar document was prepared by TAM in relation to the Viceroy bonds. That document very largely followed the pattern adopted by TAM in its advice concerning the Median Bonds. The document appears to be drafted or to be valid for a date range between 13 and 23 June 2016. The description of the opportunity represented by the Viceroy Bonds was described as being:

“… the opportunity to invest and replicate the performance of a hedge fund called DB7 Prime Fund. DB7 Prime Fund applies a rather unique investment strategy combining highly liquid financial instruments (Futures & Options) and currencies (Majors) with special situations in listed equity. While the liquid part of the portfolio is based on a unique systematic proprietary approach that has been developed over years using pattern recognition methodology, the equity part of the portfolio is based on the recognition and identification of special situation opportunities among mainly listed European small- and mid-cap companies.”

The investment was said to be suitable for investment in Falcon’s Balanced Fund because:

“Given the low return on Money Market certificates, DB7 Prime Fund is offering a very attractive alternative as the Fund portfolio is designed to generate a stable absolute return over the long-haul by prioritizing capital preservation. This is a balanced strategy.”

This document too culminated in the “Portfolio Managers recommendation” to buy. The document suffers from all the criticisms I have set out above concerning the Median recommendation.

In fact, as Mr Holt demonstrates, none of this was correct. The assets in which Median and Viceroy were invested were a bond of €12.3m each in a Luxembourg registered company, Soparfi Palatine SA (“Soparfi”). As is apparent from the summary set out above there is no mention anywhere in the recommendations set out above that this was so. Each of Median and Viceroy paid €12.3m to Soparfi. Between June and September 2016 Soparfi Palatine SA paid a total of €24.6m to the Cayman Islands incorporated companies DB8 Opportunity Fund (€12.3m) and DB7 Prime Fund (€12.3m). Those funds were then disbursed to entities ultimately controlled by Mr Serwin and his associates. Those disbursements included: