LOS ANGELES (CN) – Investors in Aramid Entertainment Fund, a Cayman Islands mutual fund, claim hedge fund manager David Molner took more than $60 million in loans for himself – half of the fund’s capital – and hid it from auditors.
The plaintiffs, two other Cayman Islands companies, say Aramid was established, ostensibly, to issue loans to other companies in the entertainment business, but that Molner made loans he “never had any intention to collect upon.”
Plaintiffs Wimbledon Financing Master Fund and Stillwater Market Neutral claim in Superior Court that Molner “executed a series of ultra vires, insider transactions designed specifically to siphon funds from AEF shareholders.”
Plaintiffs say all but one of the loans are “currently non-performing or have been written off altogether,” and the full extent of Molner his co-defendants’ “looting remains unclear as a result of Molner’s ongoing refusal to allow an audit, his refusal to provide proper disclosures, and his active concealment of AEF’s true financial condition.”
Plaintiffs say that after investors complained, the defendants agreed to the appointment of (nonparty) Christopher Borde as an independent director, but “isolated Borde by keeping him in the dark and denying him access to records” and excluding him from board meetings.
Plaintiffs say the defendants have not allowed “a truly independent accounting of their books and records since 2008,” and fired auditor Ernst & Young before it could complete its 2009 audit or begin a 2010 audit, because “the insiders know their self-dealing will be exposed, as will the true value of the assets.”
Defendants have “rejected demands that they – and other directors handpicked by Molner, resign and that AEF be allowed to wind down its business in an orderly fashion,” the complaint states. It adds that the director defendants abdicated their fiduciary duties, have not “undertaken any action on behalf of AEF to collect on insider loans,” and modified the terms of some loans to “make them even more favorable to the insiders – at AEF’s expense and without any legitimate business reason to support the modifications.”
Molner is accused of misleading investors by falsely reporting that the fund’s assets were performing, and dissuading investors from redeeming their investments before suspending redemptions altogether.
When Molner told investors they could not be repaid, “he nonetheless continued to operate AEF in a self-interested manner to the detriment of AEF in violations of his fiduciary duties and solely for the purpose of benefitting himself and the director defendants,” according to the complaint.
Here are the defendants: Screen Capital International; Aramid Capital Partners; Timothy Levy; Thomas McGrath; David Bree; Roger Hanson; Thomas Adamek; Stonehenge Capital Company; and Future Capital Partners.
Plaintiffs seek at least $60 million in damages and an injunction preventing defendants from “transferring or selling assets and conducting transactions” on behalf of the fund.
Plaintiffs are represented by Daniel Petrocelli with O’Melveny & Myers.