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Mon

18

May

2009

Tax day, tax havens, and hedge funds: Murky waters in the Caribbean
Monday, 18 May 2009 20:31
by Margie Burns

As of March 16, the Securities and Exchange Commission began requiring all filers to submit their Forms D electronically on EDGAR.

Not coincidentally, March 16 was the date when former First Brother Marvin P. Bush--youngest of former president George H. W. Bush’s four sons, former finance chairman for the Republican Party in Virginia, and head of a northern Virginia hedge fund—registered the sale of more than $184 million in securities in an arm of his company headquartered in Tortola, British Virgin Islands.

Back home on Tysons Boulevard in McLean, Virginia, by March 16, the limited partnership arm of Tortola-based Winston Global Fund Ltd, Winston Global Fund LP, sold another $308 million in “Pooled Investment Fund Interests.”

The same day, Global Strategies Absolute Return Fund Ltd— fka Winston Absolute Return Fund Ltd and again located in the Tortola office of Winston Global Ltd—registered the sale of $39.5 million in pooled investment fund interests.

By the same date, a dizzying array of entities named Global Strategies Event-Driven Fund LP, Global Strategies Fund Ltd, Global Strategies Master Fund LP, Global Strategies Small Cap Fund LP, Global Strategies Small Cap Fund Ltd, and Global Strategies Small Cap Master Fund LP also had sold a total of more than $175 million in pooled investment fund shares. The companies are based in the Atlanta, Georgia, office of a longtime Bush business associate on Peachtree Street.

George W. Bush left the White House on Jan. 20. Two months later, subsidiaries and affiliates of several politically well-connected hedge funds, all with an offshore component, registered large Form D transactions.

Form D is convenient in that it requires little detail. Most securities (shares) sold in the U.S. must be registered, but Form D registration requires less disclosure than other stock sales. SEC Regulation D was intended to facilitate access to capital markets funds for small companies that might otherwise have trouble finding capital. The sellers are named, but investors are not. Previously a company could choose to submit an electronic Form D notice of a securities transaction or could submit on paper. Now the registration of those exempt sales of securities—investments—must be filed online, where they are promptly posted; filings are a priority 1 on the SEC web site.


In a holdover from the Bush administration, a large corporation or a highly capitalized global network of investment firms can avail itself of Form D.

March 16 Form D filings show that hedge funds connected to Marvin Bush had raised over $1,612,000,000 ($1.6 billion) by filing deadline. More Form D filings from March 12 show another $7.8 billion raised by Bush companies, companies directed by Bush co-directors, or spin-off companies. The total is almost $10 billion raised by Bush-connected hedge funds.

Most of the money was raised offshore, in large investments in the Bush-connected firms located on Grand Cayman and Tortola, British Virgin Islands. The islands are widely known to be tax havens for high-net-worth investors.

A few examples indicate the scale of transactions, too numerous to list fully. Bush’s firm Winston Global Fund Ltd, based in Tortola, raised more than $184 million. Back home on Tysons Boulevard in McLean, Virginia, Bush’s Winston Global Fund LP raised $308 million around the same time.

Global Strategies Absolute Return Fund Ltd, in the Tortola office of Winston Global Ltd and formerly named Winston Absolute Return Fund Ltd, sold $39.5 million in investments. Global Strategies Fund Ltd, on Grand Cayman, raised $$11,966,972. Global Strategies Small Cap Fund Ltd, on Grand Cayman, raised $$11,062,005. Global Strategies firms, including Global Strategies Event-Driven Fund LP, Global Strategies Master Fund LP, Global Strategies Small Cap Fund LP, and Global Strategies Small Cap Master Fund LP, raised a combined $175 million. The onshore Global Strategies firms are located in the Atlanta office of a longtime Bush associate on Peachtree Street.

What ‘skittish investors’? The brother of an ex-president can still find customers

The network of hedge funds shares directors as well as offices.

Two of Bush’s fellow directors at Winston Global, David Bree and Don Seymour, are based on Grand Cayman. March 16 filings show 38 Form D transactions for David Bree and 18 for Don Seymour. March 12 filings show four Form D transactions for Bree and two for Seymour.

Hedge fund shares bought by investors are called, for SEC purposes, “pooled investment fund interests.” Bree and Seymour as directors registered the largest transaction on March 12 for an entity named Diamondback Offshore Fund Ltd, on Grand Cayman: $4,505,725,935.

Next largest was the March 13 amended filing by Boronia Diversified Fund Ltd, where Seymour is a director: $1,072,967,251. Another partnership, Boronia Diversified Fund LP, also amended its March 12 filing to record $163,548,721. As noted, all three Boronia hedge funds share a Grand Cayman office and a co-director of Marvin Bush’s from Winston Global.

Boronia executive Neil Power, in Sydney, Australia, returned a call for comment. Communicating clearly seemed difficult; Power, very courteous, had trouble understanding my name, replied to a question about securities by saying that the firm has made no such “sales of assets,” and referred to “Form B” (“D” as in dog, I clarified helpfully--“oh, D as in dog”). Saying that his position would make him knowledgeable about such transactions, he disclaimed knowledge of the Form D transactions.

In a follow-up email after being sent the SEC filings, Mr. Power said, “These filings relate not to a securities sale from our portfolio but to us registering with the SEC every time a “sale” in a new state has occurred, or in other words every time we have received an investment from a particular US state for the first time. I think the below filings were us playing catch up and registering all previous sales, as we had not previously been keeping up to date with the filings.”   Power declined to answer questions about potential investments.

If Power’s guess is correct, then perhaps the $10 billion in proceeds registered on March 12 and March 16 was Bush-related firms playing catch up. (And some people say change has not come.)

Spokespersons of other companies contacted have been unavailable or have not returned calls.

Under SEC regulations, the Form D notice must be filed “within 15 days after the first sale of securities in the offering, not counting weekends or holidays.” So the proceeds indicated on March 16 and March 12 could have been raised back to February 27 or February 25.

In any case, the network of relationships indicates that either the quiet transactions or the filings were coordinated, or both.

The amounts and transactions mentioned above are only part of the picture.

Bree and Don Seymour are also both listed as directors in Emerging Sovereign Offshore Fund Ltd, which on March 16 sold $358,685,792 in shares to 73 investors required to put up at least $1 million each. Another Cayman hedge fund with Bree and Seymour as directors, WRA Investments Offshore Fund Ltd, sold $138,133,090 the same day to 35 purchasers with the same minimum. A third similar entity named Brightline Capital Offshore Fund Ltd, with Bree and Tammy Seymour as directors, did a mere $5,700,000 in Form D business the same day.

Don Seymour, Bush’s other Winston Global co-director, did 18 Form D sales on March 16, including Rock Creek Potomac Fund Ltd and Rock Creek Georgetown Fund Ltd. One sizeable transaction was that of an entity named Highly Managed Offshore Access Fund Ltd, which sold $393,150,859 on March 16. Another Seymour entity, Highly Managed Offshore Access Fund (ERISA) SPC, sold $10,156,000 that day.

The nature of directorship in companies that exist mostly on paper or on a plaque in some beautiful island is open to debate. The director of an offshore investment firm is not exactly a plant manager and sometimes more resembles what would be called a Registered Agent (RA) stateside, so far as daily plant-managing responsibilities are concerned, those being nil. Probably some directors of smaller entities lacking the clout of a former First Brother resemble notaries public as much as they do attorneys or accountants. They have sufficient authority to keep the firm’s paperwork in order with the island government. But they are directors for the purpose of SEC filings.

Nonetheless, these unregulated transactions seem to have a lot of vibrancy offshore. Evidently huge amounts of ‘liquidity’ can be raised in the British Virgin Islands and the Caymans even when we read every day about the skittishness of investors unwilling to wet their toes in American stock markets. That skittishness is used to justify enormous taxpayer bailouts for U.S. banks and other financial entities, to induce them to invest in lending in the U.S. housing, education and transportation sectors—but the brother of an ex-president can still find a remarkable splash of investor energy, even in Tortola.

March 12 another big day for Form D registrations

A hedge fund sharing David Bree as director named Telluride Capital Fund Ltd raised $377,128,085, registered on March 12. The same day, Pennant Windward Fund Ltd sold $574,918,743, and Pennant Offshore Partners Ltd registered $274,714,754, both directed by Bree. That’s a total of $5.7 billion on March 12 for the Grand Cayman branches directed by another Winston Global director.

On the same date, the home branches of the same hedge funds—Diamondback and Pennant hedge funds onshore—also registered Form D transactions. Diamondback Partners LP of Stamford CT sold $780,604,770, with a minimum of $5 million required from each purchaser. Also on March 12, four other Pennant funds—of Chatham NJ, director Alan P. Fournier--registered over $916 million in Form D investments.

Again, the hedge fund transactions mentioned share an offshore dimension. Broadly the money trail is always the same--from island base to shared personnel to shared company name back in Dallas or Atlanta or Stamford CT or Chatham NJ.

Tortola: Only a short hop from Dallas
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