Investors in Axiom Legal Financing Fund should be extremely concerned by the note that Cayman Islands judge Angus Foster circulated earlier this week seeking what are essentially 'affidavits of reassurance' from a dubious group that has proposed a ridiculous scheme to restructure the Fund. The irresistible impression from Foster's note is that the restructuring proposal - which should have been laughed out of court - is not only considered to be credible by Foster but might actually be the front runner over the Receivership application that is supported by the Fund's independent directors, certain investors, and the local financial services regulator, not to mention common sense.
My initial reaction upon reading Foster's note was 'this is unbelievable' but, since nothing surprises me any more about the Axiom affair, I downgraded my opinion to 'this is almost unbelievable'. I was not present at the recent two-day court hearing to determine Axiom's future so I can't comment on the quality of evidence from either side that was heard by Foster. But even if the judge heard little or no evidence that approximately £117 million was raised under false pretenses (i.e. securities fraud) and more than 80% of it was stripped out by insiders, often for services that were never rendered (i.e. common fraud), he would undoubtedly have heard that the Fund is massively insolvent and that alone should have been enough for Foster to immediately issue an order of Receivership.
That Foster should even entertain the thought that a hopelessly insolvent Fund should be handed over to a 10-week-old company (City Equities Investment Management Ltd.) that is connected to the fraudster who is most responsible for the Fund's demise (Timothy Schools) is bizarre, to say the least. If the judge ends up actually issuing an order along those lines, it will be worthy of the most extreme ridicule and will do no favors for the international reputation of the Cayman Islands, which is generally a high-quality jurisdiction, in my experience.