3 Degrees Asset Management, asked by Singapore’s central bank to shutter its operations following allegations that founder Moe Ibrahim diverted assets, lost a legal bid to challenge the regulator’s order, according to two people familiar with the decision.
3 Degrees’s application to overturn the decision by the Monetary Authority of Singapore and the finance minister to withdraw its exempt fund manager status was rejected by the Singapore High Court, said the people, who weren’t authorized to speak publicly about the decision. Justice Belinda Ang’s minutes from the Feb. 23 closed hearing aren’t publicly available.
The Monetary Authority probed Singapore-based 3 Degrees after one of its funds sued Indonesian-born Agus Anwar in 2008 to recover at least $40 million of debt. Anwar then claimed that Ibrahim diverted $6.7 million from the fund to 3 Degrees, which is wholly owned by Ibrahim. Withdrawing 3 Degrees’s exempt status would send a “strong message of deterrence’ to others in the industry, the regulator said in court papers.
Ibrahim and Ronald Falls Jr, the hedge fund’s general counsel, didn’t respond to three e-mails seeking comment. They weren’t available for comment, according to a woman who answered a call to 3 Degrees’s office and gave her name only as Alicia. A spokesman for Singapore’s central bank, didn’t respond to two e-mails and three calls to her office requesting comment.
Risk Management Issues
‘‘Regulations won’t go away,” said Han Ming Ho, a Singapore-based partner who advises hedge funds at law firm Clifford Chance LLP and wasn’t involved in the case.
“Fund managers will have to recognize and be comfortable with” risk management and due diligence issues, he said.
3 Degrees, which focuses on distressed debt and managed about $215 million as of Oct. 5, denied the allegations in its lawsuit. The withdrawal of the fund’s status was put on hold, pending the outcome of yesterday’s court hearing.
Even if there was such a transaction, it was neither “illegal or improper,” 3 Degrees had said in its court filings. The hedge fund manager had said a fine would have been an appropriate punishment.
3 Degrees sued its former lawyer Ng Wee Chong in a separate lawsuit, claiming he had failed in “handling all legal aspects” related to the transactions. Ibrahim had called Ng a “disgruntled employee” who was fired on his honeymoon.
Ibrahim spent seven years at Lazard Freres & Co. before founding 3 Degrees, which focuses on distressed debt. He was named one of the 20 Rising Stars of Hedge Funds by trade publication Institutional Investor in 2007.
The regulator said in a July 14 letter to 3 Degrees that there was a “clear conflict of interest” in the way the loans were structured to mask the actual borrower and avoid disclosure of a related party transaction, according to court papers it filed.
Ibrahim abused his position of trust and authority, the central bank said in its letter. Allowing 3 Degrees to continue to operate would send the “wrong signal” to the financial industry, the regulator said.
Fund managers with fewer than 30 qualified investors are exempt from licensing and business conduct requirements under Singapore’s Securities and Futures Act. 3 Degrees has stopped accepting new clients, according to the lawsuit.
3 Degrees said revoking the exempt status was “draconian” and was based on “illogical, irrational and unreasonable” statements and assumptions, according to its lawsuit.
“The authority would appear to be sending out a signal that all it takes are strong allegations from a desperate, debt-ridden party without conclusive evidence to corroborate these allegations or a disgruntled employee for a withdrawal of an exemption or license to occur,” Ibrahim had said in court papers.
The case is 3 Degrees Asset Management Pte v Attorney General and Monetary Authority of Singapore OS874/2011 in the Singapore High Court.