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March 31, 2017 at 11:01 AM
(Bloomberg) — Principal Financial Group Inc. accused the managers of Liongate Capital Management LLP of hiding investments with Bernie Madoff while negotiating to sell half of their London hedge fund to Principal.
Founders Randall Dillard and Jeff Holland, and Head of Research Benjamin Funk sold the stake in March 2013 without disclosing secret investments in the largest of several Madoff “feeder funds,” according to legal filings produced by Principal. It may be seeking as much as $66 million in damages in its London lawsuit.
Principal said it discovered the investments in late June 2015 after staff opened a locked safe at Liongate’s offices in the Mayfair neighborhood in London, with the help of the safe’s manufacturers. Inside were two files containing purchases spanning almost a decade that included investments in Fairfield Sentry Ltd., a fund linked to Madoff, Principal said. Dillard, Holland and Funk intentionally misled Principal by saying prior to the deal that they had never invested in Madoff funds, the company said in its filings.
Principal sued the men in September 2015, a month before Liongate shut as investors withdrew cash. On Tuesday, Judge Michael Burton said the case is scheduled for trial in October 2018.
A holding in a Madoff fund was “considered in the market to be a sign of imprudent or unwise investment management and existing inadequate due diligence,” Principal said. “Knowledge in the industry that a Liongate fund had invested in Madoff funds would lead to existing investors in Liongate funds withdrawing funds and would discourage new investment.”
$42 Million
The lawsuit springs from the $42 million investment into Liongate by Principal, an $18 billion investment company that offers retirement, asset management and insurance services. Dillard and Holland each owned 41 percent and Funk owned 9 percent of Liongate. The well-known London hedge-fund investor had assets totaling $2 billion when the companies completed the deal.
Dillard and Holland, who deny the allegations, said in their filings that Principal’s claim about Fairfield Sentry was brought beyond the legal time limit, and that it wasn’t a Madoff feeder fund. Dillard, who said he didn’t have access to the safe, denied that it was used for “concealing documents for dishonest purposes.”
Funk’s arguments couldn’t be obtained from the court. He denied all of the allegations via his lawyers at Mishcon de Reya. Representatives for Principal at law firm Mayer Brown didn’t return calls for comment. Holland, his lawyers at Farrer & Co., and Dillard declined to comment.
Madoff’s Funds
Madoff, who founded his investment firm in 1960, is serving a 150-year prison sentence in the U.S. after pleading guilty in 2009 to running a $17.5 billion Ponzi scheme that took money from new investors to pay old ones.
Fairfield Sentry, which said it raised funds for Madoff without knowing he was running a Ponzi scheme, filed for Chapter 15 bankruptcy in New York in June 2010, and later that year, was being liquidated under the supervision of the Commercial Division of the High Court of Justice in the British Virgin Islands.
