Bloomberg News

Hedge Fund 3 Degrees Sues Ex-Lawyer After Order to Shut Down

November 01, 2011

(Updates with delay in exempt status withdrawal in eighth paragraph.)

Nov. 1 (Bloomberg) -- 3 Degrees Asset Management, ordered by Singapore regulators to shut down over allegations that founder Moe Ibrahim diverted assets, sued former lawyer Ng Wee Chong, claiming breach of duties.

3 Degrees claims Ng, 37, failed in “handling all legal aspects” related to two separate loans of $6.7 million each in November 2007, according to a lawsuit filed with the Singapore High Court on Oct. 28.

The Monetary Authority of Singapore and the finance minister decided to withdraw 3 Degrees’ exempt fund manager status effective Nov. 9 after Indonesian-born Agus Anwar alleged that the loans were “sham” transactions used by Ibrahim to divert funds to himself. The hedge fund, which managed about $215 million as of Oct. 5, has denied the allegations and is seeking to overturn the regulator’s decision.

Ng said yesterday he wasn’t aware of any lawsuit filed against him. He declined to comment on the 3 Degrees allegations.

Ng, who was fired from the hedge fund in March 2009, had said in a statement to the central bank that the two loans were connected, according to court papers.

Some loan negotiations between 3 Degrees and Anwar’s agent were done through Google Inc.’s Gmail accounts instead of through official company e-mail addresses as Ibrahim “didn’t want to create a trail,” Ng said in the October 2010 statement to the authority.

‘False Allegation’

“All transactions were commercial, properly documented and arm’s length in nature,” Ibrahim said. “It’s a false allegation by a disgruntled former employee who’s upset because he was terminated during his honeymoon.”

Ibrahim said the Nov. 9 withdrawal of the exempt status has been put on hold, pending a Nov. 14 court hearing.

Ibrahim claimed in court papers that he had no knowledge of the Gmail correspondence between Ng and Anwar’s agent. Anwar, who was sued by one of 3 Degrees’ funds in 2008 to recover at least $40 million of debt, borrowed $6.7 million from the fund.

Statements by Anwar and Ng “should be treated with utmost caution,” 3 Degrees said in court papers. Ng has “much to lose” by agreeing with the version of events given by Ibrahim and Esther Tan, head of the fund’s operations, according to court filings.

As 3 Degrees’ general counsel, Ng had the duty to ensure the hedge fund followed rules and regulations and acted in the fund’s best interest, according to the lawsuit.

“There’s no reason or incentive for Ng to structure the loans in that manner without Ibrahim’s approval,” the central bank said, according to court papers.

Distressed Debt

Ibrahim had 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.

Even if there were such a transaction, it was neither “illegal or improper,” 3 Degrees said in its court filing.

Ibrahim abused his position of trust and authority and allowing 3 Degrees to continue to operate would send the “wrong signal” to the financial industry, the central bank said in its letter.

Hedge funds have come under increased scrutiny after the collapse of Lehman Brothers Holdings Inc. in 2008, while volatile trading conditions have made it harder for them to raise capital. Assets managed by Asian hedge funds fell 23 percent to $135 billion in August from a peak of $176 billion in 2007, according to Singapore-based Eurekahedge Pte.

“In light of recent scandals in the fund management industry in other jurisdictions, the withdrawal of the appellant’s exemption status will send a strong message of deterrence to others who may be tempted to behave in this way,” according to the watchdog’s July 14 letter.

The case is 3 Degrees Asset Management Pte v Ng Wee Chong S769/2011 in the Singapore High Court.

--Editors: Lars Klemming, Joe Schneider

To contact the reporter on this story: Andrea Tan in Singapore at atan17@bloomberg.net

To contact the editor responsible for this story: Joe Schneider at jschneider5@bloomberg.net


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