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Hedge fund plans to bet on Brazilian fraud cases - report

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December 8
9:54 PM 2013

Platinum Partners sees Brazilian fraud as a potential boom industry in the emerging markets. According to a Financial Times report, the New York-based hedge fund intends to make a bet in the recovery of Brazilian fraud claims valued at USD 5.1 billion. The report said the investment showed just how deep investors were willing to go to the "more esoteric areas of emerging markets in their quest for yield."

According to the report, Platinum Partners will be working with Martin Kenney, a Canadian lawyer who has a law firm based in the British Virgin Islands. Kenney, an international asset chaser, will be putting together a portfolio comprised of 10 cases which the hedge fund will invest in. Platinum Partners Portfolio Manager Jack Simony told the Financial Times that he will not be able to disclose the terms of the agreement with Kenney's law firm due to commercial and legal reasons. However, both of them told FT that hedge funds would typically lend money to law firms contingent on the partial or complete success of a case or set of cases.

Kenney told the Financial Times, "Fraud has exploded." The advent of globalization has led to the widespread use of offshore structures, including those by dishonest, bad and corrupt individuals. This was the biggest deal of its kind in the South American country, according to Kenney.

The report said it costs money to recover offshore funds, with lawyers using special court orders to compel lenders located in offshore jurisdictions to give information about fraudsters' accounts without informing the owners. Kenney says the legal fees and other costs could range anywhere from USD 1 million to USD 3 million to be able to break through a 10-layer deep structure of shell companies.

However, a successful case carries huge rewards. Kenney said, "In a fraud recovery case, if you can recover 50 per cent you are doing well."

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