Investor To Save South Ocean

The $867 million South Ocean redevelopment's new managing partner yesterday pledged to "end the impasse in this project" for the benefit of the Bahamian people, after an International Arbitration Tribunal ruling blasted its predecessor for leaving the development in a "shambles", ordering it to repay almost $3 million.

In a hard-hitting ruling, the three-man review panel ordered RHS Ventures and its principal, Roger Stein, to repay more than $2.9 million to the New South Ocean project and its new managing partner, Connecticut-based hedge fund Plainfield Asset Management, and its Seaside Heights investment vehicle.

The Tribunal ordered Mr Stein and RHS Ventures to reimburse the project with some $1.262 million, which had allegedly been used to fund his personal expenses, including "$761,000 for villa and yacht rentals and expenses", and $251,000 for private plane travel".

And RHS Ventures and Mr Stein were ordered to pay a further $558,186 for "overpayments of development fees and acquisition fees", with another $1.1 million required to cover a sum "improperly credited" to RHS Ventures' equity account. The Tribunal ruled that Mr Stein and RHS should "earn" their equity.

Mr Stein did not respond to Tribune Business's e-mailed list of questions, having earlier sent a message saying he was too busy to take a phone call, but in a one-line statement issued earlier, he and RHS Ventures said: "We believe this ruling is unfair and unfounded, and we will explore every possible option to inject the truth into this matter."

Steven Segaloff, Plainfield's deputy general counsel, and managing director for Seaside Heights and Seaside Heights GP, the latter of which holds its investment in the South Ocean project, told Tribune Business in a statement that the hedge fund had some $80 million invested in the southwestern New Providence development to date.

He said: "The decision is an overwhelming victory for Plainfield and Seaside Heights, and the decision speaks for itself.

"After careful consideration, the Arbitration Panel (which included two former judges and a highly-regarded international arbitrator) validated all of the claims by Seaside Heights against Roger Stein and RHS Ventures, including RHS Ventures' removal as general partner for willful misconduct. We had always felt that the evidence was overwhelming in support of the removal of Roger Stein, and we are pleased that the Arbitration Panel fully endorsed our position."

Mr Segaloff added: "Seaside Heights fully recognises the importance of the New South Ocean project to the people of the Bahamas. To date, Seaside Heights has invested more than $80 million in this project.

"Unfortunately, as we alleged (and as the Arbitration Panel found), the project was grossly mismanaged. Since a new general partner has been installed, we look forward to working cooperatively with the Bahamian government to end the impasse in this project, recognising the current difficult economic environment."

It is thought that Plainfield/Seaside Heights will now seek a smooth transition from RHS Ventures to themselves as general/managing partners, but then require some time to assess what they have and evaluate the best options for taking the South Ocean project forward.

One issue to be settled is the relationship with the remaining investment partner, the Canadian Commercial Workers Industry Pension Plan (CCWIPP), and its I. F. Propco investment vehicle, which have been attempting (unsuccessfully to date) to foreclose on the $94 million mortgage debentures they hold on the development. Plainfield is also not facing any claims from investors in the US.

Plainfield/Seaside have now filed an application with the New York State Supreme Court for the arbitration panel's aware to be recognized and enforced.

In its application, Plainfield/Seaside said that as a result of entering into a limited partnership agreement with Mr Stein and his companies, they had agreed to invest $43 million in equity into the New South Ocean project, plus a further $57 million in debt financing during the first year.

Alleging that it had invested some $100 million in the Bahamian resort development, Plainfield/Seaside alleged: "By summer 2008, the partnership was in financial crisis. Stein had failed to obtain necessary senior debt financing. Without senior debt financing, the resort could not be built and the land for the project could not even be purchased.

"Moreover, it became clear to [Plainfield/Seaside] that [RHS] did not have proper controls over the partnership's finances and accounting records......"

Plainfield/Seaside alleged that its auditor "discovered numerous red flags, including improper related party transactions, use of funds to pay family member expenses, unexplained cash transfers and lack of supporting documentation for financial transactions.

"When Seaside Heights, concerned about how its investors' money was being used, exercised in September 2008 their contractual right to see the books and records controlled by Stein, it discovered a mass of unexplained and untraceable payments and costs.

"The audit revealed clear evidence of financial improprieties, and the lack of cooperation by Stein and his team further confirmed the conclusion that the general partner willfully breached its fiduciary and contractual duties."

Mr Stein and RHS Ventures had alleged breach of contract, breach of fiduciary duty and a 'loan to own' scheme by Plainfield/Seaside, seeking $59 million in damages, but all their claims were dismissed by the arbitration panel.

Source: The Tribune
Last Updated on Friday, 23 April 2010 06:38