South Ocean Resort Developer Breached Court Order

The developer of an $857 million Bahamas-based resort project breached a Bahamian Supreme Court order requiring it to hand over the books and accounting records to its development partner, an International Arbitration Tribunal ruling has found.

The Tribunal ruling found that there was "no excuse" for Roger Stein and his RHS Ventures entity to have deleted records relating to the New South Ocean Development Company's business after being ordered by both the Bahamian Supreme Court and itself to turn over, and preserve, all accounting records.

The New York-based Tribunal's ruling effectively suggests that Mr Stein and RHS Ventures were in 'contempt of court' by ignoring the February 18, 2009, ruling by former senior Justice John Lyons, who "directed that the books and records" of the New South Ocean Development Company be turned over to their partner, Seaside Heights and its hedge fund parent, within 14 days of his Order.

Following Justice Lyons's ruling, the Tribunal on February 29, 2009, also ordered both sides to keep and preserve all documents, books and records, including those kept in electronic format only.

Yet the Tribunal found: "A forensic examination showed that on March 4-5, 2009, on dates after the Bahamian court's order to turn over the books and records, and after this Tribunal's direction to keep and preserve all documents, CyberScrub software, a program designed to enable the permanent and unretrievable deletion of files, was installed on the Partnership's computer servers. The program was used to permanently delete files."

An accountant employed by Mr Stein confirmed he had authorised CyberScrub's use, that it permanently erased filed, and that it was installed in March 2009 and used on the New South Ocean Development Company's servers.

"[Plainfield] points out that these deletions of files were taken subsequent to the Order, and in direct contravention of the Order of the Bahamian court, directing the turnover of the books and records of the Partnership, and in direct contravention of the preservation orders issued by this Tribunal," the ruling added.


In their defence, Mr Stein and RHS Ventures said "mirror images" of New South Ocean Development Company's servers had been created in late 2008, and it had not been proven that any documents destroyed were not otherwise available to Seaside/Plainfield. They also alleged that the files deleted were personal, and did not relate to New South Ocean.

However, the Tribunal found: "As noted above, the Partnership and Mr Stein's personal affairs were, as was conceded by all parties, hopelessly commingled in the Partnership books and records contained on the Partnership's server and computer files. Moreover, it was well-known to [Mr Stein and RHS Ventures] that travel and expenses expenditures by Mr Stein were a major issue between the parties.

"There was no excuse for the deletion of files in the face of the Orders to which the claimants were subject for the preservation and turnover of documents." The Tribunal said Mr Stein and RHS Ventures should have approached it to protect personal or irrelevant documents, and it had already agreed to protect the same.

Similar issues were also raised by Plainfield/Seaside regarding the laptop computer of Mr Stein's accountant, Ken Kahn, which was ordered to be handed over for safekeeping and its records made available for copying.

"A forensic examination showed that on April 11, 2009, subsequent to the Bahamian court and this Tribunal's Orders with respect to the laptop, a username for K Kahn was created on the laptop, which showed no prior activity to that date. Multiple accounts were deleted from the laptop, including user accounts for Mr Stein, Leslie Ross [Mr Stein's assistant, and reception," the Tribunal found.


Arguing that there was "no excuse" for such conduct, and refusing to draw the "adverse inferences" demanded by Plainfield/Seaside Heights, the Tribunal "does find that [Mr Stein and RHS Ventures'] actions were typical of their conduct, and reflective of their general practice of doing whatever suited them, without regard to whether their actions were consistent with contractual or fiduciary obligations, or in this case obligations to the Bahamian court and this Tribunal....

"Seaside Heights had rights under the limited partnership agreement, orders of the Bahamian court and orders of this Tribunal to the books and records of the Partnership, which rights were willfully disregarded, and alone constitutes adequate grounds for the removal of RHS Ventures as general partner".

Source: The Tribune