Ottoman Fund Limited (The) Replacement: Letter to Shareholders (7703E)
12 2월 2015 - 10:43PM
UK Regulatory
TIDMOTM
RNS Number : 7703E
Ottoman Fund Limited (The)
12 February 2015
The following replaces the Letter to Shareholders announcement
released at 12.29 under RNS number 7661E. In the second paragraph
"to our Jersey bank accounts" has been replaced by "to Ottoman bank
accounts". In the eighth paragraph, "and prosecute all available
criminal sanctions in connection with the matter" has been added.
The full, amended release appears below.
12 February 2015
The Ottoman Fund Limited ("the Company")
The following letter will today be sent to the Company's
shareholders:
Dear Shareholders,
I would like to take this opportunity to address the background
to BDO LLP's forensic investigation as well as the primary drivers
affecting the Company's ability to complete the return of sale
proceeds to shareholders.
On 11 December I received a phone call from Turkey informing me
that our local statutory accountants had raised questions about a
large invoice our former Chief Financial Officer in Turkey had
presented for payment in connection with the sale of the Riva asset
and asking whether he was entitled to this payment (he wasn't). The
following day I received further information from Turkey that
suggested that this invoice was not an isolated event, but the tip
of an iceberg. I flew out to Turkey that weekend with my colleague
Andrew Wignall, the Chartered Accountant on our board. Andrew and I
met with our lawyers, the Turkish affiliate of White & Case,
the international law firm, as well as our local accountants, local
investment advisor Civitas Property Partners, and Garanti Bank,
where both our local subsidiaries and the former Chief Financial
Officer had accounts. We also met with the former Chief Financial
Officer, who admitted he had taken money but believed he was
entitled to it - for reasons that he could not enunciate. While in
Turkey and acting with the assistance of our local lawyers and
property advisor we located over US$1 million of embezzled funds in
an account our former Chief Financial Officer maintained at Garanti
Bank and obtained the return of that money to Ottoman bank
accounts.
In late December we retained the forensic division of BDO LLP in
London and through them their forensic accounting partner in Turkey
to review the books and records of our Turkish subsidiaries to
determine amounts taken by our former Chief Financial Officer or
paid to legal entities he controlled. BDO determined that a net
amount of the Turkish Lira equivalent of US$1.35 million (at
today's exchange rates) had been paid out.
By way of background, our Chief Financial Officer had been
introduced to us by our largest shareholder, who had used him on
other projects in Turkey. He is experienced in both Turkey and the
west and is a fluent English speaker. He is a CPA licensed in the
State of New York as well as Turkey. He had been affiliated with
one of the large international accounting firms, was a partner at
the Turkish office of another international accounting network, and
had been a lecturer in accounting at one of the major Turkish
universities. In short, he appeared to be the ideal person to run
Ottoman's financial operations in Turkey - he was introduced and
vouched for by a shareholder with a large stake in the Company; he
had first rate credentials and experience; and he had complete
fluency in both Turkish and English.
He occupied a position of trust in that he was our Chief
Financial Officer on the ground in Turkey, and, in accordance with
requirements of the Turkish Commercial Code when he was appointed,
as a Turkish resident he was a director and shareholder of our
Turkish subsidiaries. He abused that position of trust by
embezzling - the exact amount is now uncertain because a small
portion may have been legitimate business expenses. According to
BDO, he took the money by obtaining cash advances using internet
banking; these cash advances were matched in the companies' books
and records by invoices in respect of services supposedly provided
by the former Chief Financial Officer. He also used a credit card
in the name of one of the Company's subsidiaries for personal
expenses such as international travel and gifts.
The Company had multiple layers of accounting controls,
including a local bookkeeper, a local accounting firm - the
well-respected Arkan & Ergin JPA International, a Jersey based
auditor (PWC Jersey who conducted their audit in conjunction with
the Istanbul office of PricewaterhouseCoopers), and our Jersey
based administration company. How our former Chief Financial
Officer managed to circumvent these controls is now unclear but
will likely be uncovered in due course.
The Company's Response to the Embezzlement
We are taking all possible steps to force the return of the
Group's money unlawfully taken. Immediately after learning of the
embezzlement, we instructed our lawyers in Jersey and London to go
to the Royal Court of Jersey and obtain a worldwide freezing order
over the wrongdoer's assets. Our lawyers and I worked round the
clock to prepare the papers ahead of the Jersey court's closure for
Christmas and on 24 December, Christmas Eve, we obtained the
freezing order.
Following the Christmas and New Year period, Andrew Wignall, our
London corporate counsel, our Jersey administrator and I returned
to Turkey. We met again with the former Chief Financial Officer but
were unable to reach agreement as to his returning all of the money
he had unlawfully taken. We also met with our Turkish civil
lawyers, accountants at both Arkan & Ergin and PWC and retained
a criminal lawyer to commence criminal proceedings against the
former Chief Financial Officer. They are now doing the necessary
preparatory work to commence legal proceedings in Turkey to recover
money unlawfully taken and prosecute all available criminal
sanctions in connection with the matter.
We still have cash in Turkey that we will need to upstream to
Jersey so we can dividend it out to shareholders. We are aware that
shareholders would like to know exactly what they will likely
receive but at this point such questions are premature. We need to
restructure our local legal entities to remove the former Chief
Financial Officer and to ensure that no one else will have the
authority to do what he did. There are complex Turkish tax and
legal issues that will need to be resolved before further funds can
be upstreamed and paid out as dividends. We and our legal and
financial advisors are working on resolving these issues as a
matter of urgency but the Turkish legal system and local business
practices have many complexities that are unusually time consuming
to resolve. I will update you as matters progress and am hopeful
that we can publish an updated NAV in connection with the release
of our accounts later this month.
* * *
It is unfortunate that the actions of one unscrupulous
individual have marred what we as a board have accomplished.
Ottoman is one of the few relative success stories in the AIM
overseas property sector. In the period I have been Company
Chairman, we have realized virtually all of the Company's assets at
sensible prices. We have cut expenses by over two thirds as
compared with the structure we inherited. Shareholders who bought
in the offering, prior to the global financial crisis, will have
lost less than if they had invested in many similar companies.
Those who bought in following the board changes that installed me
as the Company Chairman will have made quite a nice return on their
investment. The embezzlement is extremely disturbing but, in
financial terms, its impact will likely be limited. We are hopeful
that in due course all of the embezzled money that can be recovered
will be recovered, the Group's cash will be upstreamed and
distributed, and that the wrongdoer will be punished.
I will keep you apprised of our progress.
Very truly yours,
John D. Chapman
Chairman
The Ottoman Fund Limited
- ENDS -
N+1 Singer +44 (0)20 7496 3000
James Maxwell / Ben Griffiths
Company Secretary +44 (0)1534 504 700
Vistra Fund Services Limited
This information is provided by RNS
The company news service from the London Stock Exchange
END
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