SETTING THE RECORD STRAIGHT -DST

Setting the record straight.

Dear Depositor,

The HNW group (now renamed the MTFK) has consistently undermined the efforts of the DAG teams, whether the London Team, Legal Team or (as it now is) the DST.

At the court hearings on 29th January and 19 February 2009, we believed that we had a real chance to kill off the Scheme of Arrangement, trigger the liquidation and DCS and press for a 100% solution. Our experience in dealing with the Isle of Man Treasury clearly indicated that they would not negotiate a better scheme or give effect to any of the other higher-end solutions proposed by DST. However, the HNW group insisted, against all the legal advice we received and passed on to them, in petitioning the court to continue the development of the SoA (at our expense) believing DST to be wrong in their assessment of IoMT’s intentions. We had therefore to attempt to present a united front by including their letters in our submissions, but it regrettably gave the impression of a divided Depositors’ Action Group and so assisted the IoMT to secure 3 more months of delay before liquidation was finally forced upon them. You may remember Diver’s disappointment at the time with the HNW group’s actions.

There have been numerous occasions when HNW’s activities knowingly cut across the activities of DAG. Another example was the time when DST had briefed UK MPs and the TSC for the campaign by which it was planned to facilitate an inter-governmental loan for IoMT so that it could pay out all depositors. HNW then sought DST comments on a proposed letter to IoMT which proposed excluding bondholders and all other non retail depositors from benefiting from such an arrangement. DST strongly urged HNW not to send the letter as we had a meeting scheduled with IoMT for the following day. HNW did so anyway.

The infamous 9 letters provides yet another example. These almost identical letters, several of them written by the (now) HNW committee members, praising the IoM Treasury and supporting its efforts to develop the SoA in January 2009, were exhibited to the Treasury’s affidavit. The Treasury used them to help secure the long delay in liquidation and activating the DCS. The affidavit and its exhibits may be found HERE

These and similar actions have only worked to undermine the perception of DAG as a cohesive Action Group. Additionally the HNW group have consistently resisted DAG legal fundraising efforts since around January 2009, notwithstanding our considerable but costly and hard-won progress in the legal arena. This resistance has hampered the DST’s efforts on the legal front. We do acknowledge that certain individuals within the HNW group have donated, but are puzzled as to why they pay for Edwin Coe’s advice and then act in a way contrary to it.

Through DST efforts, DAG is recognised by the courts, legal representatives, several governments, financial institutions, the media and the public, so we were relatively confident that we could and should secure a minimum of two seats on the creditors’ committee (committee of inspection). Furthermore we believed that if we could demonstrate that we were a cohesive force and unite HNW and DAG once more we could secure three seats between us. DST made an offer to Gavin Brake, in an attempt to unite DAG and HNW, that he join DST and that his nomination for the creditors’ committee be made as a representative of DAG, because we believe there is nothing to be gained by the division that has been created except to weaken the position of depositors as a whole. However, the HNW group demanded its own seats and a number at least equal to the number of seats sought by the DST, despite their having only around 150 members with roughly £70 million total value (their proxy votes for the first creditor meeting and that for the SoA being approximately the same number and value and representing their entire membership). DST, on the other hand, represents the full DAG with some £240 million in value. For the SoA vote DAG held a proxy of over 1000 and approx. £145million, and at the creditors’ meeting a proxy vote of approx 350 and £75m by value (in spite of many of its members being eliminated from voting by having applied for the DCS). It should also be noted that despite their title, HNW do not by any means even represent all depositors with very large savings.

HNW now claim that they had reached a deal with the life companies for 2 DAG and 2 HNW places on the creditors’ committee. However, during DST’s liaison with Life Companies they expressed support for 2 DAG places and a place for one of the two Manx resident candidates. With the further proposed 2 seats for the Life Companies themselves and the seat that they proposed for the pension fund, if the HNW claim to have negotiated 4 places for DAG and HNW depositors were true, that would have resulted in 8 people on a 7 person committee (neither Manx resident was a member of HNW or DAG).

The supposed deal that HNW say they had was never a realistic possibility, much less a guarantee, and yet DST have been attacked by email and on the forum site for allegedly turning down the HNW offer. DST have also received an email from Gavin Brake demanding the resignations of our members for this so-called failure. Notwithstanding the conduct of the HNW group, DST stuck to its principles and tried to secure for them the number of seats that we thought they merited, namely 1, based on the size of their proxy vote and the number of their members. We supported the one person who amongst the 3 HNW candidates we thought more likely than the other HNW candidates to act in the interests of all depositors. We also supported two seats for the life companies as we had told them we would.

Prior to the creditors’ meeting, DST had prepared a path for the better control of PWC as liquidators, because 80 - 90% of you had unequivocally expressed your unhappiness with their performance in 4 separate recent polls. For example, even the Deputy Deemster was surprised that PWC decided not to claim its costs from the Treasury rather than the company (in effect our savings). DST met with a number of accountancy firms and selected BDO Stoy Hayward, another top ten accounting firm but not one of the “Big Four”. DST’s strategy was to gather as many proxy votes as possible and then allow BDO to quietly work out a compromise with PWC which would result in BDO being appointed as conflict liquidators. In attempting to reach a consensus with HNW, DST shared this strategy with them and gave them full access to BDO Stoy Hayward. Unfortunately Gavin Brake then informed us, and of course the life companies also, that HNW did not support DAG in this initiative and finally broadcast, in an email to all registered users of the DAG website whether depositors or not, and whether friendly or not, HNW’s intention to support PWC and oppose a conflict liquidator.

This support by HNW for PWC eventually took the rather extreme form of Gavin Brake interrupting our Robert Coates in support of PWC, when Robert raised the matter of PWC’s failure to provide to creditors either of the two documents they had said they would provide before the creditors’ meeting (JDOR’s report and Directors’ statement of affairs). Hardly in depositors’ interests, we believe.

The subsequent suggestion from HNW that the DST resolution was in some way "illegal" or "unlawful" is not true. It was claimed by PWC's solicitors that the resolution could not be put to creditors unless PWC’s own resolution to oust itself altogether as liquidators was first passed (that resolution was required by statute). Obviously it was not passed, because it is a much higher hurdle to overcome than our resolution that PWC work alongside a conflict liquidator. As a result, we were prevented from putting our resolution by the liquidators (deemed official receivers). PWC also made it clear that they were not willing to work alongside BDO Stoy Hayward or indeed with any conflict liquidator, irrespective of what creditors wanted. That DAG’s proposed resolution was not inadmissible as a matter of law has been confirmed in writing by PwC’s lawyers (Cains). See HERE

Gavin Brake has said that the decision to support PWC was a very close one made in their committee of nine. Quite apart from the fact that it completely ignored the views of the vast majority of DAG members, under the circumstances a neutral stance would have been sufficient to allow DST to press the overwhelming view of depositors as a whole. The plan to introduce PWC’s Dan Schwartzman into the equation, which was obviously designed to discourage support for DST’s conflict liquidator proposal, seems to have been hatched over several weeks between PWC and HNW, or perhaps by the former with the knowledge of the latter. It was not made known to DST by HNW (or anyone else) until shortly before the creditors’ meeting.

DAG/DST believes that if HNW had supported the DST in its initiative to give effect to depositors’ very clearly-expressed lack of confidence in PWC, then our cause might well have been supported by (at least some of) the Life Companies and other high-value creditors. What Robert Coates said at the meeting can be found HERE

PWC has already clocked up £3.1m of their own fees and £1.7m in legal fees, of which (they claim) only £620k has been expended in relation to the SoA. We suppose that we must expect that their costs will amount to some £40m over the course of the liquidation, unless it can be prevented in some other way.

Other criticisms made of DST:

Complaint that DST is secretive:

We have been criticised for being 'secretive' and not putting our personal profiles on a public website. However, we are volunteers in this, we are not trying to enhance our CVs and we are not looking for individual praise or reward, all we are trying to do is use our combined knowledge of the situation and our collective resources to find the best outcome for ALL depositors. Relative anonymity has allowed some of us to access information and people that perhaps otherwise would have been out of reach. Stuart Roberts, Simon Bessant and Alex Marsella, who have been nominated for the creditors committee, are known to all of you. Elgee’s “cv” has been on the forum site since ng implemented the facility and was put up at the very outset for the “core team”. Robert Coates has been dealing with proxy gathering along with Nick Campling. Robert has also organised the help lines and other members of DST have had their names and addresses publicised in court documents since the hearings commenced. Many of you have contacted us on the DST directly and we have tried to respond.

Reliance on Edwin Coe:

HNW have criticised us for this and claim to have their own “internal” legal advice instead. All well and good, we too have a lawyer on the DST, but HNW’s lawyer(s) member(s) cannot represent depositors in court on the Isle of Man or indeed the UK when required. Similarly, we have been criticised for the appointment of John Wright; at the time he appeared to be the best choice out of a very limited number of non-conflicted IoM advocates, and he had insolvency experience. This choice was endorsed by Gavin Brake (now of HNW) at the relevant time. Richard Halsall was appointed in John Wright’s place as soon as Richard was released by a former client by who had been instructing him on KSFIOM.

The appointment of Bell Pottinger:

It was unfortunate that BP were unable to gain any traction for us in the press, mostly due to the apathy of much of the press and members of parliament about our cause. They nearly managed to get very good pieces in the Times and the Mail, but these were frustratingly blown out by other events. However, BP was able to feed our questions into the Treasury Select Committee. Peter Wakeham (now of HNW, but then of DST) was very involved in the decision to appoint BP.

The present position:

HNW are, we note, now calling themselves “MTFK” (More Than Fifty K) and laying claim to all depositors not removed by the DCS. They may feel this kind of politics is appropriate in our situation. DST, however, is not interested in playing games. We in the DST have always strived to represent all depositors, invariably putting their interests before our own. We believe that the HNW group represents only the self-interests of their committee who seem to believe they know better than all other depositors.

The HNW group started as a group of supra 500k and had no regard whatsoever for smaller depositors or non-retail depositors. Since then, HNW has lowered its threshold and otherwise tried to broaden its appeal, but without broadening its agenda to include the lower value depositors it has induced to join up. We in the DST believe that this is just a cynical ploy by the HNW group to bolster its proxy vote without seeking to genuinely represent more than its original constituency of 500k+ depositors.

The future:

Having recently failed again to gain more than about 150 proxy votes or enlarge its membership beyond that number, the HNW group is evidently now seeking to destabilise DAG by attacking the DST in the hope of displacing us with itself. In calling for DST's resignation, because we dared to resist HNW's botched and high-handed attempts to dictate to creditors the number of seats it should have on the Committee of Inspection, HNW has merely reinforced our determination to save depositors from the insincere posturing of a group that puts its committee members’ personal interests above those of the people it purports to represent.

It is clear that there are fundamental differences between the HNW group and the DST. HNW seem to believe that a “softly softly” approach will win the day. DST have been there, have done that, have tried that. Prominent UK MPs have tried that; even MHKs have tried that. It is apparent that the IoM authorities only respond to pressure and adverse publicity, therefore the DST believe that the only way to achieve 100% for ALL is by continuing to apply political, legal and media pressure on all those complicit in our financial demise. DAG is, after all, an ACTION group. It is very difficult for DST to understand why HNW group believe the gentle approach with IoMT will work given that the last 9 months of efforts of this kind have signally failed to achieve anything by that method. The IoMT have made it very clear they are not prepared to aid us. Time has healed the situation for them, thanks to the months wasted on the SoA, so they now have no need to act. Knowing what we know about IoM’s culpability in this debacle, the DST wonders why any depositors would take the advice of the very individuals who shielded the IoMT from attack at the point in time when the press and political attention was focused on them and when we could have made a real difference. That was when they asked us to keep quiet while they worked on damage limitation in the form of the SoA.

DST are as disappointed as anyone with the fact that we find ourselves here but we have to move on. DST is willing to work with HNW where we can agree. The creditors’ committee being a case in point, as the clear objective now is to maximise returns and minimise costs. However, the DST now believe that it is time to set up a DAG members-only group consisting of depositors (or their representatives) who wish to work with us (the DST) toward the objective of 100% return of our savings by applying pressure where it is needed. The work we have done with the Treasury Select Committee is a very good example of what we mean. More on this will follow.

We will NOT be entering into a public debate with HNW over this

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