News / 'Wiped-out' CEVA investors win court hearing over alleged fraud next month

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Former creditors of CEVA Investments Ltd have alleged that its two directors, also employed by parent firm Apollo Global Management, acted fraudulently, causing the loss of their equity stake in subsidiary forwarder CEVA Group.

The creditors have won the right to a hearing in a New York bankruptcy court next month, which may bring resolution to a case which has rumbled on since April 2013, when CIL Ltd, formerly known as CEVA Investments Ltd, petitioned for liquidation in the Cayman Islands.

This was shortly before the group announced a financial restructure. The shares in CIL, owned by CEVA staff and former TNT and EGL staff as well as other investors, lost all value with the liquidation.

In a court hearing last year, David Friedman, of law firm Kasowitz, Benson, Torres, & Freidman, accused the two directors of CIL, both of whom also worked for Apollo, of “a massive constructive and intentional fraudulent transfer, as well as a breach of fiduciary duty”.

He explained to the judge: “Right now it’s a company with no assets other than litigation claims… It used to be called CEVA Investments Ltd. Just about a month before the filing of the [bankruptcy] petition it was the parent company of CEVA Group PLC, which is a $12bn company.

“Apollo … had a desire to restructure the entire CEVA empire. This company that they owned [CIL] had $150m-worth of debt. They wanted to retain ownership and control over CEVA, but they didn’t want to pay any of those creditors.

“Through their directors and their ownership control of the enterprise, they caused the operating company, CEVA Group PLC, to issue a massive amount of equity – billions and billions of shares of stock – which diluted the debtors’ ownership in the company to zero. And all that stock was issued to Apollo directly.

“When the smoke settled, they still owned the company, but the debt was now junior to the equity, instead of senior to the equity…

“The creditors of CIL were left behind … with no assets to look to. The primary asset was the equity of the company.

“Before the transaction occurred, the debtors owned 100% of CEVA. After the transaction, they owned 0% of CEVA, and Apollo owned a 100%.”

It is alleged that the two directors concerned, Gareth Turner and Mark Beith, transferred the debtors’ equity interest in CEVA to a wholly owned affiliate of Apollo in exchange for nothing.

Mr Friedman claimed that the liquidation in the Cayman Islands “was referred to internally as a soft-touch filing. And it was designed to … keep the creditors at bay while this thing was happening.”

However, Emil Kleinhaus, of Wachtell, Lipton, Rosen & Katz, acting for Apollo Global Management, disputes the claims, noting “one incredibly important detail”.

Mr Kleinhaus said: “Apollo…is the shareholder of CIL. As a result of this transaction, instead of being essentially the 100% owner of the entire enterprise, what actually happened was the secured and unsecured creditors of the operating company, CEVA, some $1.4bn dollars of debt … equitised their debt.”

The case is significant for many former and current employees, some of whom claimed to have been “press-ganged” into the equity scheme launched after Apollo took over TNT’s logistics division in 2006. One told The Loadstar they believed employees had put between $10m and $15m into the scheme.

Another said: “Apollo’s senior partners incentivised us with the promise of ‘very significant returns’ on any investment.” Some employees took out loans or second mortgages on their houses.

Former CEO of CEVA, Marvin Schlanger, claimed at the time that: “We have given people the opportunity to participate in a new equity plan. If the company performs, they can earn as much or more than their initial investment. We think we’ve treated everyone fairly.”