New Stream investors seek appointment of trustee for feeder fund cases

By Caroline Salls

Pittsburgh, March 14 - A group of New Stream Secured Capital Fund's U.S. and Cayman investors have asked the U.S. Bankruptcy Court for the District of Delaware to appoint a Chapter 11 trustee to oversee the bankruptcy cases of several of the company's U.S./Cayman feeder funds, according to a Monday court filing.

Specifically, the investors filed the trustee appointment motion on March 7 in the involuntary bankruptcy cases filed against New Stream Secured Capital Fund (U.S.), LLC, New Stream Secured Capital Fund P1 (Cayman), Ltd. and New Stream Secured Capital Fund K1 (Cayman), Ltd.

"The debtors' management's fraudulent behavior, dishonesty, lack of credibility, acknowledged gross mismanagement and acknowledged conflicts of interest are cause mandating the appointment of a Chapter 11 trustee in these cases," the investors said in the motion.

"These debtors cannot be trusted to administer these cases honestly, competently, and without bias."

If the court does not order the trustee appointment, the investors are seeking appointment of an examiner.

The investors said they "are not a disgruntled group of unsophisticated investors unable to face the painful reality of a difficult investment climate and depressed asset valuations."

"They are mostly sophisticated investors, including so-called funds of funds, whose moneys have been fraudulently funneled to bankruptcy-remote entities in the New Stream enterprise to preserve and even augment the collateral of purported senior-lien holders in a Bermuda feeder fund," the investors said in their motion.

The investor group said they were assured the Bermuda feeder fund in question would be eliminated in a 2007 restructuring of the New Stream group.

"The U.S. and Cayman investors were further misled with a costly 2009 restructuring plan that was a failure from the inception because, despite New Stream's misrepresentations that over 90% of investors had approved, the largest investor and the most significant assets were excluded from its scope," the investors said.

Now, the investor group said the company and the principal beneficiaries of purported senior loans "seek to obtain the bankruptcy court's imprimatur for their scheme and to obtain release for their improprieties" by majority vote on a proposed pre-packaged plan of reorganization.

The investors said a majority vote on the plan was obtained "through woefully inadequate and misleading disclosure" for which votes are being solicited by only four strategically selected prospective debtor entities of the New Stream group.

"This plan offers a mere pittance to the U.S./Cayman investors, funded primarily with gifts from allegedly senior classes traceable to funds supplied by the U.S./Cayman investors in the first place," the investors said in the motion.

In addition, the investors said the proposed plan gives the Bermuda feeder fund the vast majority of all plan distributions and "grants releases to all wrongdoers."

"This after admitting to losing almost $500 million on assets that the fund manager valued at $800 million less than three years ago," the investors said.

New Stream, a Ridgefield, Conn.-based investment fund, filed for bankruptcy on March 13. The Chapter 11 case number is 11-10753.

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