Redemptions Re-examined, Rectification Refined – In Re Herald Fund SPC

The Grand Court of the Cayman Islands has handed down a decision which addresses not only the vexed question of the status of redeeming hedge fund investors but also the ability of a Cayman liquidator to resolve the issue of 'false profits' arising from a Ponzi scheme.

Herald Fund SPC (Herald) was one of the larger Madoff feeder funds and made headlines recently when it settled the competing claims between it and Irving Picard (the Trustee in Bankruptcy of the Madoff estate).

Primeo Fund was also a Madoff feeder fund; however, it invested a significant portion of its assets via Herald. In late 2008 Primeo submitted a request to Herald for the redemption of a large portion of its investment for the 1 December 2008 Redemption Day. However, on 11 December 2008, and before the redemption proceeds could be paid to Primeo, Madoff confessed to his criminal scheme and the directors of Herald suspended all redemptions from the fund the following day. Sometime later Herald