A federal judge ruled Thursday that an investment manager jailed for a year must remain behind bars until money held through offshore entities — and detailed in the Panama Papers — is returned to investors who lost money.
Chetan Kapur, a 42-year-old Indian national who ran ThinkStrategy Capital Management, was jailed in a Brooklyn detention center in July 2015 after U.S. District Judge Paul Engelmayer found him in contempt for failing to make restitution in a settlement with the Securities and Exchange Commission.
“Welcome back, Mr. Kapur,” Engelmayer said sarcastically in Thursday’s hearing, which marked one year to the day of the contempt order.
And after a year, the judge determined that Kapur had done little to change his circumstances.
“I’m sorry it’s taken one year for the message apparently to get through to Mr. Kapur,” said Engelmayer at the close of the nearly two-hour hearing in the wood-paneled courtroom of the Thurgood Marshall Courthouse in lower Manhattan.
Kapur shuffled into the courtroom in cuffs on his wrists and ankles. Pale, unshaven and dressed in a khaki prison outfit and canvas slippers, the once-high-flying investment manager sat mostly motionless and expressionless during the hearing.
Lawyers for victims and the SEC have identified at least three Swiss bank accounts worth a collective $4.3 million believed to be tied to offshore entities Kapur created through the Panamanian law firm Mossack Fonseca.
The law firm suffered a now-famous breach in which 2.6 terabytes worth of secret documents that were leaked and pored over for a year by journalists from McClatchy and partners across the globe organized by the International Consortium of Investigative Journalists in Washington.
Engelmayer’s courtroom is the first known legal test of pursuing money hidden behind secretive offshore companies and foundations in the Panama Papers. And if Thursday is any indication, the legal challenges are formidable.
Engelmayer chased away the efforts by a lawyer for Kapur’s victims, Jason Solotaroff, to discuss the Panama Papers.
“I’m trying to avoid internet-based evidence,” the judge said, adding that information obtained from the massive leak called the Panama Papers “is unnecessary at this time.”
Those documents show that Kapur created an offshore company in Panama called Opler Consulting Company and later a Panamanian foundation called Family and Children Charitable Foundation, which owned 100 percent of the shares in Opler.
Kapur transferred ownership of the company and foundation to his older brother Kabir. In the contempt proceedings Thursday, Chetan Kapur argued again that he is powerless to return the funds held in Swiss bank accounts because he no longer controls them.
His defense attorney, Eric Creizman, confirmed to the judge that no attempts had been made to reach out to Kabir Kapur, who apparently now resides in the Indian city of Mumbai. McClatchy’s Panama Papers partners were able to contact the brother there for a story earlier this year.
In refusing to free Kapur, the judge urged SEC attorney Michael Roessner and Creizman to persuade Kabir Kapur to reverse ownership of the offshore entities and return them to Chetan Kapur.
“If Mr. Kapur is at liberty, his family will have very little reason to act with any dispatch,” Engelmayer said.
The judge accused Kapur of repeatedly frustrating the court’s efforts. He cited Kapur’s claim that he’d forgotten the password to his Gmail account. Asked about a security question – the name of his first pet – he couldn’t get that right either. His defense has subpoenaed information about Kapur’s emails from Google in what it said was a show of good faith.
Then, noted the judge, there was Kapur’s cellphone. Kapur was unclear about his cellphone’s brand. He said the phone was loaned to his cousin, who later returned to India and lost the phone and the data that the court sought.
“It seems to me not a rational act in this day and age to give up one’s smartphone,” Engelmayer said.
In a nod to the SEC and its attempt to collect civil penalties and repay investors, the judge allowed Roessner to subject Kapur to a new deposition because of evidence from the Panama Papers and elsewhere about Swiss bank accounts, offshore companies and other developments since the late 2011 penalty proceedings.
Swiss prosecutors apparently froze the roughly $2.2 million held in a Bank Vontobel account but it is not clear why, according to Solotaroff, the attorney for victims.
“Dealing with the Swiss is a very convoluted process,” said Solotaroff.
Engelmayer set Sept. 8 as the next date for a hearing, urging Kapur’s defense to “move aggressively” in giving Chetan Kapur access to the secretive foundation still managed by Mossack Fonseca, the Panamanian law firm that is still dealing with repercussions from the leak of 11.5 million of its internal documents.
The judge pressed lawyers on both sides to work around what he described as Kapur’s obstruction.
“Mr. Kapur’s word is garbage. And I say that advisedly,” Engelmayer said from the bench.
The SEC brought a civil action in November 2011 that alleged that, over seven years, Kapur misrepresented to investors everything from his performance and credentials to the experience of his management team. At its peak, the SEC said, Kapur’s TS Multi-Strategy Fund managed $520 million for 90 investors.
Kapur, who had a U.S. work visa, consented on Nov. 30, 2011, to an SEC order without admitting or denying guilt that he would be barred from associating with most parts of the U.S. financial market. The Justice Department filed criminal securities-fraud charges in July 2012, but nearly 13 months later, a judge effectively dismissed the charges by sentencing Kapur to time served in jail after finding he’d lost money alongside his investors.
Kapur was also ordered to pay a $1 million penalty and return another $3.98 million to investors. And that’s where his offshore companies eventually became his current legal issue.
The foundation and the company he created in Panama were linked in the Mossack Fonseca documents with Swiss bank accounts at Bank Vontobel and Bank J. Safra Sarasin. A third account tied to Kapur held in the French bank Société Générale emerged in court Thursday.
On Sept. 24, 2012, months after criminal charges against Kapur were public, he authorized Mossack to make his older brother Kabir the beneficiary of the foundation and its assets.
Days before Chetan Kapur was to report to jail for contempt a year ago, his brother Kabir wrote to Edison Teano, a Mossack Fonseca lawyer. He needed two letters saying his brother had never been the beneficial, or true, owner of the foundation’s assets.