Suspended sheriff Peter Watson is 'very pleased' as liquidator abandons £28.4m court claim linked to £400m fraud probe hedge fund Heather Capital ... now Scotland's top judge will consider next move

A LIQUIDATOR has dropped his multi-million claim against lawyers linked to a £400million finance firm run by Scotland’s biggest bankrupt.

Paul Duffy sued Levy & McRae after global hedge fund Heather Capital collapsed amid allegations that £90million was unaccounted for.

Heather - likened to a ‘Ponzi’ fraud by a judge - was run by Glasgow lawyer Gregory King, 49, who has since been bankrupted.

Duffy sought £28.4million damages from Levy & McRae and four of its current and former partners.

But at a hearing in front of Lord Doherty at the Court of Session this week [March 7, 2018] the case was formally abandoned by Duffy, of accountancy giants Ernst & Young.

The claim had centred on £19million and £9.4million of investors’ cash which was paid into Levy’s client account and then transferred offshore and cannot be traced.

Duffy also questioned ‘an unexplained payment of £200,000’ made to former Levy & McRae partner Peter Watson, who was suspended as a part-time sheriff three years when the legal case became public.

The court summons stated: “In the whole circumstances of this case, the defenders dishonestly assisted Mr King in breach of his fiduciary duties as a director of HC [Heather Capital] and in his diversion of funds from HC and its investors.

“In so acting dishonestly, the defenders caused the loss, injury and damage to HC. The pursuer is entitled to payment of £28.412 million, which the defenders dishonestly assisted Mr King in diverting from HC and its investors.”

The dramatic move follows last month’s revelation that the Crown Office had decided not to prosecute King or three other men for fraud, five years after receiving a report from police.

The Crown’s decision emerged as Duffy also dropped a £7.3million damages claim against Burness Paull, another high profile law firm linked to Heather. Burness dismissed the allegations as “entirely without merit”.

King went from being a Glasgow solicitor to selling taxis before reinventing himself as a global financier with what seemed to be the midas touch.

He launching Heather in 2005 three years after the unsolved murder of Alex Blue, his taxi firm business partner who was stabbed and beaten to death outside his home in the city’s west end.

In a YouTube promotional video, uploaded in 2007, King explains that as a ‘very low risk lender’ he had already attracted $500million to fund property deals in Scotland.

Between 2005 and 2008, King rewarded himself with payments of around £34million

A high point was in 2008 with a lavish 40th birthday party inside the exclusive gated La Zagaleta complex near Marbella. A prestigious papal knighthood was awarded that same year.

But two years later, Isle of Man-based Heather went bust and the financial house of cards came crashing down.

A Manx court judgement compared Heather to a ‘Ponzi’ scheme, where new investors’ cash is used to make bogus returns to earlier investors, giving the illusion of success.

Following Heather’s collapse, the authorities in Gibraltar closed down another King venture - Advalorem Value Asset Fund which, like Heather, offered generous returns on investments via property deals in Scotland.

The British overseas territory’s Financial Services Commission (FSC) alleged they were fraudulent with Advalorem buying property at massively inflated prices.

The FSC shut down Advalorem and appointed Adrian Hyde as its special trustee. He bankrupted King over debts of £7.5million - but last week he revealed that Heather liquidator Duffy had staked a £100million claim against King personally.

With debts of around £120million, he now holds the ignominious title of Scotland’s biggest ever bankrupt.

Malcolm Scott, ex-treasurer of the Scottish Conservatives, was Scotland’s previous bankruptcy record holder with debts of £41.1million.

King has denied any wrongdoing. Ernst & Young declined to comment.

Watson said: “I am very pleased that this action has been abandoned and I am looking forward to serving my clients now it is clear that there was no valid basis for this claim.”

A Levy & McRae spokesman said: “We are content that this misconceived claim against the former partnership relating to a transaction 11 years ago has been abandoned. This vindicates the firm’s consistent and robust defence to the action.”

A Judicial Office for Scotland spokesman said: “The action, in which suspended part time Sheriff Peter Watson was among the defenders, has settled.

“An interlocutor to that effect has been issued. The Lord President will consider what, if any, steps now require to be taken.”

A version of this story was first published in The Herald, The Times and Daily Record newspapers on March 8, 2018

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Russell Findlay is an investigations journalist reporting on law, politics, health, business and crime. He is also the author of non-fiction books. A fter 25 years with various newspapers he can now be found at STV News

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