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Public Statement No. 1 of 2008 - Reserve International Liquidity Fund Ltd. (28 October 2008)

Public Statements

The British Virgin Islands Financial Services Commission (the "Commission") has issued this public statement pursuant to Section 37A of the Financial Services Commission Act, 2001.

The Commission considers it necessary to issue this public statement in order to protect the public interest or the interests of the customers, creditors or investors of Reserve International Liquidity Fund Ltd. (the "Fund").

The Commission wishes it to be known that:

The Fund is registered as a public fund under the Mutual Funds Act, 1996, having been so registered on 24 September, 1999.
In October 2008, the Commission received complaints from investors concerning the Fund. The complaints allege that the Fund, improperly valued its bond holdings in an institution which had filed for bankruptcy. Specifically, the complaint alleges that the Fund failed to appropriately mark down the value of these bonds to zero and therefore caused the Fund's NAV to be overstated. The complaints further allege that the Fund allowed certain investors to redeem their investments at par value before taking action to write down the value of the bonds which had the effect of causing the Fund's remaining investors to absorb the loss associated with these bonds.
On 10 October, 2008, the Commission commenced investigations into the Fund and issued a notice under Section 32 of the Financial Services Commission Act, 2001, to the Fund seeking detailed information and records to establish whether the allegations are substantiated.
Having regard to the serious nature of the allegations and the sources from which they were made, the Commission formed the opinion that the Fund may be carrying on business in a manner that was detrimental to the interests of its clients, creditors or investors. Accordingly, on 17 October, 2008, the Commission issued a directive to the Fund under Section 40(1)(b) of the Financial Services Commission Act, 2001, requiring the Fund to take the following action:

To forthwith suspend:

the subscription of shares by new or existing investors;
the redemption of shares by investors; and
the payment of the proceeds of the redemption of shares, until further notice by the Commission; and.

To submit monthly reports to the Commission setting out:

details of its cash balance, including the institution(s) at which the cash is held;
details of its investments, including the jurisdiction of issuer, type/category of investments and the current value of the investments at cost and current market value; and
an update on all ongoing litigation involving the Fund, until further notice by the Commission.

The Commission's investigations into the Fund are continuing and it would provide an update on developments as matters progress.

Robert A. Mathavious
Managing Director /CEO
British Virgin Islands Financial Services Commission
Pasea Estate, Tortola, British Virgin Islands
Telephone: (284) 494-4190
Facsimile: (284) 494-5016
Hours: Monday - Friday 8:30 am - 4:30 pm