Posted on 06/06/2002 5:58:23 PM PDT by socal_parrot
By Andrew Quinn
SAN FRANCISCO (Reuters) - For a while it looked like the court jester was going to get the last laugh and a payday fit for a king.
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"I hope we can get some of that money back," attorney Bruce Ericson, Tonga's lead attorney in its suit, said on Wednesday.
Tonga's unfunny run-in with its royal jester has been big news in the tiny Pacific island kingdom, a constitutional monarchy where the government's annual revenue was just $41 million last year.
At the center of the controversy is Jesse Bogdonoff, a former employee of the Bank of America who struck up a close relationship with Tonga's King Taufa'ahau Tupou IV after noticing that the kingdom had millions of dollars sitting in a low-interest checking account.
Tongan officials say that Bogdonoff -- who asked for and received the appointment as Tonga's court jester -- persuaded the government to put him in charge of the $26.5 million Tongan Trust Fund, which was established largely with money earned through the sales of Tongan passports to foreigners.
FUNDS EARNED FROM SELLING PASSPORTS
Tonga, which has a population of 100,000 spread over 170 coral islands in the South Pacific around 1,250 miles (2,000 km) north of New Zealand, sold citizenship in the late 1980s to Hong Kong residents worried about their future under Chinese rule.
In its suit filed in U.S. District Court in San Francisco this week, Tonga claims that Bogdonoff beat out bidders including Wells Fargo and Merrill Lynch by promising higher returns and lower management costs to build a fund intended to benefit the kingdom's impoverished population.
In 1999, Bogdonoff and his company Wellness Technologies, recommended that the fund invest some $24.5 million in three companies: a Nevada-based purchaser of life insurance policies, an energy start-up company and a dot-com.
But it soon became clear that the investments were not performing as expected. The Nevada company, Millennium Asset Management, has been dissolved, the energy company Trinity Flywheel Power is struggling and the dot-com FilmAxis.com is in Chapter 11 bankruptcy -- its name up for auction on the Internet at a starting price of just $1.
"As a proximate result of Bogdonoff's negligence, the Tonga Trust Fund has been damaged in an amount...that, at minimum, exceeds $24.5 million," the lawsuit says.
The suit further charges Bogdonoff -- who has been identified variously as a musician, a poet, a follower of Japan's Soka Gakkai Buddhist organization and a peddler of "healing" magnets -- colluded with executives in the U.S. companies to squeeze the Tongan fund dry.
"Defendants paid themselves and their friends and business associates millions of dollars in charges, commission and fees which they did not disclose" to the fund, the suit said.
Altogether, the Tongan fund is seeking restitution of at least $26.5 million along with possible punitive damages.
The sudden disappearance of so much money has sparked a political scandal in Tonga, where officials say the fund is now left with just $2.2 million in the till.
Two Tongan government ministers who acted as fund trustees -- Deputy Prime Minister Tevita Tupou and Education Minister Tutoatasi Fakafanua -- resigned after government auditors started investigating the trust fund and the investment.
Officials at Tonga's Consulate General in San Francisco did not return calls Wednesday seeking comment on the scandal or the lawsuit.
But acting Deputy Prime Minister Clive Edwards has told Tonga's parliament that he now fears the kingdom will be a laughing stock following its decision to plunk so much money into such shady investment vehicles.
Bogdonoff -- who, after his royal appointment, claimed to be the only official court jester in the world -- has kept a low profile and did not return calls Wednesday to his northern California home seeking comment on the case.
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