The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed company’s principal yesterday said there was “quite fertile ground” to reach an out-of-court settlement with US federal regulator’s over its subsidiary’s alleged involvement in a $400 million financial fraud.

Julian Brown, Benchmark (Bahamas) president and chief executive, expressed confidence that “an amicable resolution” would be found to settle Securities & Exchange Commission (SEC) claims against himself and Alliance Investment Management.

The Bahamian duo have vigorously denied, and defended, allegations they facilitated a global ‘Ponzi’ scheme by Nikolai Battoo and his BC Capital Group, and Mr Brown confirmed that settlement talks with the SEC had begun.

Court documents obtained by Tribune Business from the US federal court in northern Illinois reveal that attorneys representing Mr Brown/Alliance and the SEC are due to meet for settlement conference before Judge Michael Mason on June 16, 2016.

The SEC has to submit copies of its “demand letter” to the Bahamian defendants, and their response, three days prior to the hearing.

“Yes, we are in settlement discussions,” Mr Brown confirmed when contacted by Tribune Business yesterday. “That’s as far as I can say.

“We are discussing how we can settle the matter, and we’re just beginning those discussions as I speak. I think we would like to get the matter behind us. It would be a reasonable outcome and closure.”

Mr Brown and Alliance had appeared headed for a jury trial in northern Illinois over the SEC’s allegations, and an unfavourable outcome could have exposed the Bahamian broker/dealer - and its parent’s 700-plus Bahamian shareholders - to a multi-million fine and expensive legal costs.

While any settlement might still result in some kind of compensation payment, Mr Brown and his shareholders are likely to be better off if one is agreed.

He added yesterday: “I think that based on all the discussions and meetings we had during discovery, everyone agreed that it if we could settle the matter, it would be the best thing to do - if we could come to an amicable agreement.

“I am confident that we can reach an amicable agreement and understanding of the situation. That’s they key.”

Any settlement would also end almost two years of uncertainty for Benchmark (Bahamas), Mr Brown and his investors, given that the SEC action against them was filed in early August 2014.

Mr Brown said yesterday that Benchmark (Bahamas) investors had always been kept fully informed of the SEC action and its potential implications for the company and their investments.

“We always believed that there wasn’t any intent behind any of the actions we would have done to cause anybody to be misled,” he told Tribune Business.

“Our shareholders understood our position, and we always thought we would find an amicable way to resolve it.

“We think the ground is quite fertile for a reasonable conclusion to this situation on both sides. I have no reason to believe we can’t get a resolution.”

Mr Brown and Alliance Investment Management last year listed 19 defences to the SEC action against them, with the duo arguing that any “wrongful conduct” was outside their control.

Demanding a jury trial over the claims, they denied that they “knowingly or recklessly” assisted any fraud.

And they pledged that they “at all material times complied with applicable Bahamian laws, rules and regulations” as a licensee of the Securities Commission of the Bahamas.

The crux of the SEC’s case was that Mr Brown and Alliance allegedly helped to facilitate the international scheme perpetrated by BC Capital and Battoo.

The US regulator claimed that the Bahamian defendants misled investors by suggesting they were the independent custodian for the BC Capital funds, whereas these monies were all directly in Battoo’s hands.

And it also claimed that Alliance “helped him hide the massive losses by sending out bogus account statements that fraudulently overstated the value of investor assets by more than $148 million”.

However, Mr Brown and Alliance in their defence argued that Battoo directed them to send BC Capital financial statements to the Illinois-based auditors for an investor in the scheme.

And they maintained that the SEC, and US federal securities laws, have no “extraterritorial effect” and therefore cannot touch them in the Bahamas.

“Defendants acted in good faith at all material times and did not directly or indirectly induce or cause the acts” complained about,” Mr Brown and Alliance alleged in their defence.

Denying any “intentional prior wrongful conduct”, the Bahamian duo added: “Defendants did not receive ill-gotten profits, did not act unlawfully, acted in good faith, and investors did not suffer from their alleged conduct.....

“The alleged wrongful conduct was committed by individuals or entities over whom defendants had no control.”

The liquidators for the Bahamian end of Battoo’s scheme, though, previously suggested in reports to the Supreme Court that they believed Alliance had ‘a case to answer’ in relation to BC Capital.

However, the PricewaterhouseCoopers (PwC) accountants, Kevin Cambridge and Gowon Bowe, have been unable to launch legal proceedings of their own due to a lack of funding.

They said: “As previously reported, the joint official liquidators maintain their strong opinion that legal action in respect of a number of previously identified courses of action should be pursued against Alliance to compel Alliance to return the company’s $5 million in Alliance’s preference shares (which itself may not be a realisable asset); complete the registration of the company’s marketable securities and surrender the same to the joint official liquidators; and grant the joint official liquidators access to certain Battoo-controlled accounts where the joint official liquidators believe that investor funds may have been diverted.”