Broker clients want right to sue for $25


Tribune Business Editor

CLIENTS of a failed Bahamian broker/dealer are seeking a Supreme Court order that would assign them the right to sue those deemed responsible for their collective $24.5 million loss, fearing they may lose forever any prospect of recovering this sum.

Two separate clients have filed documents before the court requesting that Caledonia Corporate Management's court-supervised liquidator, Deloitte & Touche (Bahamas) partner Anthony Kikivarakis, assign to them the rights to pursue legal action against the broker/dealer's Canadian correspondent, Jitney, plus the four persons deemed responsible for the $24.5 million loss.

Mr Kikivarakis is currently seeking directions from Chief Justice Sir Michael Barnett on how to resolve 13 matters essential to bringing Caledonia's liquidation to a close. It is understood that the latest hearing in the matter has been scheduled for the Supreme Court today.

Caledonia's clients fear that once the liquidation ends, the ability to sue Jitney and those whose trading created the $24.5 million hole will be lost forever.

The liquidator was told at an early stage in Caledonia's winding-up, by former senior justice John Lyons, to not pursue Jitney and the others given that the broker/dealer did not have any funds to initiate legal actions. Instead, he was to focus his energies on reconciling and returning client assets.

Outlining the predicament, McKinney, Bancroft & Hughes attorney, V Moreno Hamilton, alleged in a January 18, 2012, affidavit that unless the Supreme Court ordered the liquidator to assign the right to the $24.5 million claims to the clients, these would be "abandoned" once the liquidation ceased.

McKinney, Bancroft & Hughes is acting for the court-appointed US receiver of the Peter Rogan (Irrevocable) trust and RPP Finance Trust, which together lost just over $5.5 million as a result of Caledonia's collapse into insolvency.

"According to the liquidator, Caledonia lost approximately $24.5 million in funds of various fiduciary clients in this liquidation when Jitney Group/The Jitney Trade, Vincent de Rosa, George Georgiou, Karen Georgiou and Ron Wyles sold fiduciary assets to cover the overdrawn balance resulting from a margin call not responded to by Caledonia and its client, Ron Wyles," Mr Hamilton alleged in his affidavit.

"According to the affidavit of the liquidator, sworn on November 30, 2011, the loss to the Rogan Trusts resulting from the improper sale of fiduciary assets is equivalent to 22.4835 per cent of the total loss suffered by fiduciary clients affected by the Jitney loss.

"The liquidator has advised the court that Caledonia does not have sufficient funds to pursue the claims against Jitney. In these circumstances, unless an alternative arrangement is implemented the claims against Jitney arising from Caledonia's losses of approximately $24.5 million would be abandoned upon the completion of the Caledonia liquidation."

So as "to preserve the actual or potential claims" against Jitney and the former four-strong Caledonia client group, Mr Hamilton said the summons, which his affidavit was supporting, proposed that the Supreme Court order that Mr Kikivarakis send a letter to all fiduciary clients.

This letter would describe the Rogan Trust receiver's proposal, which is to create a company that would be assigned the rights to sue Jitney and the de Rosa group. Fiduciary clients could then choose to participate in any legal action as a shareholder of the company, and potentially obtain upside if this results in any recovery.

But the Rogan Trust receiver's proposal is not the only one on the table. Richard Perdue, a retired Canadian attorney advising several Caledonia fiduciary clients, in an affidavit filed on behalf of one, Bayfield Holdings, also urged that it be granted an assignment of the rights to sue Jitney and the de Rosa group.

Detailing Caledonia's road to ruin, Mr Perdue alleged that Caledonia's clients were able to access the US capital markets to conduct securities trades via the company's correspondent relationship with Jitney.

Jitney allegedly held "millions of dollars" of Caledonia client funds. It then, in 2006, opened a margin account for two fiduciary clients, George Georgiou and Ron Wyles. The accounts were guaranteed by the former's wife, Karen, while de Rosa was described as "the puppet master" behind their plans.

De Rosa was alleged to own several companies whose shares were pledged as collateral for the Caledonia margin account. Some $15 million worth of securities in over-the-counter stocks were promised, but Mr Perdue alleged that it was never adequately secured.

"The group used their Caledonia margin accounts to purchase stocks and take certain cash advances," he further alleged. "Contrary to their stated intentions, the group never sold any shares to institutional clients, nor did it transfer any funds to the margin account to cover the ever-increasing overdraft."

The overdrawn margin balance exceeded $20 million by June 2007, and ultimately Jitney sold off the assets held with it by other Caledonia clients to cover the shortfall, plunging the Bahamian broker/dealer into liquidation.

Mr Kikivarakis had been prevented from initiating legal action against the de Rosa group without a Supreme Court order, and Mr Perdue alleged: "Up to the present time, the liquidator has never requested assistance from the fiduciary clients to pursue the [de Rosa] group......

"There is currently no official or unofficial authority pursuing the group nor any of its members...... If this is allowed to continue, those directly responsible for causing the overdraft and the clients' losses will never be called to account in Canada or in the Bahamas. A civil action against Jitney is currently underway in Montreal, but the defendants in that action are not members of the group, but rather, Jitney and its banker.

"The Caledonia liquidation is winding down, and I submit that this is the last opportunity for the fiduciary clients to bring those responsible to account. No other action to recover the money from those responsible is currently underway, or even contemplated.

"If the liquidator is unable or unwilling to fund an action, we submit that the fiduciary clients should be granted an assignment of Caledonia's rights to prosecute on its own behalf. We consider the lawsuit against the [de Rosa] group to be an asset of the liquidation that should be pursued for the benefit of those fiduciary clients who are willing to fund it."


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