The Tribune

By NEIL HARTNELL

Tribune Business Editor

TWO Bahamas residents have been allowed by the Supreme Court to reclaim - for the moment - their multi-million Ocean Club condo on Paradise Island, despite a Canadian regulatory hearing subsequently finding they "perpetrated a fraud" that cost some 600 investors around $22 million.

Documents obtained by Tribune Business show that an Ontario Securities Commission (OSC) hearing panel ruled on March 28, 2012, that Jeffrey Pogacher and his wife, Paola Lombardi, transferred between 31-40 per cent of the proceeds from their scheme to the Bahamas, with the funds used to purchase the condo and more than $1 million in Bahamian government bonds.

Yet in a November 30, 2011, ruling, Justice Neville Adderley found that because there was a "material non-disclosure" by the Canadian arm of KPMG, which had been appointed as the receiver for the couple's New Life group of companies, it could not take possession of their condo and bank account assets in the Bahamas.

While accepting that KPMG's appointment as receiver was valid, Justice Adderley added that this by itself was not enough to give it the power to take control of the couple's Ocean Club Condo and bank accounts, especially since the main case against them had yet to be determined in Canada.

"The first and second defendants, and each of them, is entitled to - and must be allowed - to return to their home in the Ocean Club Condo, Paradise Island," the judge ruled. "The taking of possession of the property of the defendants by tracing or otherwise was wrongful, and such property must be restored to the defendants from whom the property was taken."

Still, given the nature of the fraud allegations, Justice Adderley gave an Order preventing the couple from transferring or withdrawing their Bahamas-based assets, estimated to be worth $7.093 million, until the main case was heard.

Apart from the Ocean Club condo, their Bahamas-based assets were said to include bank accounts at FirstCaribbean International Bank (Bahamas) in the names of Lexington Consulting and Amercord International, two Bahamian-domiciled International Business Companies (IBCs) alleged to have received the proceeds of the fraud in Canada.

Messrs Pogacher and Lombardi were represented in the case by now-deputy prime minister, Philip Davis. The ruling has been appealed by KPMG, and is now before the Court of Appeal.

Subsequently, the Ontario Securities Commission (OSC) ruling, which has also been obtained by Tribune Business, detailed how the New Life group's business was in the viatical and life insurance settlement industry.

The group purportedly acquired life policies from their holders by paying an amount greater than the cash surrender value, but lower than the face value. New Life took over as the policyholder, paying the premiums and receiving the full face value when the settlor passed.

It raised the $22 million from investors to finance policy purchases, and pledged that 80-85 per cent of the funds raised from selling the securities to them would be used for this purpose.

Messrs Pogacher and Lombardi were described New Life's officers and directors, with Lexington Consulting and Amercord International established in the Bahamas in August 17, 2005, and October 9, 2007, respectively. The couple were the sole shareholders and account signatories for both companies.

The OSC alleged that Messrs Pogacher and Lombardi transferred funds from New Life to the two Bahamian IBCs, as they "perpetrated a fraud" on investors, using their money to finance their lifestyles and personal expenses. Evidence, the regulator said, showed New Life funds in Canada were deposited into the Lexington account.

"The Lexington records show that from November 2007 to July 2008, amounts aggregating approximately $7.093 million were transferred from the TD Accounts to the Lexington Account at FirstCaribbean, and that the majority of those funds were ultimately transferred to the Amarcord account," the ruling said.

"On the Amarcord opening bank account documents, Pogachar indicated that the purpose of the Amarcord account at FirstCaribbean was for 'personal wealth accumulation', and that the source of its initial deposit was Lexington.

"The Amarcord records show that from November 2007 to July 2008, amounts aggregating approximately $6.873 million were transferred from the Lexington Account to the Amarcord account."

These funds were spent "almost entirely spent on personal luxury goods and expenses for the respondents", the OSC ruling detailing the payments as thus:

• "$181,633.17 to Little Switzerland for jewellery"

• "$1.03 million to purchase Bahamian government bonds"

• "$2.6 million paid in trust to the law firm of Lennox Paton in the Bahamas for what was ultimately determined by the receiver to be for the purchase of a condominium in the Bahamas".

There is nothing to suggest, though, that Lennox Paton, FirstCaribbean or Little Switzerland have done anything wrong relating to the scheme.

The OSC ruling said another $1 million was transferred from the Amarcord account to pay the couple's personal expenses and credit card bills.

Ultimately, some 31.5 per cent of investor monies raised by New Life went to Lexington, the Bahamian IBC. Over 40 per cent of the monies went to the Bahamas, and to pay personal expenses.

The OSC said: "The respondents knew their actions to be false when they transferred New Life funds to the Lexington and Amarcord accounts in the Bahamas, and used such funds for personal purchases.

"The respondents knew that their actions were depriving investors of something they thought they had - security in New Life's ownership of life insurance policies. Although it appears that New Life did purchase some life insurance policies, it is clear that the proportion of investors' funds used to purchase policies fell significantly short of the 80 per cent to 85 per cent as represented in the offering memorandum.

"Instead, the respondents, as the sole signatories on the New Life, Lexington and Amarcord bank accounts, knowingly transferred investor funds into their hands for personal gain. The respondents knew that they were placing investor funds at risk."