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Regulator Levies $48,000 Fine On 'Wind-Up' Broker

By NEIL HARTNELL

Tribune Business Editor

THE Securities Commission of the Bahamas has fined a failed broker/dealer a collective $48,000 for "consistently" failing to meet its monthly and annual filing obligations, its ruling coming almost five months after the company was placed into Supreme Court-supervised liquidation.

The Bahamian capital markets regulator's Hearing Panel found that Montaque Capital Partners, the broker/dealer arm of Owen Bethel's Montaque Group, failed to file its audited financial statements for 2009 and 2010, while those for 2008 were two-and-a-half months late.

And it also found that Montaque Capital Partners failed to file its monthly financial and operational reports, as it was mandated to by the Securities Industry Regulations 2000, for both 2009 and 2010.

Mr Bethel did not return Tribune Business phone messages seeking comment, but the Hearing Panel ruling described him as admitting that Montaque Capital Partners "was guilty of the breaches set out in the complaint".

Outlining the Securities Commission's case against Montaque Capital Partners, the Hearing Panel's verdict recalled that the company was licenses as a securities investment advisor on October 30, 2006. Under the Securities Industry Act and accompanying regulations, it was supposed to file audited annual financials with the regulator four months after every year-end.

"Montaque Capital has consistently failed to meet its obligations to submit its audited annual financial statements to the Commission within the prescribed time," the Hearing Panel verdict read.

"Furthermore, Montaque Capital had not submitted its monthly financial and operational reports for 2009 and 2010. The Panel was advised that Montaque Capital submitted on May 25, 2011, its financial and operational report for 2010."

Under the Act's regulations, Montaque Capital Partners was supposed to file on the 10th day of each month information such as its "tangible net worth", regulatory capital and income statement for the previous month's end. Other details required include the number, volume and value of executed market trades.

This prompted the Securities Commission to file its formal complaint against Montaque Capital Partners, the company replying five days later on May 30, 2011.

"During his submissions, Mr Owen Bethel, acting on behalf of Montaque Capital, admitted that the company was guilty of the breaches as set out in the complaint," the Hearing Panel found.

"In making its decision, the Panel considered the prevailing circumstances, mainly that there was sufficient time for Montaque Capital to correct the issues with its accounting software since becoming aware of it at the time of their licensing in 2006."

Ultimately, the Hearing Panel, which was chaired by former Registrar General, Sterling Quant, noted that Montaque Capital and Mr Bethel "admit to the breaches, and claim they have been very transparent in regards to the problems they have incurred. [He] hopes that he [Mr Bethel] was able to exhibit the genuine work going into trying to reconcile and rectify the matter.

"Further, the defendant submitted that they have done what is necessary to correct the situation, and so the penalty may not be in order."

Ultimately, the three-person Securities Commission hearing panel fined Montaque Capital Partners $12,000 for each of the two years for which it failed to file audited financial statements, and $1,000 per month for the 24 months for which it failed to file operational reports.

Questions, though, are likely to be asked as to whether the $48,000 total fine will do any good, since Montaque Capital Partners was placed into Supreme Court-supervised liquidation by Chief Justice, Sir Michael Barnett, on December 2, 2011. It is also questionable whether it will be paid and, in the circumstances, almost appears like a case of the regulator 'shooting the already-wounded'.

Observers are also likely to ask why it took almost 10 months from the June 29, 2011, hearing date for the Securities Commission panel to sign-off on its verdict. That came on April 24, 2012.

And other questions are bound to arise as to why the Securities Commission did not take regulatory action earlier, such as in 2010, after Montaque Capital Partners failed to file its 2009 annual financial statements and started lapsing on its monthly reports. Doing so may have possibly prevented it from being placed into liquidation.

In their initial report, Montaque Capital Partners' liquidators, Kenneth Krys and Ed Rahming, of the KrYs Global accounting firm, said the company's accounting records were "several months in arrears" as of their September 30, 2011, appointment date.

"Further, audited accounts have not been issued since the 2008 financial year, in breach of Section 126 of the law [Companies Act]," the joint liquidators alleged, adding that staff had been retained to bring the accounts up to date.

Montaque Capital Partners' business licence, they added, had expired on April 30, 2010. "The company was prohibited from applying for the renewal of the Business Licence until finalised financial statements and annual returns were obtained from Gomez & Co," the liquidators alleged.

"It became clear as the liquidators conducted their initial investigations that the books and records of the company and, in particular, its accounting records, are several months in arrears, at least......

"The liquidators were advised by the company's auditors, Gomez & Co, that they had advised the Securities Commission of the Bahamas of certain irregularities in the accounts during their audit of the 2009 financial year. As a result of those concerns, the audit for that year has not been completed."

Mr Rahming, in an affidavit filed with the Supreme Court, said the liquidators had received some $13.645 million worth of claims prior to their first meeting with Montaque Capital Partners' creditors, but expected the final tally would be "significantly more". Just some $3.3-$3.4 million worth of assets had been identified at that stage.

There is nothing, though, to suggest that Mr Bethel, Edison Sumner, the company's chief operating officer, and other staff and directors, have done anything wrong in relation to their duties to clients. The former two were assisting the liquidation effort, and while Montaque Capital Partners' seven staff were terminated when the liquidation began, two were subsequently retained.

The liquidation only affects Montaque Capital Partners, not the other arms of the Montaque Group.

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