The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Canadian receivers for an alleged "fraudulent" life insurance scheme will today appear before the Court of Appeal in a bid to overturn a verdict that forced them to return a Paradise Island condo and bank accounts belonging to the perpetrators - two Bahamas-based residents who last week were ordered by regulators to pay $23.665 million in penalties and compensation.

The Ontario Securities Commission (OSC), in a May 17, 2012, verdict, ordered Jeffrey Pogacher and his wife, Paola Lombardi, to "disgorge" the $21.908 million they allegedly defrauded 600 investors of, as well as each pay $750,000 as an administrative penalty - a collective $1.5 million. Finally, the pair were ordered to pay $257,756 to cover the OSC's costs incurred in investigating their scheme.

Attorneys for KPMG, receivers for the couple's New Life group of companies, are attempting to overturn a November 30, 2011, ruling by Justice Neville Adderley. He found that because there was a "material non-disclosure" by KPMG, 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 Supreme Court case by now-deputy prime minister, Philip Davis.

In granting KPMG and its attorneys leave to appeal, Justice Adderley further ruled that the receivers had failed to follow the Companies Act and apply to take possession of the couple's assets in the Bahamas as a means of restitution.

"The Receiver wittingly or unwittingly violated the principle of full disclosure, and consequently obtained ex parte that which it knew or ought to have known it could only hope to obtain inter partes if the requisite statutory applications were made, and obtained a bonus by obtaining a relief that it did not claim in the substantive action," Justice Adderley found.

"Nevertheless, although I am not satisfied that the appeal has a realistic prospect of success, following Lord Woolfs advice in Smith v Casworth Casting Processes Limited [1997] , I will grant leave to appeal because it is a matter which requires clarifying in the public interest."

A previous OSC ruling found 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.