The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

There is a $75.5 million discrepancy over the sum allegedly held by a BISX-listed firm’s broker/dealer affiliate for a claimed multinational fraud, Tribune Business can reveal, with regulators having seized computers and a server from its downtown Nassau offices.

The January 18, 2013, report to the US courts by Robb Evans, the American receiver for BC Capital Group, said senior executives at Alliance Investment Management alleged to his Bahamian co-liquidators that the broker/dealer was holding less than $500,000 in cash for the insolvent investment scheme.

The report contrasted this statement with the findings of Bahamian accountant, James Gomez, the voluntary liquidator first appointed for the BC Capital Group entities, who in a report filed with the Supreme Court alleged that Alliance was acting as custodian for some $80 million belonging to the scheme.

Pledging that together with its Bahamian co-liquidators, PricewaterhouseCoopers (PwC) Bahamas accountants, Kevin Cambridge and Kevin Seymour, it would get to the bottom of this discrepancy, the Robb Evans report revealed the following:

• The Securities Commission of the Bahamas, as part of its probe into Alliance’s role and involvement in the BC Capital Group collapse, seized computers and a server from the company’s offices at the British Colonial Hilton’s Centre of Commerce on Bay Street.

• Forensic specialists from PwC North America have been brought in to examine the electronic hardware seized from Alliance.

• BC Capital invested $5 million in two preference share issues by Alliance, worth some $2 million and $3 million respectively, as “in-kind” transactions with no funds changing hands. BC Capital Group holds 100 per cent of Alliance’s preference share capital, and both issues were staged in 2010 and 2011 to lift the latter’s BISX-listed parent, Benchmark (Bahamas), out of its then-solvency deficiency.

• KPMG said it was prevented by an “internal policy” from acting as co-liquidator for BC Capital Group with Robb Evans, leading to PwC (Bahamas) appointment in that capacity.

The findings disclosed in the Robb Evans report will likely raise further questions for Benchmark (Bahamas) existing 735 Bahamian investors as to the potential impact on the company, and their investment, and its viability/strength going forward.

The report noted that together with the PwC (Bahamas) accountants, Robb Evans had been named by the Bahamian Supreme Court as co-liquidator for BC Capital Group S.A (BCCG) and BC Capital Group International. These entities acted as the manager, and managing companies, for the Private International Wealth Management (PIWM) and Private International Wealth Management - Insurance (PIWM-I) investment schemes run by BC Capital Group and its principal, Nikolai Battoo.

These firms then “contracted” with Alliance “to execute security trades, subscriptions and redemptions in various investment funds, and marketable equity securities. Substantial investor funds were placed in Alliance’s omnibus accounts with the Royal Bank of Canada and CIBC First Caribbean Bank International, Nassau”.

“Alliance is currently the subject of a probe by the Securities Commission. In the course of the Securities Commission’s probe, certain information relating to the BC Capital entities, including computers and a server, were seized from Alliance’s office premises,” the Robb Evans report alleged.

“The joint official liquidators, with the consent of the Securities Commission, engaged forensic experts from PwC North America to assist in the retrieval of information that resided on the computer hardware seized from Alliance. These efforts are ongoing and a report of findings is expected shortly.

“The PwC joint official liquidators and their associates have performed substantial forensic accounting work on books and records made available by Alliance. That process is ongoing.”

As to the discrepancy between the BC Capital Group-related cash it claimed to hold, and the first liquidator’s findings, the Robb Evans report’s reference to Alliance senior management likely means Benchmark (Bahamas) president and chief executive, Julian Brown.

“Alliance’s senior executives have represented to the PwC joint official liquidators that there is less than $500,000 in cash due to the BC Common Enterprise,” the Robb Evans report alleged.

“Efforts are underway by the PwC joint official liquidators to verify the accuracy of the cash balance represented by Alliance’s management. The

prior liquidator appointed by Battoo filed a document with the Supreme Court showing investment funds totalling approximately $80 million under Alliance’s custody for the benefit of the BC Common Enterprise.

“The PwC joint official liquidators are working to establish the validity of

shares in a number of investment funds represented by Alliance as assets of PIWM and PIWM-I.”

Meanwhile, documents attached to the co-liquidator’s report raised questions about the nature of two preference share issues, vital to the health of both Alliance and Benchmark, that were fully subscribed by BC Capital.

The report alleged: “Among the documents retrieved by the joint official liquidators are two share purchase agreements executed by Alliance and Battoo on behalf of BC Capital Group.

“On June 11, 2010, and December 1, 2011, BC Capital Group obtained Alliance Class ‘A’ non-voting preference shares in the amounts of $2 million and $3 million, respectively.

“These were not cash transactions, and are described in the notes to Alliance’s audited financial statements as ‘in-kind transactions’. The joint official liquidators are currently reviewing the transactions giving rise to Alliance’s obligation to BC Capital Group.”

The letters sent by Mr Brown to Mr Battoo describe the preference share issues as “free of all brokerage fees and commissions”. The first $2 million tranche had a five-year maturity deadline, at end-June 2015, although Alliance was able to redeem them at any point after one year, while the second $3 million block was only redeemable at the Bahamian broker/dealer’s choosing.

The significance of both preference share issues is that they boosted the capital base of both Benchmark and Alliance at a critical time, helping both to get back into positive net worth territory. Without these capital injections, they were suffering from a solvency deficiency, where total liabilities exceeded total assets.

Tribune Business previously reported how BC Capital Group, which was alleged to have raised $140 million from 250 US investors, was among the “principal and largest customers” of Alliance.

It was alleged that Alliance owed BC Capital “a portion” of the $48.7 million that was due to its customers as at-end 2011, and Battoo’s company was desrcibed as an “equity holder, creditor and customer” of the Bahamian broker/dealer.

Alliance, and Benchmark, likely represent one of the best sources of recovery for BC Capital Group creditors. The Alliance financials appear to mirror Benchmark (Bahamas) financial statements for year-end 2011 and the 2012 half-year.

Both Benchmark’s 2011 year-end “due to customer balances” and preference share capital are $48.7 million and $5 million, respectively, indicating that the BISX-listed company’s financials are the same as Alliance.

The figures for end-June 2012 show that Benchmark had a current solvency deficiency (liabilities exceeding assets) of $289,820, with the “due to customer balances” exceeding what was owed to the company by its clients by over $8 million.

In addition, successive annual and quarterly losses have pushed Benchmark (Bahamas) into a $7.065 million retained deficit, and BC Capital’s $5 million worth of preference shares were playing a key role, it seems, in keeping Benchmark (Bahamas) and Alliance in net shareholder equity territory. The latter totalled $2.385 million.

Those preference shares now seem likely to be “called in” or sold by BC Capital Group’s liquidators in a bid to recover assets for its investors, indicating both Alliance and Benchmark (Bahamas) are likely to require recapitalising.

Benchmark has previously denied that the BC Capital liquidation will “have a material impact” on its financial position or “long-term development”, but never really answered any of the questions posed by previous Tribune Business articles.

The Robb Evans report showed that Mr Brown, the senior executive for both Benchmark and Alliance, sat on BC Capital Group’s Professional Executive Board and Investment Advisory Board.

And it also alleges that Battoo appointed Ruth Bowe-Darville, the Bahamas Bar Association president, as his Bahamian attorney, although she allegedly did not reply to Mr Seymour’s e-mail seeking her client’s contact information.

Explaining how American investor funds were placed into the Battoo scheme, the report alleged: “US investor funds would first pass through the foreign affiliates set up by the investment advisors before they finally reached Alliance and EFG Private Bank [in Guernsey].

“Under this arrangement, the foreign affiliates of the investment advisors, not the US persons or entities, are the investors of all Battoo-operated funds or PIWM/PIWM-I portfolios.

“However, the receiver has located documents that show US investor funds were deposited into a domestic US bank account of a US investment advisor, and subsequently sent directly to Alliance for investments......”

And Alliance was also allegedly used to transfer BC Capital Group funds to an HSBC account in Monaco.