The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The receiver for an alleged $22.6 million fraud has applied for a summary judgment against two Paradise Island residents that would seize their Ocean Club Estates condo - one of the best recovery sources for investors.

The Canadian arm of KPMG, in a May 31 report to the Ontario Superior Court, expressed clear frustration that its efforts to seize the Bahamas-based assets of husband-and-wife team, Jeffrey Pogachar and Paola Lombardi, have continued into a fourth year.

Referring to “the challenges it has faced in effecting legal recourse in the Bahamas, specifically as it pertains to securing possession of the condo”, KPMG’s 11th report indicated it may be closer to achieving this goal.

The breakthrough appears to have come after the couple failed to appeal an Ontario Securities Commission panel ruling that they pay $21.908 million in compensation for the alleged fraud perpetrated by their New Life Capital scheme.

This, according to court documents, also ensures the Ontario Court’s Recognition Order - which sought recognition from the Bahamas for KPMG’s role as New Life’s receiver - is final. That Order also found Pogachar and Lombardi had “fraudulently transferred” $7.092 million to the Bahamas from their scheme.

The end result is that the Ontario Securities Commission’s ruling that Pogachar and Lombardi defrauded investors is final - seemingly removing the final obstacle to KPMG taking possession of the $2.3 million Ocean Club Estates condo.

“Absent a final determination from the Bahamian Court as to whether Pogachar and Lombardi did, in fact, defraud the investors, the receiver cannot take possession of the Bahamian condo,” KPMG’s report said.

“The receiver has brought a motion for summary judgment in the Bahamian Court, and has been advised by Bahamian counsel that in the normal course, the receiver can expect its motion will be heard within two to three months.”

KPMG’s Bahamian attorney is Diane Stewart at McKinney, Bancroft & Hughes. The Ocean Club Estates condo, acquired by Pogachar and Lombardi for $2.799 million, represents around 39.5 per cent of the total assets transferred to the Bahamas, making it a key recovery target for the receiver.

Yet KPMG has endured a long, tortured trail through the Bahamian legal system to reach this point.

It is another episode that highlights the concern expressed by former Bar Association head, Dr Peter Maynard, that Bahamas-based liquidations and receiverships were taking too long to resolve and potentially hurting this nation’s corporate reputation.

And it also shows why the Bahamas’ recent insolvency/winding-up regime reforms included provisions aimed at enhancing international co-operation.

In the New Life case, KPMG first obtained a Norwich Order, requiring CIBC FirstCaribbean International Bank (Bahamas) to hand over banking information on Pogachar and Lombardi’s companies, on October 27, 2009.

However, the two Bahamas residents were successful in persuading the Supreme Court, in a November 30, 2011, ruling to return their assets and property to them. And the original Supreme Court orders recognising the KPMG receivership were set aside.

The couple were also allowed to return to the Ocean Club Estates condo, and given “a reasonable monthly living allowance and reasonable conduct money”.

Prior to that, KPMG must have felt it was making progress. Pogachar and Lombardi had left the condo in April 2010 “without incident” after a bailiff was hired to evict them, and the property was listed for sale at $2.3 million with Bahamas Realty.

“The receiver understands that the real estate market for luxury properties in the Bahamas is currently depressed, and the receiver is considering leasing the Bahamian condo while it continues to list it for sale,” KPMG said optimistically in an earlier report.

“While the receiver has received two offers to purchase the Bahamian condo, which it pursued to the stage of preparation of formal agreements, neither agreement proceeded due to the purchasers’ concerns about the ability of the receiver to close and deliver possession within a reasonable time period.

“The receiver’s Bahamian counsel has advised that this uncertainty will likely continue until there is a final determination of the Bahamian proceedings.”

These moved on to the Court of Appeal last year. Under an interim stay agreement, Pogachar and Lombardi were allowed to stay in the Ocean Club Estates condo for two months or until the appeal was heard; given an $8,000 living allowance for two months out of receivership funds; the receiver was to pay the condo’s carrying costs and premiums; and also provide a $50,000 ‘letter of credit’ to the couple’s attorneys, Davis & Company.

The Court of Appeal ruled in favour of KPMG, and overturned the Supreme Court verdict, but complications remained.

“While the letter of credit was returned and the living allowance terminated, the receiver, on the advice of Bahamian counsel, has permitted Lombardi to continue residing in the Bahamian condo, as the cost of trying to have her removed would likely be significant, especially in light of the limited funds available in the companies’ receivership estate,” the KPMG report said.

“The receiver has nonetheless continued to pay the utilities and maintenance fees related to the Bahamian condo pending a final determination of the Bahamian court that will permit the receiver to take possession of the Bahamian condo.”

Thus KPMG, and the defrauded New Life creditors, are incurring significant monthly expenses to maintain the Bahamian condo, further depleting the recovery pool.

And, while a May 7, 2013, court ruling awarded KPMG and the receivership $260,000 in legal costs, Pogachar is now seeking to appeal the Court of Appeal ruling to the London-based Privy Council.

The receiver is also attempting to secure, and sell, $181,633 in luxury watches that belonged to Pogachar and Lombardi. These were being hed by Davis & Company until the court case was determined.

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.