The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Liquidators for an alleged multi-million dollar Ponzi scheme have been “severely hampered” by a lack of financing in their efforts to recover a $5 million investment, and pursue legal action, against a BISX-listed company’s main affiliate.

The PricewaterhouseCoopers (PwC) Bahamas duo responsible for winding-up Nikolai Battoo’s BC Capital Group have warned, via a report to the Supreme Court, that the company’s “illiquidity” has prevented them pursuing numerous legal remedies against Benchmark (Bahamas) broker/dealer subsidiary, Alliance Investment Management.

And Kevin Cambridge and Kevin Seymour warned, in their April 4 report, that their further investigations would “likely be halted” unless BC Capital investors provided them with funding for legal action.

“The joint official liquidators remain significantly challenged by the continued illiquidity of the company’s [BC Capital] estate,” Messrs Seymour and Cambridge warned.

“The joint official liquidators maintain their strong opinion that legal action in respect of a number of previously identified courses of action should be pursued against Alliance to compel Alliance to return the $5 million investment made in Alliance’s preference shares (which itself may not be a realisable asset); complete the registration of [BC Capital’s[ marketable securities and surrender the same to the joint official liquidators; and grant the joint official liquidators access to certain Battoo-controlled accounts where investor funds may have been diverted.”

The PwC duo added: “The joint official liquidators also maintain their opinion that claims for breach of fiduciary duty may be available against Alliance.

“Financing via the Liquidation Committee is required in order to allow the joint official liquidators to continue their investigations and pursue any courses of against Alliance.”

In sum, Messrs Cambridge and Seymour have made little progress in recovering assets in the six months since their October 2013 report, and are warning that potential sources of recovery such as Alliance may elude them without financial support from BC Capital’s creditors.

Tribune Business has previously revealed that most of the $340 million invested with BC Capital was placed via Alliance, which put the money into 71 different portfolios at its omnibus Royal Bank of Canada and FirstCaribbean International Bank (Bahamas) accounts.

Some $122.9 million destined for Battoo’s investment funds was sent directly to EFG Bank in the British Virgin Islands (BVI).

Of the $217.1 million placed with Alliance, previous court reports said: “Battoo misappropriated approximately $45.7 million (21.1 per cent) for his personal use and paid approximately $18.3 million (8.4 per cent) to parties related to him.

“For every $100 received from the investors, just $38.23 was invested in Battoo-operated/controlled funds, $21.05 was paid to or for Battoo, $8.43 was paid to parties related to Battoo, and $7.37 was spent for other purposes.”

This newspaper also previously reported that of most concern to Benchmark (Bahamas) and its 735 Bahamian shareholders will be the liquidators’ findings concerning 100 per cent of its preference share capital.

BC Capital Group acquired all of this in two separate deals, one worth $2 million, the other $3 million, on June 11, 2010,and December 1, 2011, respectively.

Yet Messrs Cambridge and Seymour have alleged that the two investments were essentially ‘paper transactions’, with no capital physically injected into Benchmark/Alliance.

For the first $2 million, Alliance was said to have simply reduced the sum it owed to BC Capital Group by the same amount, while for the latter deal it credited its largest client with a $3 million equity account.

“Alliance recorded the company’s purchase of its Class ‘A’ non-voting preference shares by debiting its due to customer account (a liability account) and crediting preference shares (an equity account) on the dates in question, for $2 million and $3 million, respectively,” the BC Capital Group liquidators alleged.

“The company’s purported investment in Alliance represented a radical departure from [its] investment strategy. Such apparent departure is of considerable concern to the joint official liquidators, and will be the focus of their continuing attention.”

As previously revealed by Tribune Business, the preference share deals were critical to Bahamian shareholders of Benchmark, the publicly traded entity, because both times they returned the company to solvency or positive net worth.

Alliance, though, has for the moment managed to stymie regulatory investigations into itself and the BC Capital affair by the Securities Commission of the Bahamas.

Messrs Cambridge and Seymour, in their April 4 report, revealed that the Supreme Court has yet to rule on Alliance’s Judicial Review action that began on August 2 last year.

The broker/dealer had successfully obtained an injunction, and leave for Judicial Review, to block the Securities Commission’s Order that it cease taking on new business for 15 days and submit to a solvency review by the KRyS Global accounting firm.

And Messrs Cambridge and Seymour also alleged that their efforts to obtain a statement of BC Capital’s affairs, at the time it was placed into voluntary wind-up, from Battoo’s Bahamian attorney, former Bar Association president, Ruth Bowe-Darville, had also failed to produce results.

Just $28.996 million worth of BC Capital assets have been identified to-date, and the PwC duo, in a bleak assessment, said that while they intended to re-open talks with the Liquidation Committee, such discussions had so far been “fruitless”.

“If the Liquidation Committee is not minded to provide funding to the joint official liquidators, the joint official liquidators would have to consider other options, inclusive of taking directions of the Supreme Court as to further conduct,” Messrs Seymour and Cambridge alleged.