By NEIL HARTNELL
Tribune Business Editor
There is a “legitimate risk” that a BISX-listed broker/dealer may not return funds caught up in a $340 million Ponzi scheme to their rightful owners, court documents obtained by Tribune Business have alleged.
The December 13, 2013, filing by US attorneys acting for the liquidators of eight British Virgin Islands (BVI) domiciled investment funds, into which Alliance Investment Management placed monies belonging to BC Capital Group investors, also blasts the latter’s Bahamian and US liquidators for failing to co-operate on a solution to prevent this.
Alliance is the main subsidiary of BISX-listed Benchmark (Bahamas), and the BVI funds’ liquidators said they had realised “for some time” that any funds they recovered, and upstreamed to the Bahamian broker/dealer, may not be returned to BC Capital investors.
“The BVI liquidators have recognised for some time that there may be a risk that Alliance may not distribute money it receives from its investments in the BVI funds to its creditors and investors,” the BVI liquidators, Hadley Chilton and John Greenwood, alleged.
“The grounds upon which Alliance might take such a position are theoretical at this point, but the facts suggest a legitimate risk exists.”
Such an outcome has been made possible because the investments in the BVI funds are held in Alliance’s name, not those of the BC Capital investors.
The Bahamian broker/dealer was acting as a ‘nominee’, and the fact the investments are held in its name means it - not the defrauded BC Capital investors - will receive any recovered funds.
The grounds for the BVI liquidators’ ‘legitimate risk’ concern is not detailed in the court documents, although it is likely to relate to the fact Alliance was the key hub in the BC Capital scheme, and had a close relationship with its principal, Nikolai Battoo.
There is nothing, though, to suggest that Alliance, Benchmark or their senior directors/management have done anything wrong in relation to the BC Capital affair, although the scheme’s Bahamian liquidators are exploring legal action against them.
Tribune Business revealed previously that of the $217.1 million in investor funds previously received by Alliance, just $83 million - some 38.2 per cent - was invested into the BVI funds.
While BC Capital investors, collectively, are unlikely to recover anywhere near this sum, the BVI liquidators have hit out at their Bahamian counterparts for failing to co-operate on a solution to the Alliance issue.
The Bahamian liquidators are PricewaterhouseCoopers (PwC) Bahamas duo, Kevin Cambridge and Kevin Seymour, who are working with the US receiver for BC Capital, Brick Kane.
“Recognising this, the BVI liquidators (of their own initiative) have affirmatively reached out to both the receiver and his co-liquidators in the Bahamas in an attempt to engage in a discussion to determine whether there is a legally appropriate mechanism they could jointly develop to avoid such an outcome,” Messrs Chilton and Greenwood alleged.
“The receiver [Brick Kane] has never evinced any interest in such a discussion, and therefore, these efforts have gone nowhere.”
The BVI liquidators produced an e-mail to show they were aware of the Alliance concerns from July 15, 2013. The document said: “We perceive that it may be presently unclear how Alliance, Once we distribute assets (both to Alliance and the other investors in our funds) will treat those monies, and how those monies may flow through to its customers.
“While that concern seems to be outside my clients’ remit, we have already expressed that we are prepared to explore with you whether there is a mechanism that we can use to properly address this problem.”
Documents obtained by Tribune Business show Alliance as holding a 37.83 per cent stake in the Anchor Hedge Fund; 10.35 per cent of the shares in the Galaxy Fund; and 17.33 per cent of the shares in the FuturesOne Diversified Fund.
Meanwhile, Messrs Chilton and Greenwood described as “misleading and inflammatory” accusations by Mr Kane that they would only recognise claims by direct investors in the BVI funds, and reject all those made through Alliance.
They reiterated that, in any distribution of recovered monies to investors, Alliance would receive what was due to it based on its shareholding in each fund.
Stating bluntly that Mr Kane’s assertions were “false”, the BVI liquidators added that they have “undertaken extraordinary efforts to understand the positions Alliance might take with respect to its investors, and to proactively address problems that may arise”.
This is backed by the July 15, 2013, e-mail sent on their behalf by attorneys, who said to the US receiver: “My clients have explained on numerous occasions that, to the extent your clients’ victims are persons or entities who have directly or indirectly placed money with Alliance, Alliance will be entitled to its legal share of the surplus assets of the funds in which it invested, in the normal course of liquidations.”
The documents give an insight into the ‘competition for assets’ battle that is raging between the BVI liquidators and Mr Kane, who wants to create a ‘global fund’ to recover BC Capital investor monies and have charge of the process.
Yet the BVI liquidators, appointed by the courts in that country, are standing their ground, warning that the fight is only depleting the recovery for BC Capital victims.
The normal procedure would be for the BVI liquidators to complete their work and upstream the proceeds to the Bahamas, allowing the PwC duo to do their bit. All parties are working for the relevant courts, not Battoo - a suspicion Mr Kane has harboured about the BVI liquidators.
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.
And 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.”