By NEIL HARTNELL
Tribune Business Editor
An insolvent Bahamian broker/dealer’s principal will be told to return $3.5 million to its liquidators by “formally dissolving” 10 entities he controls, Tribune Business can reveal.
The latest report on Montaque Capital Partners’ court-supervised winding-up, which has been obtained by Tribune Business, disclosed that the liquidators are waiting for Owen Bethel to submit an affidavit detailing how much he and his companies owe.
While Ed Rahming and Kenneth Krys, the KRyS Global accountants, do not name the companies involved, their report suggests they include Bahamas Film Invest International and Modes Iles, the entities that acted as vehicles for Mr Bethel’s movie and fashion show ambitions, respectively.
Related party transactions appear to have featured prominently in Montaque’s collapse into insolvency, with the liquidators currently estimating that some $4.888 million is owed to the broker from such dealings.
“The liquidators have been in discussions with Owen Bethel, 95 per cent shareholder and director of the company,” Messrs Rahming and Krys said in their third report to the Supreme Court.
“The liquidators have identified a total of approximately $3.5 million due from Bethel and 10 entities controlled by him.
“We understand that Mr Bethel will lay out these amounts owed in an affidavit to be submitted. We await a copy of the submitted affidavit. Bethel will be asked to formally dissolve these entities and provide proof of such.”
Mr Bethel was a well-known figure in the financial services industry, his business being one of the few that was Bahamian owned. He has resolutely declined to comment on the liquidation of his company, despite being given several opportunities by Tribune Business to do so.
The evidence detailed in the liquidators’ three reports to-date strongly suggests that Montaque Capital Partners acted as a vehicle to finance Mr Bethel’s non-financial services projects, although the liquidators do not suggest this was done improperly, or that client funds were used without permission.
Data produced by the liquidators shows that Bahamas Film Invest International, which at one point attempted to acquire the now-defunct Bahamas Film Studios, owes $71,705 to Montaque Capital Partners.
And Modes Iles, the entity that staged Mr Bethel’s Islands of the World fashion shows, is shown as owing $1.28 million. It is unclear what will happen to this venture if it is among the companies to be dissolved.
Montaque Capital Partners’ affiliate, Montaque Corporate Partners, owes its broker/dealer stablemate $1.123 million, while three clients - referred to as A, B and C - collectively owe $2.27 million.
Messrs Krys and Rahming indicate in their report that they are running out of patience with related party borrowers in terms of recovering what is owed to Montaque Capital Partners, having already sent out demand notices to them.
“To-date. the liquidators have not collected assets owed to the company,” the report says somewhat tersely. “The liquidators will now send out statutory demands and seek default judgments against the relevant related parties.”
Messrs Rahming and Krys add: “Based on interviews conducted, the company [Montaque Capital Partners] reportedly made several loans/advances to third parties, including a loan of $75,000 to a group of five Bahamians to fund a tourism/entertainment project; a loan of $200,000 to a friend of Bethel; and an advance to a business colleague of Bethel with a balance owing to the company of $5,807.”
The liquidators also reveal that Edison Sumner, who owned the remaining 5 per cent equity stake in Montaque Capital Partners, was making arrangements to settle a $177,412 debt owed to the insolvent broker.
That is a debt incurred by Internet Protocol Solutions International (IPSI), the communications provider Mr Sumner heads, which has been attempting to establish itself as a start-up ‘Triple Play’ rival to the likes of Cable Bahamas.
Messrs Krys and Rahming confirmed they had been in talks over IPSI’s debt with Mr Sumner, who is now also chief executive of the Bahamas Chamber of Commerce and Employers Confederation (BCCEC).
“Mr Edison Sumner is the chief executive of IP Solutions International, a local telephone and cable company,” the liquidators said.
“[Montaque Capital Partners] and Montaque Corporate Partners together own 16 per cent of IPSI. IPSI is a debtor of the company. Mr Sumner is arranging a settlement payment on the amount owing by IPSI.”
Recovering the $4.888 million owed by related parties, and especially the $3.5 million owed by Mr Bethel and his entities, would go a long way in filling the potential $8.6 million solvency deficiency at Montaque Capital Partners that the liquidators are currently grappling with.
Most of the broker/dealer’s assets were held for clients on trust, in a fiduciary capacity, and Messrs Krys and Rahming said that to-date they have received 68 investor claims worth a collective $17.5 million.
But even that creates a discrepancy, as the liquidators alleged their analysis, at the September 30, 2011, insolvency date showed that Montaque Capital Partners had recorded assets of $16.9 million. Yet Messrs Krys and Rahming found just $8.9 million.
Contributing to the shortfall, they alleged, is the total $5.3 million that is owed to Montaque Capital Partners by clients with negative account balances.
“We have identified approximately $2.4 million due from customers that had negative account balances at brokers in the name of the company [Montaque Capital Partners],” Messrs Krys and Rahming alleged.
“We have identified approximately $2.9 million due from customers that had negative account balances at the company in their ‘cash accounts’. The company acted as a bank by allowing customers to maintain cash accounts with it.”
The liquidators said they sent out letters requesting payment by all these customers in 2012, but had received not a single response.
“We have conducted basic due diligence queries and locator searches on the material account holders, and we have searched a dormant account listing of assets in the Bahamas and the US that may be in the names of these account holders,” Messrs Krys and Rahming said.
“We intend to issue statutory demand notices to these customers in Canada and the Bahamas, and seek default judgments in cases where we again receive no response.”
The other major obstacle facing the Montaque Capital Partners liquidation is the fact that almost $5 million worth of securities assets belonging to the broker’s customers remain frozen in Canada, where they are the subject of legal action.
The correspondent broker holding them, Macquarie Private Wealth, wants to sell these securities to cover a cash deficit in Montaque’s accounts with it.
Messrs Rahming and Krys managed to get a stay Order from the Canadian courts to prevent Macquarie from doing this, but their inability to reach a litigation funding agreement with Montaque Capital Partners’ clients means they are currently unable to play any further part in the legal proceedings.
Several clients are instead pursuing litigation themselves to recover their assets, and Messrs Krys and Rahming said in their report: “It quickly became apparent to the liquidators that the majority (approximately $6.2 million or 95 per cent) of the assets held in the company’s brokerage accounts were located in Canada, and the majority of those assets (amounting to approximately $5 million or 81 per cent of brokerage account assets in Canada) were held with one specific broker, Macquarie.”