The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed company has upgraded support for its main broker/dealer subsidiary to a guarantee that will ensure it remains financially solvent until end-April 2015, in a bid to assuage the Securities Commission’s ongoing concerns.

Benchmark (Bahamas) financial statements for the year to end-2013, which were signed off by its Board on Tuesday and released yesterday, reveal that the directors have had to strengthen the original ‘comfort letter’ given in favour of Alliance Investment Management.

“Concerns over the adequacy of a subsidiary’s regulatory capital were raised by the Securities Commission,” the Benchmark financial statements concede.

“The directors have been responsive in communicating with the regulator in good faith to resolve this issue. As at [April 29], the directors have requested, and are awaiting further clarification from the regulator to resolve this issue.”

The Benchmark financials also admitted that the Securities Commission had “raised concerns” over Alliance’s “ability to continue operating as a going concern”, forcing the former’s Board of Directors to “replace the letter of comfort with a letter of guarantee”.

Buried deep in the ‘organisation’ section of Benchmark (Bahamas) financials was confirmation of what this support means.

“The group [Benchmark] has provided a guarantee to Alliance to make sufficient funds available to enable it to meet its present and future obligations for a period including, but not limited to, 12 months from the date its financial statements were approved by the Board of Directors,” the financials state.

With Alliance largely making up Benchmark (Bahamas) balance sheet, the Securities Commission’s concerns seem justified, especially given that the financials audited by PKF (Bahamas) show that the latter, BISX-listed company was suffering from a net current solvency deficiency of $1.88 million at year-end 2013.

This was because current assets, worth $12.125 million, were exceeded by $14.005 million worth of liabilities.

Julian Brown, Benchmark (Bahamas) president and chief executive, and who is also Alliance’s principal, did not return Tribune Business’s message seeking comment on the company’s financial results.

But, while Benchmark (Bahamas) overall balance sheet is in positive net worth territory, thanks to its $4.5 million real estate investment at the corner of Carmichael and Fire Trail Roads, the financials certainly beg the company’s 735 Bahamian public shareholders to ask some tough questions at the upcoming annual general meeting (AGM).

The Securities Commission’s concerns stem from the central role Alliance Investment Management is alleged to have played in the alleged BC Capital ‘ponzi scheme’ scandal, where the majority of some $340 million in investor monies appears to have disappeared.

While no charges have been levied against Alliance, Mr Brown, Benchmark or any of the two companies’ officers or directors, some $217.1 million of investor monies was placed with and through the Bahamian broker/dealer.

Previous court reports submitted by BC Capital Group’s liquidators have alleged that of this money, the scheme’s principal, Nikolai 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.”

Of most concern to the Securities Commission and Benchmark shareholders are the implications for the latter’s entire $5 million preference share capital, which is held by BC Capital.

This is being treated as equity capital by Benchmark, as the preference shares are redeemable (as are dividends) at the BISX-listed company’s sole discretion.

They were issued “in lieu of funds” due to BC Capital, and are critical to Benchmark because they returned the company to solvency or positive net worth.

BC Capital’s liquidators, PricewaterhouseCoopers (PwC) Bahamas duo, Kevin Cambridge and Kevin Seymour, are targeting the $5 million preference shares as a key source of recovery, although they themselves acknowledge this investment may either be illiquid or worthless.

The duo’s last Supreme Court report, on April 4, also calls into question the assertion in Benchmark’s financials that it is co-operating in “good faith” with the Securities Commission.

The report noted that Alliance has, for the moment, managed to stymie regulatory investigations into itself and the BC Capital affair by the Securities Commission.

It 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.

This situation, together with the liquidators’ inability to obtain funding from BC Capital creditors to pursue legal action against Alliance, may explain why Benchmark’s financials confidently state that the situation will “not have a materially adverse effect” on its financial position.

The liquidators’ report said: “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.”