The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Chief Justice has branded the attempt by two Paradise Island residents to re-try their $22.6 million fraud case through the Bahamian courts as “an abuse of process”, and permitted receivers to seize their Ocean Club Estates condo.

Sir Michael Barnett, in a September 17 ruling, rejected the counterclaim and defence filed by Jeffrey Pogachar and Paola Lombardi, and instead granted summary judgment in favour of the KPMG accounting firm.

The two Canadian citizens, who have been accused of defrauding investors of $22.6 million via their New Life Capital scheme, filed a counterclaim seeking $30 million in damages and the restoration of all assets seized by KPMG in its bid to make their former clients whole.

But Sir Michael noted that the duo, who are well-known in Nassau social circles, did not deny the hearings by the Ontario Securities Commission (OSC) and Ontario Courts in 2011 and 2012, which found against them.

Both Pogachar and Lombardi participated in the OSC hearings by seeking a serious of adjournments, eventually informing the Canadian regulator they would not participate when it refused to stay the process.

The OSC ‘Sanctions Order’ against the duo was eventually transformed into a Canadian court order, and their appeal against the regulator’s initial ruling was dismissed on March 30, 2013, over their failure to pay ‘security for costs’.

Sir Michael said Pogachar and Lombardi were now ‘out of time’ to appeal the Canadian verdicts, finding that their defence and counterclaim were an attempt to re-try those cases in the Bahamas.

“By their proposed defence, the defendants [Pogachar and Lombardi] are seeking to defend in the Bahamas matters which they failed to defend in Ontario, Canada,” Sir Michael ruled.

“They are seeking to have the matters adjudicated upon by the OSC and the Ontario courts litigated in the courts of the Bahamas, on the basis that they have a good and arguable case on the claims made against them by the OSC and the courts.

“Pogachar and Lombardi acknowledge that they were aware of the Ontario proceedings and participated in them in a limited way, but did not participate in the hearing on the merits.”

The couple said the costs involved in hiring a Canadian attorney, and travelling between the Bahamas and Ontario, meant they could not participate in those hearings even though they wanted to do so.

Pogachar and Lombardi blamed the asset freeze imposed on them, at KPMG’s behest, for this. Lombardi, in a September 2013 affidavit, also alleged that this had prevented the couple from paying legal fees due to Davis & Co, the law firm of Deputy Prime Minister Philip Davis.

She claimed this had led to “a complete breakdown in the professional relationship” with Davis & Co, with the law firm refusing to further act on their behalf until it was paid.

Pogachar and Lombardi’s file was eventually transferred to the Deleveaux, Godet & Co law firm, and they were represented in the hearing before the Chief Justice by Maurice Glinton.

But Sir Michael added: “There is nothing in the affidavit of Ms Lombardi in which she states that she and her husband sought a variation of the injunction made against them to permit them to use monies that were frozen to pay their legal bills incurred as a result of the litigation in Ontario, or even here in the Bahamas.”

Turning to whether Pogachar and Lombardi should be allowed to serve their defence ‘out of time’, and re-try the issues determined in Canada, Sir Michael answered in the negative.

While agreeing that the duo’s reasons for not participating in the Canadian hearings had to be accounted for, Sir Michael ruled: “In my judgment, it would not be in the interests of justice – and it would be an abuse of process – to allow them to defend these claims in this action.

“The defences that they are seeking to assert could have, and should have, been raised in the proceedings before the OSC.”

The Chief Justice added: “I come to this conclusion because there is nothing in the affidavit evidence filed by the defendants to indicate that they sought to vary the injunctions to permit expenditure from the frozen funds to pay their legal expenses.

“Such a variation is frequently made by a court where the defendants can show that they have no other source of funding to pay their legal fees.

“Indeed, of the defendants are to be believed that the injunctions prevented them from participating in the hearings on the merits, it begs the question where is their source of funding to defend this action, given that there has been no variation of the injunctions to permit payment for legal fees.”

Finding that Ontario, not the Supreme Court, was “the appropriate forum” to raise and adjudicate these defences, Sir Michael refused to allow them to be served in the Bahamas.

However, Pogachar and Lombardi also challenged the receiver’s summary judgment application, arguing that the action trying to recover the investors’ funds had to be brought in New Life’s name – not that of the receiver.

Sir Michael described this argument as “a bit artificial”, given that KPMG’s fee claims were ‘special damages’ caused by the duo’s “breaches of their obligations to the New Life companies”.

“These are proceedings by these companies, acting by their receiver and manager, to recover monies improperly obtained from the companies,” the Chief Justice found.

“These are not ancillary receivership proceedings. The only issue is whether the receiver can bring this action to recover these monies in its name, and on behalf of, the companies. I have held that it can.”

Rejecting all other arguments by Pogachar and Lombardi, the Chief Justice permitted the receivers to take possession of the Ocean Club condo and declared that the assets were held on trust for the New Life companies.

He also granted damages that included $1.87 million in receivership fees; $1.982 million in legal expenses; and $7.093 million in damages against Pogachar and Lombardi.

The Canadian duo, though, have not taken this lying down. For the receiver has informed New Life investors that they are seeking to appeal Sir Michael’s ruling to the Court of Appeal.

“The Bahamian Court ruled in favour of the receiver but also, in an oral ruling, imposed a stay of proceedings for 21 days and granted the defendants leave to appeal to the Court of Appeal of The Commonwealth of The Bahamas,” the receiver said.

“The receiver has been advised by counsel that the defendants have 14 days to file a Notice of Appeal. The Court of Appeal could extend the stay of proceedings.”

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 $22.6 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.

However, Canadian regulators alleged that Pogachar and Lombardi misappropriated investor monies for their own personal gain and use, transferring $7.093 million to Bahamas bank accounts they controlled.

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.

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.

Legal proceedings then moved to the Court of Appeal. 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 then-attorneys, Davis & Co.

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.”

Earlier this year, Tribune Business revealed that Canadian police wanted to track down Pogachar and Lombardi in relation to the alleged fraud, and were seeking to extradite them from the Bahamas.