The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed company has been forced to guarantee its main subsidiary’s financial solvency, after it failed to meet the Securities Commission’s minimum $300,000 capital requirements.

Benchmark (Bahamas) financial statements for the year to end-December 2014 disclose that it has upgraded its support for Alliance Investment Management from a comfort letter to a guarantee.

The financials, audited by PKF (Pannell Kerr Foster) Bahamas, reveal that Benchmark’s broker/dealer subsidiary has major solvency concerns due to an accumulated deficit (total losses over its collective lifetime) and liabilities exceeding assets.

“Without qualifying our opinion, we draw attention to Note 1 to the financial statements which describes the net deficit position of a subsidiary at the end of the year, and the guarantee provided by Benchmark (Bahamas) to make funds available for the subsidiary to continue operating as a going concern,” PKF said.

“The financial statements of Alliance have been prepared on the basis that it will continue as a going concern. The statement of financial position shows net liabilities and deficit as at December 31, 2014, resulting in Alliance not being able to meet regulatory capital requirements.”

Benchmark’s financials disclose that its guarantee pledges “to make sufficient funds available” to Alliance, thereby enabling it “to meet its present and future obligations for a period including, but not limited to, 12 months from the date” its financial statements received Board approval.

That approval came on April 29, 2015, with the financials also revealing that the upgrade to a financial guarantee stemmed from a Securities Commission request.

Benchmark’s statements make clear that the Bahamian capital markets regulator has harboured concerns over whether Alliance possesses sufficient regulatory capital for three years.

Yet despite the broker/dealer failing to meet the $300,000 minimum capital threshold at year-end 2014, the Securities Commission has yet to impose any penalties against it.

Benchmark’s directors have been negotiating “in good faith” with the regulator to resolve the matter, and at end-April 2015 were awaiting a response from it.

“During 2012, concerns over adequacy of a subsidiary’s regulatory capital were raised by the regulator,” Benchmark’s financial statements confirm.

“The regulator has also raised concerns as to [Alliance’s] ability to continue operating as a going concern. Following the regulator’s request, the directors of the subsidiary’s parent entity have replaced the letter of comfort with a letter of guarantee,”

The statements confirm that Alliance has to maintain at least $300,000 in regulatory capital, and add: “The subsidiary did not meet the required capital, for which a guarantee was provided by [Benchmark]. No penalties have been imposed by the Commission at year-end.’

Some observers are likely to question why the Securities Commission has yet to take enforcement action against Benchmark/Alliance, despite its concerns being almost three years old.

Meanwhile, the second concern raised by PKF, in its capacity as external auditor, is the live Securities & Exchange Commission (SEC) lawsuit against Alliance and Benchmark chief executive, Julian Brown, relating to the alleged $400 million BC Capital Group fraud.

PKF warned Benchmark (Bahamas) shareholders that “the outcome is uncertain, and any potential losses cannot be reasonably estimated”.

The crux of the SEC’s case is that Mr Brown and Alliance allegedly helped to facilitate the international ponzi scheme perpetrated by BC Capital and Battoo.

The US regulator is claiming that the Bahamian defendants misled investors by suggesting they were the independent custodian for the BC Capital funds, whereas these monies were all directly in Battoo’s hands.

It is also alleging that Alliance “helped him hide the massive losses by sending out bogus account statements that fraudulently overstated the value of investor assets by more than $148 million”.

This, the SEC is alleging, helped Battoo to “misappropriate at least $45 million of investor funds”.

Mr Brown and Alliance, after losing their bid to have the SEC case against them dismissed on technical grounds, filed a defence denying all the allegations. They are again asking the northern Illinois district court to throw out the case.

In the meantime, Benchmark’s financials do not expect any “materially adverse” impact to result from BC Capital holding 100 per cent of its $5 million preference share capital.

Bahamian liquidators for BC Capital have demanded that this investment be unwound and returned to them - a development that could hit the financial solvency for both Alliance and Benchmark.

Benchmark’s year-end 2014 financials show a balance sheet with a $2.603 million current solvency deficiency. Current liabilities of $14.281 million exceed assets worth $11.678 million.

However, Benchmark is kept in $1.494 million positive net worth by the $4.511 million valuation assigned to its investment property at the corner of Carmichael and Old Fire Trail Roads.

For 2014, Benchmark (Bahamas) suffered a $786,038 loss, reversing a $163,385 profit for the prior year.

The company also wrote-off the “irrecoverable” $106,548 equity investment it made in the company, Celepay, in 2011.