The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission is questioning whether last-ditch efforts to rescue a Bahamian broker/dealer, which has admitted to misusing client monies, are “bona fide” given its $1.862 million solvency deficiency.

Christina Rolle, the regulator’s executive director, alleged in a February 9, 2017, affidavit that it was difficult to see why any potential buyer would want to acquire Tillerman Securities given its latest financial statements.

Tillerman’s accounts, for the year to end-December 2015 and the six months to June 30, 2016, showed that the broker/dealer was falling deeper into insolvency amid its increasing regulatory troubles with the Securities Commission.

Its solvency deficiency, or negative net worth, stood at $1.862 million as at June 30 last year, an increase upon the $1.643 million at year-end 2015.

Tillerman’s accumulated deficit (total losses) also grew over the same period, from $2.561 million to $2.83 million, with the Securities Commission using the accounts to cast doubt on the attempt by 13 of the broker/dealer’s clients to acquire the insolvent company.

With “expenses far in excess of its revenues for the periods reported”, Ms Rolle alleged: “The petitioner [the Securities Commission] notes that the company, not having sufficient revenues over the said periods, either had to have received a direct injection from its shareholders or continued to use clients’ funds in order to fund its expenses.

“The petitioner has no reason to believe, nor has been provided with any evidence, suggesting that the current assets under management is able to generate sufficient income to cover the company’s ongoing expenses.

“It is the view of the petitioner that, based on the financials presented, the company does not have any value that would attract a bona fide buyer.”

Ms Rolle, though, conceded that the Securities Commission had “not received any independent valuation of any assets the company may hold or goodwill, if any”.

The Securities Commission is attempting, via the Supreme Court, to have Tillerman Securities placed into provisional liquidation and, ultimately, to be wound-up. Ed Rahming, the Bahamian accountant and Intelisys (Bahamas) executive, is understood to have been tapped as the potential provisional liquidator.

The capital markets regulator believes Tillerman’s winding-up is in the interests of both its clients and the integrity of the wider Bahamian financial services industry, with Tribune Business previously revealing how the broker/dealer admitted to using almost $4 million in client monies to fund its operating expenses and business development plans without first getting their permission.

Apart from “the improper use of its clients’ funds”, Tillerman Securities has also been unable to meet the minimum $300,000 regulatory capital requirement for two years, and is “insolvent”, with assets exceeding liabilities following several years of sustained losses.

Tillerman’s latest financial statements further confirm the latter concern, with $1.18 million in total assets ($725,797 of which are current) dwarfed by $3.031 million in total liabilities.

Of the latter, which are more than double Tillerman’s total assets, the majority - some $2.919 million -are shown as due to its clients.

The financial information provided to the Securities Commission also shows a total comprehensive loss of $711,768 for the year to end-December 2015.

The regulator is using the extent of the ‘red ink’ to justify its opposition to a ‘rescue plan’ for Tillerman, which has been put forward by 13 of the broker/dealer’s clients, and who are willing to give ‘retroactive consents’ for the previous “improper” use of their monies.

Tillerman’s managing director, Hans Christian Saunders, in a Supreme Court affidavit said the plan involved the 13 clients acquiring 100 per cent of the broker/dealer’s share capital in exchange for the sums owed to them.

Apart from this “set off”, Tillerman’s existing debts and liabilities, plus all legal fees and costs associated with the purchase, will be paid by the current shareholders.

The current shareholders - Mr Saunders, attorney Craig Butler and Mark Albury - are also to give personal guarantees against forecasts of Tillerman’s future performance.

And the same Ed Rahming as the Securities Commission is proposing as provisional liquidator will be named as interim manager under Tillerman’s new owners until a new management team is appointed.

With Tillerman’s existing shareholders and directors having accepted the client offer on January 31, Mr Saunders promised that if allowed to proceed, the agreement would remove the $3.9 million debt from the broker/dealer’s books, return it to solvency and make all clients whole.

“Damage to the reputation of the jurisdiction as a financial services centre will be avoided,” Mr Saunders said, adding that the ‘rescue plan’ would produce “a vastly better outcome than that presented by a liquidation”.

The Securities Commission, as indicated by Ms Rolle’s affidavit, is deeply suspicious of the ‘rescue’ plan, not least because no ‘new money’ appears to be being injected into Tillerman to recapitalise it.

The regulator is also understood to be questioning why the 13 clients would forego the sums owed to them in return for vague promissory notes and guarantees by the existing owners.

It is also thought to be querying why any investor would seek to acquire Tillerman given its history, as the broker/dealer is effectively insolvent, unregistered and has been without a license to operate since late September 2016.

And further concerns surround the fact that the ‘rescue plan’ massively overvalues Tillerman, and nothing has been mentioned about how all other clients - those outside the 13 - will be taken care of.

Tillerman, though, has temporarily at least managed to thwart the Securities Commission’s plans to appoint a provisional liquidator and “preserve what remains of clients’ assets”.

For Justice Ian Winder has agreed with the broker/dealer’s argument that the Securities Commission failed to follow the processes set out in section 157 of the Securities Industry Act.

This section relates to the ability of Securities Commission licensees to appeal any final decision it makes to the Supreme Court, once the regulator has completed its own disciplinary processes and hearings.

The Securities Commission, though, is understood to be arguing that section 157 does not apply to the Tillerman situation, as the formal process was never invoked and a ‘final decision’ never taken.

Instead, it claims its actions against Tillerman were covered by the Act’s section 69, which allowed it to impose conditions on the broker/dealer’s license and registration until it complied. When it failed to do so by end-September 2016, the Securities Commission refused to renew its license and moved for the provisional liquidation.

Tribune Business understands that the Securities Commission intends to appeal Justice Winder’s finding to the Court of Appeal, fearing that the ruling could have major implications - and potential negative consequences - for its ability to regulate the Bahamian capital markets.