By NEIL HARTNELL
Tribune Business Editor
An insolvent Bahamian broker/dealer’s liquidators have recovered just 15 per cent of its identified assets, while clawing back minimal sums from its former principal and overdrawn clients.
Accountants Ed Rahming and Kenneth Krys, in their fourth and final report to the Supreme Court, said they had only been able to recover $2.6 million out of almost $17 million held in the name of Montaque Capital Partners.
Disclosing that they had been handicapped in their recovery efforts by a lack of financing from the broker/dealer’s former clients, the duo said their pursuit of related party transactions had yielded negligible results.
In particular, they claimed to have received just $75,000 from Owen Bethel, Montaque Capital Partners’ principal and 95 per cent majority shareholder, despite determining that he - and entities he controlled - owed the broker/dealer around $3.5 million.
And efforts to recover debts from Internet Protocol Solutions International (IPSI), a communications provider controlled by current Chamber of Commerce chief executive, Edison Sumner, also proved fruitless due to the company’s lack of liquid assets.
Messrs Rahming and Krys also disclosed that the inability of Montaque Capital Partners’ own assets, and its clients, to fund the liquidation had prevented them from pursuing former customers with overdrawn balances totalling $2.9 million.
“We identified approximately $17 million in total assets in the company’s name. We recovered approximately $2.6 million in assets,” the liquidators disclosed, in a bleak report to the Supreme Court.
“We identified approximately 195 customers with accounts in the company name or with assets held by the company. We received Proof of Debts (PODs) from 68 customers. We identified approximately 430 customers of the company and related companies.”
The liquidators’ previous reports have implied that related party transactions played a significant role in Montaque Capital Partners’ collapse, but many of the entities involved were found to either “have no assets or be hopelessly insolvent”.
As a result, Messrs Rahming and Krys said they focused on “more plausible recovery efforts”, including talks with Mr Bethel in a bid to obtain at least partial repayment.
“The liquidators’ analysis determined that Mr Bethel and entities that he controlled owed the company a total of approximately $3.5 million,” the report said.
“Mr Bethel has acknowledged in an affidavit, a copy of which has been provided to the liquidators, approximately $330,000 as due and owing to the company, and paid $75,000 in March 2016.
“The $75,000 represents a portion of the surplus from the sale of his residential real property. The liquidators have no knowledge of any other assets, and are discontinuing any other recovery efforts with regard to Mr Bethel.”
Mr Bethel was a prominent, well-known figure in Bahamian financial services as one of the few local owners in the industry.
He is now chairman of the Historic Bahamas Foundation, the non-profit entity that supports and finances the restoration and preservation of Bahamian historical monuments and artefacts. The Foundation works closely with the Antiquities, Monuments and Museum Corporation (AMMC).
Messrs Rahming and Krys, meanwhile, added that they had also held talks with Mr Sumner, who held the remaining 5 per cent of Montaque Capital Partners’ equity, over the debts owed by his IPSI business.
Montaque Capital Partners and its affiliate, Montaque Corporate Partners, together owned 16 per cent of IPSI.
“Mr Sumner, in an affidavit, a copy of which has been provided to the liquidators, has acknowledged indebtedness by IPSI to the company of approximately $178,000,” the report alleged.
“The liquidators have for some time attempted to recover the sum due by IPSI, but given IPSI’s lack of liquid assets and our lack of litigation funding, we have discontinued any further efforts in this regard.” There is nothing to suggest that Mr Sumner has done anything wrong in regard to Montaque Capital Partners or IPSI.
Messrs Rahming and Krys said other recovery sources proved equally bleak or minimal.
“The liquidators reconciled the customer accounts and identified a position of approximately $2.9 million where customers withdrew more than they had deposited with the company,” their report said.
“In addition to three mass mailings in 2012 and 2013, the liquidators sent final demand notices and statutory demands to all customers who owed money to the company. To-date, these efforts have been unsuccessful in recovering the amounts owing.
“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 US that may be in the names of these account holders, and were unsuccessful in identifying any material assets. Given the lack of assets and no litigation funding, the liquidators are not in position to pursue further action against these debtors.”
Montaque Capital Partners was placed into court-supervised liquidation in December 2011, after it emerged that it was insolvent.
Two separate accounting firms had identified serious “compliance breaches” before the broker/dealer collapsed, including a $5 million “shortfall” that may have resulted from the unauthorised use of client funds.
Messrs Rahming and Krys acknowledged these concerns in their January 18, 2017, report, saying “concerns had been raised regarding the operations of the company and the way it accounted for and dealt with customers’ assets”.
Pointing to the alleged “shortfall”, they noted that Montaque Capital Partners had recorded assets of $16.9 million, yet they could only locate $8.9 million.
The fact that the liquidators have recovered just 15 per cent of the assets recorded in the broker/dealer’s accounts, and less than one-third of the monies identified by Messrs Rahming and Krys, is likely to be viewed by many observers as another ‘black eye’ for the Bahamas and its financial services industry.
The absence of funding has also prevented the recovery of $5 million in brokerage account assets held at Canadian broker, MPW, although some individual clients have been able to regain investments held there by themselves.
Besides returning $2.1 million worth of Bahamian securities to their owners, Messrs Rahming and Krys also recovered some funds through the auction of multiple paintings.
“The liquidators sought to sell the paintings by hosting an art auction in July 2014, where the liquidators were able to sell 21 of the 23 paintings for a gross amount of net amount of $28,322,” their report said.
“The net amount realised totalled $25,577.50 after payment of commission to the auctioneer. The value realized was significantly lower than the original appraised values ($65,400) due to the passage of time, market conditions at the time of the auction, and other factors.”
The only remaining assets are $212,500 in cash that is under the liquidators’ control at the Royal Bank of Canada (RBC), plus some $99,062 in monies and securities held at another Bahamas-based broker/dealer, Gibraltar Global Securities.
Gibraltar, which has had its own regulatory troubles, is itself in voluntary liquidation, and Messrs Rahming and Krys believe there will be “little to no recovery” for Montaque Capital Partners.
The latter’s liquidators, given the absence of funding and minimal prospects for further recovery, are now seeking Supreme Court approval to bring the liquidation to a close and be paid their fees/expenses.
“The liquidators are of a view that there will be insufficient assets to recover the majority of their fees and expenses,” the report alleged.
“Since April 2016, both the liquidators and their legal counsel have ceased charging the estate for their time and efforts.”