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Accounting Firm’S Work ‘Misused’ To Hide Fraud

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian accounting firm’s work was “misrepresented” to conceal an alleged fraud that has placed $125m of investor monies “at risk”, US federal regulators have alleged.

The Securities & Exchange Commission (SEC), in legal documents obtained by Tribune Business, said the principals behind Mediatrix Capital falsely branded Grant Thornton (Bahamas) “accuracy checks” on its trading performance as an audit that was conducted to international standards.

This, the US regulator claims, was designed to reassure investors Mediatrix was delivering promised returns of up to 150 percent and disguise the “misappropriation” of $41m to finance its principals’ lavish lifestyles and personal expenses.

Paul “Andy” Gomez, Grant Thornton (Bahamas) managing partner, yesterday described the SEC’s assessment of its role as “accurate” and said he had no fear it would cause any repercussions for the accounting firm.

Revealing that Grant Thornton (Bahamas) had co-operated with both the SEC and local capital markets regulator, the Securities Commission of The Bahamas, in the Mediatrix Capital investigation, Mr Gomez said the accounting firm was even fired as the auditor for one of the group’s investment funds after it gave a “qualified” opinion on the financials.

The Bahamas’ former ambassador to China added that Grant Thornton (Bahamas) reports “clearly indicated it was not an independent audit” that was performed by the firm, and its work was not to be disclosed outside Mediatrix’s management - something that the latter appears to have breached.

There is nothing to suggest Mr Gomez, Grant Thornton (Bahamas) or any of its executives or staff have done anything wrong in relation to the Mediatrix Capital affair, which has multiple Bahamian connections (see other article on Page 1B). He said the accounting firm’s task had been to “clarify” trading data supplied by Mediatrix Capital’s brokers, Blue Isle Markets Inc and Blue Isle Markets Ltd.

The former, described as a St Vincent and Grenadines-domiciled International Business Company (IBC) with its “principal place of business in Nassau”, and Blue Isle Markets are both alleged by the SEC to be controlled by Mediatrix Capital’s three principals - two of whom are said to live in The Bahamas.

Jeffrey Felder, the SEC’s senior attorney, alleged in an affidavit that Mediatrix Capital used Grant Thornton (Bahamas) work to help cover up trading losses and its alleged fraudulent scheme in the statements that were issued to investors.

“To confirm that the account statements defendants prepared and provided to investors included false gains rather than the actual losses suffered by the Blue Isle brokerage accounts, I obtained periodic statements from investors and a summary of all investor statements from March 2016 to June 2018 that was prepared by Grant Thornton (Bahamas), an affiliate of a large international accounting firm, at Mediatrix Capital’s request,” Mr Felder said.

“The SEC staff also received the account statements that Grant Thornton (Bahamas) relied on to prepare [its] report. The account statements were generated by Blue Isle and Mediatrix Capital, as evidenced by the fact that the statements provided to Grant Thornton (Bahamas) say either ‘Blue Isle Markets Inc’ or ‘Mediatrix Capital’.”

The SEC compared these with the account statements received from the offices of Mediatrix’s prime broker in London and Armenia, with the discrepancies between the two confirming Mr Felder’s suspicions that the group and its principals had been “concealing losing trades from investors and facilitating the fraud”.

Of the $124.5m received from third-party investors into Blue Isle’s bank accounts between March 2016 and May 2019, the SEC said only $75.1m went Mediatrix’s prime brokers over the same period. It is alleging that “at least $41m of investor funds” were diverted for the benefit of Mediatrix’s principals and to pay-off early investors as part of a Ponzi-like scheme.

“Mediatrix Capital and the individual defendants made statements to investors and potential investors that the...... trading results were audited, and made other misrepresentations concerning the services provided by Grant Thornton (Bahamas),” Mr Felder alleged in his September 12, 2019, legal filing.

He listed three such “misrepresentations”, including statements in Mediatrix investor prospectuses that “real live results audited from December of 2013 through the present day” were made available for its trading activities and that performance audits were available upon request.

The term “audit” was also wheeled out to back assertions that Mediatrix had achieved 54 months of straight trading gains and 150-plus percent returns, while it was alleged that “Grant Thornton does monitor and report on all deposits and withdrawals made in all accounts”.

Treating such promotion with derision, Mr Felder alleged: “These statements concerning audited performance results were false because the [scheme] was not audited. While Bahamian accounting firms were hired by Mediatrix Capital, they were not hired to do an audit, but rather to perform mathematical accuracy checks on documents they received purporting to reflect the trading results.

“Additionally, the report from Grant Thornton (Bahamas) states that it is not an audit of the company in accordance with international standards. The statements in the questionnaire regarding Grant Thornton’s monitoring of Mediatrix Capital’s bank accounts is not true, and misleading, because Mediatrix Capital had no bank accounts.”

“The SEC’s conclusion of what we did appears to be accurate. We did not do an audit,” Mr Gomez told Tribune Business yesterday. “What I will say to you is that we did not audit any of those structures.

“We did agreed upon procedures where we would have gotten information from the brokers, and it clearly stated those documents were for management, internal purposes only and could not be disclosed.”

Mr Gomez said Grant Thornton (Bahamas) had immediately contacted Mediatrix’s principals “once we got the call from the SEC” to ask whether the non-disclosure agreement had been breached, and received written reassurances it had not been.

However, the SEC’s allegations that the accounting firm’s work was “misrepresented” to investors to conceal the purported fraud and misuse of their monies suggests otherwise.

“We never performed an audit,” Mr Gomez asserted. “We never would have done, and never audited the group. Whatever the company [Mediatrix] did, and it was incorporated in The Bahamas, we have no knowledge of it.

“We would have gotten statements they gave to us, and they asked us to determine from statements that had a lot of activity to reclassify them based upon agreed procedures. I’m not concerned about any exposure because what we did in the case of Mediatrix, we never performed an audit. There’s no exposure in terms of agreed upon procedures.”

Mr Gomez disclosed to Tribune Business that Grant Thornton (Bahamas) was even fired by Mediatrix as the external auditor of one of its investment funds because it issued a “qualified opinion” on its financial statements.

“The fund we audited did not have that many assets,” he recalled. “The audit was qualified, and based on the qualification we were terminated. It had no more than $2-$3m in it, and we qualified the opinion because of some information we received. Because of the qualification they deemed our report as useless, and our services were no longer required.”

Mr Gomez said Grant Thornton (Bahamas) had co-operated with the SEC probe, providing the information that the US capital markets regulator had requested. “Both the SEC and the Securities Commission know the extent of the work we did” on Mediatrix, he added.

Christina Rolle, the Securities Commission’s executive director, was travelling yesterday and declined to comment on the Mediatrix probe when reached by e-mail.

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