The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission is appealing a court verdict that “quashed” its bid to assess the solvency of a BISX-listed company’s broker/dealer affiliate, which is embroiled in an ongoing $340 million fraud probe.

The joint Bahamian liquidators for the alleged BC Capital Group ‘ponzi scheme’, in their fourth report to the Supreme Court, revealed that Alliance Investment Management and its attorneys had succeeded in thwarting - for the moment - any local regulatory action against them.

As previously revealed by Tribune Business, the Securities Commission on April 11, 2013, had ordered the Benchmark (Bahamas) subsidiary to both cease taking on new business for 15 days and “subject itself to an independent solvency review” to be conducted by the KRyS Global accounting firm.

Responding rapidly to safeguard their business, Alliance’s management managed four days later to both obtain a Supreme Court ‘stay’ of the Securities Commission’s Order, plus gain leave to file a Judicial Review action to have this set aside.

Now, PricewaterhouseCoopers (PwC) Bahamas accounting duo, Kevin Cambridge and Kevin Seymour, revealed in their latest report that Alliance’s Judicial Review had, for the moment, crushed the Securities Commission’s planned solvency review.

“The Judicial Review commenced in the Supreme Court on August 2, 2013, and on June 17, 2014, a ruling was handed down which quashed the Regulatory Order,” the PwC duo revealed. “The matter has since been appealed by the Securities Commission of the Bahamas.”

That appeal has yet to be heard, and Hillary Deveaux, the Securities Commission’s executive director, did not return Tribune Business’s calls yesterday seeking comment.

However, it appears that the Bahamian capital markets regulator has once again been rendered impotent in its efforts to take action against licensees suspected of alleged wrongdoing.

Tribune Business has previously revealed how Alliance is alleged to have played a key role in facilitating the BC Capital scheme, in which most of the $340 million was placed via Alliance,.

The Bahamian broker/dealer then put the money into 71 different portfolios at its omnibus Royal Bank of Canada and FirstCaribbean International Bank (Bahamas) accounts.

Of the $217.1 million placed with Alliance, previous court reports said BC Capital’s principal, Nikolai Battoo, misappropriated approximately $45.7 million (21.1 per cent) for his personal use and paid approximately $18.3 million (8.4 per cent) to parties related to him.

It seems, yet again, that the Bahamas is having to rely on the US courts and regulators to take the due action, with Alliance and its president, Julian Brown, facing a Securities & Exchange Commission (SEC) lawsuit for allegedly facilitating the BC Capital Scheme.

Mr Deveaux’s suggestion, at the time the SEC filed its action, that the Securities Commission may undertake its own investigation and action against Alliance, was puzzling because the Bahamian regulator had already attempted to do just that with the ‘solvency review’.

He made no mention of this and the content of the April 11, 2013, ‘Regulatory Order’ when speaking to the media.

Meanwhile, Messrs Seymour and Cambridge confirmed that, almost two years in, they have yet to recover any of the estimated $50.405 million assets held - mostly in Alliance’s name - for BC Capital investors/creditors.

This, they reiterate, is because they have yet to receive any funding for their work from the same investors/creditors.

“The illiquidity of the liquidation estate has hampered any follow-up action, investigation and litigation initiatives by the joint official liquidators,” the PwC accountants said.

“To date, the joint official liquidators’ efforts to obtain funding from the Liquidation Committee have proven fruitless.”

Discussions re-opened with the Committee on June 20, 2014, but no funds have yet been received. Messrs Cambridge and Seymour added that this had also “impeded” the creation of insolvency protocols with other fiduciaries involved with BC Capital, and warned they would have to seek Supreme Court directions if no financing was forthcoming.

Much of the solvency concerns surrounding Alliance relate to BC Capital’s ownership of 100 per cent of its $5 million preference share capital.

BC Capital Group acquired all of this in two separate deals, one worth $2 million, the other $3 million, on June 11, 2010,and December 1, 2011, respectively.

Yet Messrs Cambridge and Seymour previously alleged that the two investments were essentially ‘paper transactions’, with no capital physically injected into Benchmark/Alliance.

As previously revealed by Tribune Business, the preference share deals were critical to Bahamian shareholders of Benchmark, the publicly traded entity, because both times they returned the company to solvency or positive net worth.

The PwC liquidators said they had yet to receive a response from Alliance’s Board of Directors to their January 31, 2013, request to redeem the $5 million in preference shares for the benefit of BC Capital investors.

“The joint official liquidators’ continued investigations remain significantly challenged by the continued illiquidity of the company’s estate,” Messrs Cambridge and Seymour wrote.

“As previously reported, the joint official liquidators maintain their strong opinion that legal action in respect of a number of previously identified courses of action should be pursued against Alliance to compel Alliance to return the company’s $5 million in Alliance’s preference shares (which itself may not be a realisable asset); complete the registration of the company’s marketable securities and surrender the same to the joint official liquidators; and grant the joint official liquidators access to certain Battoo-controlled accounts where the joint official liquidators believe that investor funds may have been diverted.”

The PwC accountants said BC Capital’s financial statements, promised to its previous voluntary liquidator, had not been provided by Battoo’s Bahamian legal representative, ex-Bar Association president, Ruth Bowe-Darville.

And Mr Seymour, who has now retired, has been replaced as Mr Cambridge’s liquidation partner by new Bahamas Chamber of Commerce and Employers Confederation (BCCEC) chairman, Gowon Bowe.