The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed company yesterday expressed optimism it has “turned the corner”, its principal adding that its settlement with US federal regulators did “not stipulate” the instant redemption of its $5 million preference share capital.

Julian Brown, Benchmark (Bahamas) chief executive, said the agreement with the Securities & Exchange Commission (SEC) required the company to notify the regulator when the preference shares were redeemed, but imposed no deadline for carrying this out.

With the SEC action now behind Benchmark and its broker/dealer affiliate, Alliance Investment Management, have “made significant progress” in addressing regulatory concerns in the Bahamas.

Although Alliance has yet to meet the Securities Commission’s $300,000 minimum regulatory capital threshold, an issue that has existed for nearly five years, Benchmark is continuing to guarantee its subsidiary’s obligations.

Mr Brown said the BISX-listed firm was confident it could get Alliance back into line with the Securities Commission’s requirements, following a year in which its bottom line enjoyed a positive $3.4 million ‘turnaround’.

Benchmark (Bahamas) went from a $296,341 loss in 2015 to $3.096 million in comprehensive income for the 12 months to end-December 2016, due to a near-tripling in commissions to $2.529 million.

This drove it to $2.08 million in operating income, compared to just $349,105 the year before.

And the other major contributor to Benchmark (Bahamas) 2016 results was the unrealised gain in the value of its investment portfolio, which underwent a $1.165 million ‘swing’ from a $292,628 decline in 2015 to a $872,910 improvement.

Benchmark (Bahamas) 2016 profitability enabled it to cut its accumulated deficit by almost 40 per cent at year-end 2016, reducing this from $7.908 million to $4.812 million.

Mr Brown attributed the jump in commissions to “a significant improvement” in trading activity by Alliance’s clients, and told Tribune Business: “I think we have turned the corner.

“I believe we will continue to move along in a strong and steady direction upward in terms of future growth potential. The numbers are certainly headed in the right direction, and we believe we will continue to see good performance going forward.”

Mr Brown added that Benchmark (Bahamas) had employed a “methodical” turnaround strategy that was now starting to bear fruit, and said: “We had to ensure that when things were back on the right track, we’d be a beneficiary and this strategy paid off.”

PKF (Bahamas), Benchmark’s auditors, while not qualifying the 2016 financial statements, still drew attention to Alliance’s “net deficit position” and the need for its parent’s guarantee for it to operate as “a going concern”.

“The statement of financial position shows net liabilities and deficit as at December 31, 2016, resulting in Alliance not being able to meet its regulatory capital requirements,” the financials said.

“[Benchmark] has provided a guarantee to Alliance to make sufficient funds available to enable it to meet its present and future obligations for a period including, but not limited to, 12 months from the date its financial statements were approved by the Board of Directors.”

While no penalties have yet been imposed by the Securities Commission, Alliance’s regulatory capital deficiencies have been ongoing since 2012.

However, Mr Brown yesterday told Tribune Business: “We’ve made significant progress in terms of fixing that issue, and have made a commitment to continue our efforts. We believe we will achieve that objective.”

As for the SEC settlement, in which Mr Brown and Alliance neither admitted nor denied the allegations against them, some $15,000 of their total $337,852 payment to the US regulator had been paid by 2016 year-end.

Benchmark’s financials said another $85,000 was paid on April 25, 2017, in accordance with the payment scheduled set out by the northern Illinois federal court. The company has also set aside funds to settle legal expenses.

Mr Brown, though, yesterday denied that part of the SEC settlement required Benchmark (Bahamas) to redeem its entire $5 million preference share capital, which is 100 per cent owned by the company at the centre of the SEC case.

“There was certainly nothing in any agreement I signed,” he told Tribune Business. “Maybe that was your interpretation of what you read, but that’s not my understanding.

“That was not something we agreed to. Those shares are constituted in accordance with Bahamian law, and continue to be represented in our balance sheet until such time that the company feels strong enough to repay the preference shareholders. There was never any question about the authority of the investor to make the investment.”

Tribune Business, in reporting on the October 7, 2016, settlement agreement between Alliance and the SEC, wrote that as part of the deal the former had given an “undertaking to repurchase all its preferred stock, as soon as the repurchase of such shares, in whole or part, is lawfully permitted under the laws of the Bahamas, including but not limited to the Companies Act 1992”.

While no timeline was imposed, the settlement agreement added: ““Alliance shall satisfy its obligation to repurchase the preference shares by paying $5 million to the receiver or joint official liquidators [of BC Capital Group], or to their duly-appointed and authorised successors or assigns.”

Tribune Business raised the issue of the $5 million preference shares as it was a material issue, but there was no mention of it in Benchmark (Bahamas) 2016 financials. They are currently keeping the company solvent, or in positive net worth.

Mr Brown, though, suggested this was a “misunderstanding”, adding that Benchmark (Bahamas) was obliged to “notify” the SEC once the preference shares were redeemed, but no more.

He and Alliance had always vigorously denied, and defended, allegations by the SEC that they facilitated a global ‘Ponzi’ scheme perpetrated by Nikolai Battoo and his BC Capital Group.

They listed 19 defences to the SEC action against them, with the duo arguing that any “wrongful conduct” was outside their control.

The crux of the SEC’s case was 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.

And it also claimed 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”.

However, Mr Brown and Alliance in their defence argued that Battoo directed them to send BC Capital financial statements to the Illinois-based auditors for an investor in the scheme.

And they maintained that the SEC, and US federal securities laws, have no “extraterritorial effect” and therefore cannot touch them in the Bahamas.