The Tribune

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

A Bahamian bank’s chairman has failed to overturn the Central Bank’s demand that he sell his majority ownership because he is “not a fit and proper person” to be in charge.

Carlos Molina told Tribune Business his battle with the regulator had resulted in Private Investment Bank (PIB) Ltd losing $4m since October 2019, as well as costing 20 employees - around half the staff - their jobs as a result of terminations.

He spoke out after Justice Ruth Bowe-Darville, in an April 13, 2020, Supreme Court judgment upheld the Central Bank’s demand that Mr Molina resign from the bank’s board and dispose of his equity stake in PIB, plus any “affiliate businesses” in which the bank had an interest, by March 31 this year.

The Central Bank action resulted from the findings of a forensic audit that it asked the KPMG accounting firm to undertake. These created concerns over the “failure to meet minimum standards” of reporting and governance relating to $3m allegedly taken by Mr Molina from PIB for his own use, and whether he had provided “false and misleading information” in his bank licence application.

Based on the KPMG report, the regulator also raised queries over $1.7m worth of “escrow funds” had been used to settle Mr Molina’s personal debts, acquire a new technology platform for PIB or increase the bank’s capital base.

Describing the KPMG report as “damning” of Mr Molina, Justice Bowe-Darville found the Central Bank had “acted rationally and with procedural fairness” in determining that PIB’s chairman should not remain in control of the Queen Street-based financial institution.

She rejected Mr Molina’s “vehement opposition” to being characterised as “not being a fit and proper person” by the Central Bank, and his argument that he had been “denied natural justice” because he had not been given an opportunity to give his side of the case. He also denied the alleged misappropriation of the $1.7m.

The Central Bank’s findings, and Supreme Court ruling, come less than two years after Mr Molina and his partner, Jorge Carreras, acquired a majority 85 percent interest in PIB on April 24, 2018. The two purchased control through their IPG Securities Asset Management (Bahamas) vehicle, which is itself a wholly-owned subsidiary of a Swiss company bearing the same name.

Mr Molina is majority shareholder of the Swiss entity, but a shareholder dispute with Mr Carreras erupted within months of concluding the PIB purchase. The latter turned whistleblower, reporting to the Central Bank on April 1, 2019, allegations that Mr Molina “had misappropriated approximately $3.251m in various transactions or incurred by him for his own self- interest from PIB”.

The Central Bank responded by ordering both men to remove themselves from PIB’s affairs, while Mr Molina was also ordered to dispose of his shareholding. It also initiated the probe by KPMG that was completed on August 2, 2019, following an examination of the relevant documents and interviews with all parties concerned.

Armed with the findings, the Central Bank used its powers under the Banks and Trust Companies Regulation Act 2000 to issue a warning to Mr Molina regarding his conduct. It highlighted the failings surrounding the $3m in payments, and omissions in his application for a licence to be PIB’s controller, and said it was “not in the best interest of the financial system of The Bahamas” for him to stay as chairman.

Mr Molina responded to the findings against him two weeks’ later on September 25, 2019, but the Central Bank concluded one month later by informing him “he was not a fit and proper person to be the controller of PIB”. It ordered him to resign from the Board, exit all involvement with PIB and produce a plan to sell his equity interest.

This triggered Mr Molina’s appeal against what he alleged was the Central Bank’s “abuse of the exercise of its discretion” under the Banks and Trust Companies Act. “The respondent maintained that it acted correctly, and in the best interest of the financial system of The Bahamas,” Justice Bowe-Darville added.

Mr Molina alleged he had been advised by his attorney to withhold details of his dealings with Barclays Bank, and the New York State court judgment obtained by that bank against him, in information provided to the Central Bank. He added that the failure to disclose the $4m settlement sum owed to Barclays was due to that agreement being confidential.

“Fourthly, the appellant, while admitting the deficiencies noted in the KPMG report, put the blame for the financial governance deficiencies on his business partner, Mr Carrerras,” Justice Bowe-Darville noted.

“The respondent relied heavily on the information contained in the KPMG report in determining that the appellant was not a fit and proper person. The report was damning of the appellant. It brought into question his involvement and participation in the licensee bank; the many governance deficiencies; the ongoing misappropriation of funds for his personal use; lack of documentation from the intermediate holding companies (IPG Bahamas and IPG SA); his personal financial history; and the fact of his admission to the KPMG auditor that he was ‘personally financially stressed’.

“The appellant [Mr Molina] tried as he might to explain away in his presentation (both in chief and in reply) the various ‘inadequacies’ or ‘unclear allegations’ made in the KPMG report. This he did not do successfully. He continued to stress the urgency for him to resolve the present application as he had urgent (within the week) payment obligations,” the judgment continued.

“The appellant’s actions in responding to the regulatory authority; the findings of the reports in respect to the governance deficiencies in the bank; and his inability to refute or deny the allegations in the reports were sufficient to ground the respondent’s designation of the appellant as not being a fit and proper person.”

Mr Molina subsequently told this newspaper that he will lose $25m as a result of being forced to sell his stake in PIB. “The judge in her ruling was of the opinion that the Central Bank did things properly, and it was not her prerogative to analyse the grounds for the decision,” he said.

“So that was it. Basically, now the directive is in place, I must divest all of my interest in the bank. That would be a loss of about $25m. It was a lot of money. The way that she rendered her decision was that it was not the court’s role to interpret the grounds of any directive of the Central Bank, but to make sure that it acted in accordance with the Act, which in her opinion they did.”

Mr Molina suggested that it would be “too late” him to appeal the Supreme Court decision to the Court of Appeal because “by then the bank is gone”. He added: “There was a big, big loss of value in this thing, and everything we paid to purchase the bank will be lost completely, because the way things were managed at the end of the day, now it is totally out of control.

“Since this has happened the seller, Banque Cramer, is in control of the shares and they are conducting the selling process.” Mr Molina added that the matter involving himself and Barclays Bank, which involves the US Financial Industry Regulatory Authority (FINRA), occurred after he obtained majority control at PIB and therefore would not have needed to be disclosed to the Central Bank at the time of purchase.