The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Two Paradise Island residents accused of committing a $22 million fraud may lose their multi-million dollar Ocean Club condominium home after the Court of Appeal ruled in favour of the receiver for their alleged scheme.

KPMG&'s Canadian arm, in an update to investors in Jeffrey Pogachar and Paola Lombardi’s New Life group of companies, said the Bahamian court had overturned an earlier Supreme Court ruling that barred it from taking possession of the duo’s condo and Bahamian bank accounts.

KPMG said: “On July 19, 2012, the Court of Appeal of the Bahamas held its final hearing with respect to the receiver’s appeal of the Ruling made by Justice [Neville] Adderley on November 30, 2011.

“The Court of Appeal rendered its decision on July 19 and found in favour of the receiver. Accordingly, the ruling of Justice Adderley has been set aside in its entirety. The receiver is conferring with its counsel regarding next steps, including the process to realise on the Bahamian condo.”

The condo, which was allegedly purchased for $2.6 million, part of $7.1 million in investor monies that Pogachar and Lombardi purportedly transferred to the Bahamas from New Life, represents potentially one of the best recovery sources for their investors.

In an Ontario lawsuit served on Mr Pogachar last month, KPMG said it had incurred $115,000 in costs maintaining Condo A1-4 at the Ocean Club Residences and Marina Phase I.

“Since it took possession of the Bahamian condo, the receiver has incurred costs to date in the approximate amount of $115,000 on account of fees and other costs related to the maintenance of the Bahamian condo,” the statement of claim alleged.

“The receiver will continue to incur these costs until such time as the Bahamian condo is sold.”

KPMG alleged that prior to further recoveries, New Life’s 600 investors were facing a $5.503 million shortfall in the more than $7 million that the two Paradise Island residents had transferred to the Bahamas.

If it is able to sell the Bahamian condo and obtain a sum equivalent to the $2.6 million paid for it, KPMG will slash that ‘black hole’ almost in half - by 47 per cent.

In his November 30, 2011, ruling, Justice Adderley found that because there was a “material non-disclosure” by KPMG as receiver, it could not take possession of the couple’s condo and bank account assets in the Bahamas. Bahamian law required that the receiver take further steps, rather than relying on their recognition by the court.

While accepting that KPMG’s appointment as receiver was valid, Justice Adderley added that this by itself was not enough to give it the power to take control of these assets, especially since the main case against them had yet to be determined in Canada.

“The first and second defendants, and each of them, is entitled to - and must be allowed - to return to their home in the Ocean Club condo, Paradise Island,” the judge ruled. “The taking of possession of the property of the defendants by tracing or otherwise was wrongful, and such property must be restored to the defendants from whom the property was taken.”

Still, given the nature of the fraud allegations, Justice Adderley gave an Order preventing the couple from transferring or withdrawing their Bahamas-based assets, estimated to be worth $7.093 million, until the main case was heard.

Further explaining his ruling when granting KPMG and its attorneys leave to appeal, Justice Adderley said the receivers had failed to follow the Companies Act and apply to take possession of the couple’s assets in the Bahamas as a means of restitution.

“The Receiver wittingly or unwittingly violated the principle of full disclosure, and consequently obtained ex parte that which it knew or ought to have known it could only hope to obtain inter partes if the requisite statutory applications were made, and obtained a bonus by obtaining a relief that it did not claim in the substantive action,” Justice Adderley found.

The New Life group’s business was in the viatical and life insurance settlement industry.

The group purportedly acquired life policies from their holders by paying an amount greater than the cash surrender value, but lower than the face value. New Life took over as the policyholder, paying the premiums and receiving the full face value when the settlor passed.

It raised the $22 million from investors to finance policy purchases, and pledged that 80-85 per cent of the funds raised from selling the securities to them would be used for this purpose.

The Ontario Securities Commission has already found against Pogachar and Lombardi, a verdict they are appealing.