The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The $5 million investment in a BISX-listed firm’s preference shares “is of considerable concern” to the liquidators of its largest client, who have warned that the deal will receive their “continued attention”.

Kevin Seymour and Kevin Cambridge, the PricewaterhouseCoopers (Bahamas) accountants, in their first report to the Supreme Court on the BC Capital Group liquidation, criticised the “substantial intermingling/commingling” of its assets by Alliance Investment Management, the wholly-owned subsidiary of BISX-listed Benchmark (Bahamas).

The liquidators alleged that this had helped to conceal the $27.564 million overdraft run up by BC Capital Group’s principal, Nikolai Battoo, who they claimed had benefited from $29 million worth of “questionable payments/withdrawals” from his scheme.

And the liquidators, in their March 28, 2013, report that has been obtained by Tribune Business, alleged that Alliance’s two principals were “unable to provide satisfactory explanations” for what were termed “inconsistences”in investment statements sent to BC Capital Group clients.

The two principals named in the report were Alliance’s president, and Benchmark chief executive, Julian Brown, plus vice-president Avril Elcock-Major.

Messrs Cambridge and Seymour also alleged that an investigation into hedge fund investments, purportedly held by the Bahamian broker/dealer on behalf of BC Capital Group and its clients, indicated their value was overstated by “at least $45 million” on portfolio statements issued by Alliance.

And the PwC duo also claimed that Alliance was refusing to provide supporting documents for more than $7.1 million withdrawn from its omnibus account at CIBC FirstCaribbean International Bank (Bahamas), seemingly for Battoo’s benefit.

Of most concern to Benchmark (Bahamas) and its 735 Bahamian shareholders will be the liquidators’ findings concerning 100 per cent of its 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 alleged that the two investments were essentially ‘paper transactions’, with no capital physically injected into Benchmark/Alliance.

For the first $2 million, Alliance was said to have simply reduced the sum it owed to BC Capital Group by the same amount, while for the latter deal it credited its largest client with a $3 million equity account.

“Alliance recorded the company’s purchase of its Class ‘A’ non-voting preference shares by debiting its due to customer account (a liability account) and crediting preference shares (an equity account) on the dates in question, for $2 million and $3 million, respectively,” the BC Capital Group liquidators alleged.

“The company’s purported investment in Alliance represented a radical departure from [its] investment strategy. Such apparent departure is of considerable concern to the joint official liquidators, and will be the focus of their continuing attention.”

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.

Although Benchmark’s commercial property on Carmichael and Fire Trail Roads will likely boost its assets, the company has yet to answer questions posed by Tribune Business as to the impact the BC Capital Group affair will have on its short-term financial performance and solvency.

Detailing Alliance’s role in the BC Capital Group set-up, the liquidators alleged it acted as its agent and custodian, performing investment management functions as instructed by Battoo and his associates.

Investors were instructed to send funds to BC Capital Group accounts, which were held at Royal Bank of Canada between 2004 and 2006, and at CIBC FirstCaribbean thereafter.

Battoo determined how these funds were to be invested, usually in securities or hedge funds, and instructed Alliance accordingly, with the latter setting up sub-accounts as needed.

Between 2004 and 2012, the joint liquidators alleged that Alliance established 76 sub-accounts for investors in Battoo’s Private Investment Wealth Management (PIWM and PIWM-1) schemes.

Some $220.302 million, and 1.899 million euros, were invested, with $180.953 million and 225,126 euros in redemptions processed. According to Alliance’s management, the net cash balance and value of securities in these accounts at liquidation date totalled $437,695 and $81.773 million respectively.

But, while Alliance had made various representations to professional firms contracted to determine the value of BC Capital Group assets, the liquidators alleged that they had “not been able to substantiate the basis” for these.

While Alliance sent BC Capital Group investors statements, on its letterheads, showing investments it had made on their behalf in third-party hedge funds, the Bahamian broker/dealer was often “unable to produce any evidence to support such investments and/or any proof of Alliance’s custodianship”.

“Moreover, to date, Alliance has been unable to provide details on how ‘Managed Accounts’ composites shown on these portfolio statements were made up,” the liquidators alleged.

“When asked by the joint official liquidators for an explanation of the aforesaid inconsistencies, both Alliance’s president and vice-president have been unable to provide satisfactory explanations of the aforesaid inconsistencies.”

The PwC accountants alleged that investments listed on statements issued by Alliance were not made directly on behalf of BC Capital Group.

“The joint official liquidators and their agents discovered substantial intermingling/commingling of the group’s assets by Alliance, which served to conceal the significant overdrafts in several of the Battoo accounts,” the liquidators alleged.

They added that net cash balances for six sample accounts 
exceeded that for all BC Capital Group’s sub-accounts by $1.4 million as at December 31, 2009. They added that Mr Brown had admitted that client cash balances were co-mingled.

Messrs Cambridge and Seymour also disclosed that $5.471 million had been withdrawn from Alliance’s omnibus account at CIBC FirstCaribbean, using the code ‘BHOPMT’, prior to July 2004.

Although “Alliance refused to provide supporting information of banking documents to the joint official liquidators”, the PwC accountants alleged that $1.2 million of this sum was used to pay Battoo’s US attorney, with another $1 million used by Battoo for his own personal investment.

In a similar scenario, the liquidators alleged that $1.645 million was withdrawn from Alliance’s omnibus account at CIBC FirstCaribbean under the code ‘OC24684’. Again, some $250,125 was allegedly used by Battoo for his own investment.

Battoo was also identified as the beneficial owner of Aquarius Holdings, a company that maintained a separate account at Alliance.

The liquidators alleged: “Aside from the actual cash disbursements totalling $646,800 from Alliance’s omnibus bank account to Aquarius Holdings’ bank account, we also noted a total of $1.25 million internal transfers (cash transfers within Alliance where a customer’s account is debited/deducted and another customer’s account is credited/added of [a BC Capital Group account] to Aquarius Holdings’ account at Alliance. Alliance refused to provide detailed information of this account to the joint official liquidators.”