The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Liquidators for an alleged multi-million dollar ‘Ponzi’ fraud are threatening legal action to force a BISX-listed company to unwind, and return, a $5 million investment that accounts for 100 per cent of its preference share capital.

PricewaterhouseCoopers (PwC) Bahamas accountants, Kevin Cambridge and Kevin Seymour, are “of a strong opinion” that they need the courts to force Benchmark (Bahamas) main subsidiary, Alliance Investment Management, to return the monies purportedly invested by Nikolai Battoo’s BC Capital Group.

The duo, who together with US-based firm, Robb Evans, are joint liquidators for BC Capital, reveal in their second report to the Supreme Court that Alliance and its chief executive/president, Julian Brown, had yet to respond to their request to voluntarily unwind the $5 million investment.

“The joint official liquidators have yet to receive a response from Alliance’s counsel, management or its Board of Directors,” the PwC accountants said in their second report to the Supreme Court.

“The joint official liquidators have identified a number of course of action against Alliance, which form the basis of a strong opinion that legal action should be initiated against Alliance to compel these parties to return the company’s $5 million investment in its preference shares; to complete the registration of [BC Capital’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.”

Elsewhere in their report, the liquidators blast Benchmark/Alliance for its alleged “lack of co-operation”, arguing that refusal to provide access to documents and accounts was obstructing their efforts to unravel BC Capital’s affairs and recover assets for the benefit of creditors.

The PwC accountants also warn that they are exploring other avenues for potential legal action against Alliance, including “claims for breach of fiduciary duty”.

None of which is likely to make comfortable reading for Benchmark (Bahamas) 735 Bahamian shareholders.

The most serious issue facing the company in which they have invested, and which has been the poorest performing equity on BISX over the past year, appears to be the demand to unwind its preference share capital.

This was acquired in two tranches by BC Capital, $2 million and $3 million, and was critical on both occasions in keeping Benchmark (Bahamas) in ‘positive net worth’ - in other words, solvent.

Benchmark (Bahamas) year-end 2012 accounts show it with a $6.989 million accumulated deficit, and just $4.056 million contributed surplus, meaning the $5 million preference share investment is vital to maintaining a $2.117 million net asset position.

Benchmark (Bahamas) year-end accounts show the company is treating that $5 million as equity, as opposed to debt, on the basis that only it can decide whether to redeem the money or pay dividends on it.

But unwinding this $5 million, and handing it to the BC Capital liquidators, will likely once again raise major questions over Benchmark (Bahamas) solvency (at least on a current asset/liability basis).

This is because the BISX-listed parent’s balance sheet is largely that of its main subsidiary, Alliance, making it effectively the latter’s ‘alter ego’. Benchmark (Bahamas) balance sheet is helped, though, by the $4.5 million valuation of the Carmichael Road office complex owned by its other subsidiary, Benchmark Properties.

If the BC Capital liquidators were to reclaim that $5 million, it would create an urgent need for Benchmark (Bahamas) to recapitalise, likely through finding more outside investors. But with this investigation ongoing, that may be a hard task.

And Messrs Seymour and Cambridge warn that the “purported’ $5 million preference share investment 
“itself may not be a realisable asset”.

In a previous report to the Supreme Court, the PwC accountants indicated they were both ‘paper’ or ‘in kind’ transactions, with no funds actually changing hands.

Their latest update listed as “efforts to recover and realise the $5 million preference shares” as arguably the liquidators’ highest priority.

Alliance’s role in the BC Capital structure was to act as agent and custodian of investor assets, while also performing investment management functions as per Battoo’s instructions.

The PwC liquidators list its known total investment assets at $28.986 million, but lawsuits levied against BC Capital and Battoo in the US allege that up to $440 million passed through the scheme.

Messrs Seymour and Cambridge described Alliance, in their second report to the Supreme Court, as a “significant piece to the puzzle in unravelling the affairs” of BC Capital.

They added that they had investigated payments made by Alliance to third parties that may have been for Battoo’s benefit, and demanded that the Bahamian broker/dealer “set aside funds withdrawn” from BC Capital because these monies were “a voidable preference”.

The PWC duo said they had also demanded that Alliance return funds taken from BC Capital’s accounts after the liquidation date; liaised with Mr Brown’s attorneys over answers they were seeking from him; and worked with Delaney Partners on “possible grounds for legal action against Alliance”.

Numerous investments by BC Capital were said to be held in Alliance’s name, and Messrs Seymour and Cambridge said they had moved to transfer and re-register investment fund shareholdings into the former’s name.

“This process has been unnecessarily protracted,” the liquidators alleged, “and hampered by Alliance management’s initial tepid co-operation, and subsequent lack of co-operation.

“Alliance, in early February 2013, denied access by the joint official liquidators to Alliance’s office premises, and consequently, further review of certain books and records held by Alliance at its office premises in respect of [BC Capital] and its affiliates controlled by Battoo.

“Additionally, Alliance’s management advised that any further request for information in connection with [BC Capital] and its affiliates controlled by Battoo should be made through its counsel, Mackay & Moxey.

“The fact that the joint official liquidators have not yet been able to obtain custody of assets nominally held by Alliance for [BC Capital] and its affiliates, and the lack of liquidity of the company and its affiliates, is presenting significant challenges to the joint official liquidators and their ability to effectively continue their investigations.”

Messrs Cambridge and Seymour reiterated that their investigation into “reporting inconsistencies, questionable, suspicious and possibly preferential transactions” by Battoo had been “significantly impeded” by Alliance’s stance.

They added that no agreement had been reached yet with BC Capital’s creditors over the liquidation’s funding.