The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian broker/dealer that admitted to misusing almost $4 million in client monies without permission has temporarily held-off the Securities Commission’s bid to place it into provisional liquidation.

Justice Ian Winder this week agreed with Tillerman Securities’ arguments that the capital markets regulator had failed to comply with, and follow the process, set out in section 157 of the Securities Industry Act 2011.

This, for the moment, has stayed the Securities Commission’s efforts to appoint a provisional liquidator, and given momentum to Tillerman’s desperate last-ditch efforts to avoid being wound up.

The hearing before Justice Winder is understood to have taken place in an increasingly acrimonious legal atmosphere, after the Securities Commission’s executive director, Christina Rolle, accused Tillerman’s directors of “interference” with the proceedings.

Ms Rolle, in a February 3, 2017, affidavit filed with the Supreme Court, alleged that the first judge hearing the case, Justice Indra Charles, had recused herself as a result of such “interference”.

“There have been several attempts by the directors of the company [Tillerman] to interfere with participants in these proceedings,” Ms Rolle alleged.

“Indeed, it is noted that the honourable judge initially hearing this matter saw fit to recuse herself after one such attempt by a director.”

No details or names were provided in Ms Rolle’s affidavit, and there is nothing to suggest that Justice Charles has done anything wrong.

However, Tribune Business understands that Ms Rolle’s allegations triggered an outcry during the Supreme Court hearing before Justice Winder, with Damien Gomez QC, the former minister of state for legal affairs, who is representing Tillerman’s directors, branding the claim ‘scandalous’ and demanding that it be struck from the evidence and court filings. The directors are understood to be denying the claims.

This has not happened yet, and Tribune Business understands that the Securities Commission is standing behind its claims.

Ms Rolle’s affidavit detailed the Securities Commission’s complete determination to place Tillerman into provisional liquidation, after the broker/dealer admitted to using clients monies to fund its operating expenses and business development plans without first getting their permission.

Tribune Business, previously revealed that apart from “the improper use of its clients’ funds”, Tillerman Securities has also been unable to meet the minimum $300,000 regulatory capital requirement for two years.

Detailing numerous serious breaches by the Bahamian-owned broker/dealer, the Securities Commission added that Tillerman was also “insolvent”, with assets exceeding liabilities following several years of sustained losses.

The provisional liquidation application came following an 18-month saga that concluded with Tillerman’s alleged failure to both reimburse its clients and remedy its regulatory capital deficiency.

Ms Rolle, in her February 3 affidavit, alleged: “The directors of the company have admitted in correspondence that money was used inappropriately, and without the permission or consent of its clients.

“As the regulator, the petitioner [Securities Commission] is concerned that this behaviour is unacceptable and challenges the integrity of the industry.

“The directors have, in correspondence and in various meetings, repeatedly given assurances that certain actions will be carried out but failed to do so.”

Acknowledging that some of Tillerman’s clients had agreed to participate in a “financial arrangement” to cure the broker/dealer’s deficiencies, and thereby save the company, Ms Rolle said this still remained unsatisfactory to the Securities Commission.

Detailing Tillerman’s “history of failing to follow through on assurances” that it would remedy its legal an financial faults, Ms Rolle argued that “the only correct course” was to appoint a provisional liquidator to oversee the implementation of such a ‘rescue plan’.

“Without the appointment of a provisional liquidator, the petitioner, as regulator, does not believe that the interests of investors/clients/creditors and the Securities Commission would be served,” Ms Rolle alleged.

The courtroom has become increasingly crowded as a result of the Tillerman battle. Apart from Michael Scott, of Scott & Company, and Gawaine Ward, who are acting for the Securities Commission, and Mr Gomez, who is representing the directors, other attorneys present include Roy Sweeting, of Glinton, Sweeting & O’Brien, for Tillerman, and Lennox Paton on behalf of several Tillerman clients.

Outlining the agreement to rescue Tillerman, Hans Christian Saunders, its managing director, said the original deal with 13 of the broker/dealer’s clients “would have the net effect of making all clients whole and returning Tillerman to both solvency and compliance with its regulatory capital requirements”.

Mr Saunders, in a Supreme Court affidavit, said the 13 clients had given “retroactive consents” to Tillerman borrowing their assets, and the near-$4 million debt was to be removed from the broker/dealer’s books and secured by mortgages over $6.3 million worth of Bahamian real estate.

Its execution, though, had been delayed by the need to obtain Bahamas Investment Authority (BIA) approval for the mortgages, with Mr Saunders revealing that the ‘rescue plan’ had “expanded somewhat since”.

“The clients will now take 100 per cent of the shares of Tillerman Securities in consideration of their financing of the debt,” he said.

“In addition, the debt will be secured for the time being by personal guarantees given by the current shareholders as to the future performance of Tillerman Securities.”

With Tillerman’s existing shareholders and directors having accepted the client offer on January 31, Mr Saunders promised that if allowed to proceed, the agreement would remove the $3.9 million debt from the broker/dealer’s books, return it to solvency and make all clients whole.

Mr Saunders and his fellow directors, including Anthony Dupuch and attorney Craig Butler, would be removed from ownership and control, with the losses and expense associated with a liquidation avoided.

“Damage to the reputation of the jurisdiction as a financial services centre will be avoided,” Mr Saunders said, adding that the ‘rescue plan’ would produce “a vastly better outcome than that presented by a liquidation”.

However, as indicated by Ms Rolle’s affidavit, the Securities Commission is far from convinced about the plan’s merits, hence its demand for a provisional liquidator to be appointed.

Tribune Business understands that the regulator is concerned by the fact no ‘new money’ appears to be being injected into Tillerman, and is questioning why the clients would forego the sums owed to them in return for vague promissory notes and guarantees by the existing owners.

The Securities Commission is also thought to be querying why any investor would seek to acquire Tillerman given its history, as the broker/dealer is effectively insolvent, unregistered and has been without a license to operate since late September 2016.

Further concerns surround the fact that the ‘rescue plan’ massively overvalues Tillerman, and nothing has been mentioned about how all other clients - those outside the 13 - will be taken care of.

However, the Securities Commission has been held at bay for the moment by Justice Winder’s ruling, which found that it did not follow the processes set out in section 157 of the Securities Industry Act.

This section relates to the ability of Securities Commission licensees to appeal any final decision it makes to the Supreme Court, once the regulator has completed its own disciplinary processes and hearings.

The Securities Commission, though, is understood to be arguing that section 157 does not apply to the Tillerman situation, as the formal process was never invoked and a ‘final decision’ never taken.

Instead, it claims its actions against Tillerman were covered by the Act’s section 69, which allowed it to impose conditions on the broker/dealer’s license and registration until it complied. When it failed to do so by a specified timeline, the Securities Commission refused to renew its license and moved for the provisional liquidation.

Tribune Business understands that the Securities Commission intends to appeal Justice Winder’s finding to the Court of Appeal, faring that the ruling could have major implications - and potential negative consequences - for its ability to regulate the Bahamian capital markets.