The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A major Bahamian financial institution has slammed “inaccurate and unsubstantiated” allegations that it played a “conflicted” role in the collapse of a local investment advisory firm.

Deltec Bank & Trust, and its fund administration arm, moved swiftly to defend their reputation after Pacifico Global Advisors’ liquidator placed them at the centre of events that led to the company’s insolvency in his first report to the Supreme Court.

The Lyford Cay-based financial institution, in a statement issued in response to Tribune Business inquiries, said Ed Rahming, the Intelisys (Bahamas) founder and managing director, had “agreed” to discuss their concerns and subsequently correct any “financial inaccuracies” contained in his filings with the court.

The report, which has been obtained by Tribune Business, cites Pacifico Global’s decision to place around $217m of its clients’ assets into investment structures “promoted” and administered by Deltec as a key factor in the former’s failure.

These structures, known as “sub-funds” of a main investment fund, are now in receivership under Philip Galanis, the HLB Galanis & Company accountant and principal, after disputes involving Pacifico Global and two of its former executives - one of whom started a rival Bahamas-based investment advisory firm while still working for it - started to endanger the safety of client monies.

Luca Lanciano, Pacifico Global’s former chief operating officer, was alleged in the liquidator’s report to have issued instructions to redeem a significant amount of investor monies and have these assets transferred to his new firm, Phoenix Capital Ltd, while still engaged by his now-former employer.

The redemption request, allegedly made without Pacifico Global’s knowledge, triggered a dispute with Phoenix Capital that ultimately resulted in the sub-funds - containing up to 70 percent of the former’s client assets under management - being placed under Mr Galanis’s care.

The liquidator alleged that his review of Pacifico Global’s files found complaints by its former executives that “Deltec was conflicted and acting in a manner adverse” to its interests by accepting the redemption requests from Lanciano and Phoenix - a charge that both the bank and trust company, and fund services arm, are understood to vigorously dispute and reject because the requests were never acted upon.

The Deltec group is also vehemently denying Pacifico Global claims that net asset valuations (NAVs), which calculated the worth of the sub-funds’ shares and underlying investments, were “often late” and contained mistakes, as well as allegations about the non-payment of due management fees and failing to follow liquidity requirements.

“The company [Pacifico Global] claims these issues negatively impacted its business by resulting in cash shortages, an inability to pay itself management fees, an inability to file year-end financial statements to meet regulator-mandated deadlines, customer complaints to the Securities Commission of The Bahamas, negative publicity, legal threats from customers and loss of customers,” Mr Rahming alleged in his report to the Supreme Court.

However, Deltec hit back, telling Tribune Business: “Many of the statements in the official liquidator’s affidavit that concern Deltec Bank & Trust and Deltec Fund Services are inaccurate and unsubstantiated. Deltec, through its legal counsel, has reached out to the liquidator who has agreed to discuss the content of his report with Deltec and to address any possible factual inaccuracies.

“In the interim, our legal counsel has been instructed to pursue all avenues available to Deltec in order to protect our reputation as a prudent and leading financial services group in The Bahamas. It is our intention to ensure the content of the document is factual and leaves no room for innuendo or misinterpretation.”

Sources close to Deltec, speaking on condition of anonymity because they were not authorised to talk publicly, told Tribune Business that the Lyford Cay-based financial group felt Pacifico Global’s former executives had tried to make it a scapegoat when it was their own “mismanagement” that had caused the broker/dealer’s collapse (see other article on Page 1B).

They said Deltec was unable to understand the basis for Mr Rahming’s assertion that its fund administration arm had been “conflicted” in how it handled the dispute between Pacifico Global, Phoenix Capital and the former Pacifico Global executives given that it never followed the latter’s redemption requests because they were not made in a valid format.

The liquidator’s report, though, alleged that Deltec Fund Services was “conflicted” because it would have acted as the administrator and custodian for the new sub-fund being established by the former Pacifico Global executives.

This newspaper also understands that Deltec’s position is that it tried to mediate between the warring Pacifico Global parties rather than becoming - as alleged by the liquidator’s report - involved in the dispute itself.

Tribune Business sources also said Deltec was told to stop paying the investment management fees, and the group was querying why Mr Rahming had not approached it to verify his findings - instead of seemingly accepting what was on file at Pacifico Global - prior to submitting his Supreme Court report.

Still, the sub-funds receivership resulted in a significant income loss for Pacifico Global, as this meant it was deprived of investment management, custodial and other fees, and Mr Rahming identified the drying-up of this revenue as one reason for its insolvency.

“The Lyford Fund, an open-ended investment fund incorporated in The Bahamas in June 2015, was promoted to the management of [Pacifico Global] by executives at Deltec as a beneficial investment holding structure for the company’s clients,” Mr Rahming wrote in his report.

“Between October 2016 and June 2017, the company sponsored a total of 20 sub-funds or segregated accounts linked to the Lyford Fund and had over $217m (as of December 31, 2017) or approximately 70 percent of its assets under management placed into the sub-funds.”

Deltec Fund Services acted as the administrator and registrar and transfer agent for the sub-funds, the liquidator’s report alleged, with its bank and trust company affiliate playing the role of custodian. Two corporate entities, Deltec Fund Directors Ltd and Deltec Fund Governors, were directors of the Lyford Fund. Pacifico Global was the investment manager for the sub-funds, and custodian for most of their assets.

Mr Rahming’s report alleged that trouble was sparked by “internal conflicts” that emerged at Pacifico Global in early 2017. The broker/dealer informed the Securities Commission of its intent to dismiss Eliano Tamburini as chief executive on December 4, 2017, with Mr Lanciano resigning as chief operating officer with effect from June 30, 2018.

“Prior to his departure” from Pacifico Global, Mr Lanciano set up Phoenix Capital as a Securities Commission-licensed advisory firm in May 2018. He and Mr Tamburini were named by the liquidator as being responsible for attracting “the majority of clients” on Pacifico Global’s books, and they seemingly sought to take their clients with them.

“Tamburini sent instructions, via Phoenix Capital, to Deltec Fund Services on May 29, 2018, for redemptions representing 51 percent (approximately 28 million euros) of the assets in the Segregated Account, a sub-fund of the Lyford Fund,” Mr Rahming alleged.

These assets were to be placed in a new sub-fund named EUR Top Selection Sub-Fund, which was to be sponsored by Mr Tamburini and administered by Deltec Fund Services. However, the instructions were never acted upon, and Pacifico Global alleged it had been unaware of Mr Tamburini’s demands until informed by Deltec Fund Services.

“On June 28, 2018, the company [Pacifico Global] advised Deltec that Lanciano was no longer an authorised signatory of the company, and it had come to its attention that he had acted - and was acting - in a manner adverse to the company” over the 51 percent redemption request,” Mr Rahming’s report said.

While Deltec Fund Services was said to have received a request from the majority of investors in one sub-fund to change the investment manager from Pacifico Global to Phoenix Capital, the intensifying dispute between the latter two entities started to dominate developments.

“The dispute arose due to the company [Pacifico Global] apparently not having knowledge of the large redemption request that was made by Phoenix while Lanciano was employed by the company and the proposed change in custodianship from [Pacifico Global] to Deltec Fund Services,” Mr Rahming alleged.

“Deltec Fund Services, in its capacity as administrator of the sub-funds and proposed administrator for the EUR Top selection sub-funds, was conflicted. It became apparent that the dispute potentially endangered the assets in the Segregated Account.”

Mr Rahming’s report reveals that the Segregated Account was “suspended by unanimous consent” of the Lyford Fund’s Board on August 1 last year, and subsequently placed into Mr Galanis’s care as receiver-manager on March 7, 2019. The remaining sub-funds followed on May 28, 2019.

The liquidator added that, “due to the close of client accounts, transfer of accounts and other changes”, Pacifico Global’s client assets under management in the sub-funds had fallen to $114m or 52 percent of the total - compared to the initial $217m or 70 percent - by December 31, 2018. Still, they accounted for 87 percent of all its custodial assets.

Mr Galanis subsequently revoked Pacifico Global’s role as investment manager, and by September 30, 2019, he had gained control of $47m in sub-fund assets from their various custodians. Pacifico Global still retained $39.32m in cash, and $28.126m in securities investments, belonging to the sub-funds at this date just prior to Mr Rahming’s appointment as liquidator at the beginning of October.

He added that he plans to “review” the October 2019 transfer of $13.446m from Pacifico Global’s account at Deltec to Mr Galanis as this was made without his authorisation as liquidator. Mr Rahming said Pacifico Global still retains over $55m in assets belonging to the sub-funds and their investors, due to its prior role as custodian, as of November 1, 2019.

Mr Galanis could not be reached for comment over the New Year period, but his success in safeguarding and recovering the sub-funds’ assets will be key to the Pacifico Global liquidation as most of the latter’s client assets are in those investment structures.