The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian investment adviser collapsed into insolvency due to “mismanagement” centred on internal conflicts and the payment of “excessive cash” to related parties for client introductions.

Ed Rahming, Pacifico Global’s liquidator, told the Supreme Court it was currently impossible to estimate how much clients and creditors will recover of the sums owed to them because the company’s accounts “were at least nine months in arrears” when he was appointed in early October 2019 and cannot be relied upon.

His December 16, 2019, report, which has been obtained by Tribune Business, reveals that Pacifico Global’s operational affairs and back office were a shambles until Marc Brune was hired as its chairman in October 2017.

He, working with Nadia Butler, Pacifico Global’s new compliance officer, found that several clients “appeared to be involved in suspicious transactions” and seven such reports were filed with the Financial Intelligence Unit (FIU) as a result.

Mr Rahming’s report also discloses that the Securities Commission was notified of Pacifico Global’s decision to cease operations, and seek the appointment of a liquidator to wind it up, one day after the Bahamian capital markets regulator informed it that it planned to conduct an on-site examination of the company’s business in late October 2019.

The Intelisys (Bahamas) founder and managing director alleged that the investment advisory firm would have breached the $300,000 regulatory capital threshold it is required to maintain had it remained in business that long, which would have been another breach of Bahamian securities laws.

For Pacifico Global’s failure to issue audited financial statements since 2017 is a breach of the Securities Industry Act 2011, Mr Rahming asserted, with the 2018 financials incomplete because it had failed to provide promised information to its external auditors who “also had concerns about the solvency of the company”.

“The liquidation was ultimately caused by the mismanagement of the company,” Mr Rahming concluded of his review into Pacifico Global’s affairs. “In 2017, the company began to experience a cash shortage/solvency issue which was the result of paying out ‘excessive cash’ to related parties for business introductions and consulting...

“There are substantial related party payments and transfers made with the apparent knowledge that insolvency of the company would occur. There also appear to be creditor payments made shortly before the liquidation that were transacted with the knowledge that the company would shortly become insolvent.”

The liquidator’s report suggested that Pacifico Global’s road to ruin began some two years ago. “We understand that in early 2017 the company began to experience internal conflict amongst its stakeholders,” Mr Rahming alleged.

“The stated reasons for the internal conflict vary and include a lack of communication between the managing shareholder [Arturo Klein][ and executive management, a lack of transparency in the day-to-day operations of the company, a lack of sufficient documented policies and procedures, a lack of adherence to existing policies and procedures, and an emerging and constant monthly cash flow shortage that resulted in an inability to pay in a timely fashion the business introducers.”

Pacifico Global’s seemingly messy insolvency represents an untimely black mark for The Bahamas and its financial services industry given the ongoing struggles to escape the Financial Action Task Force’s (FATF) “monitoring list”, as well as avoid continued scrutiny from the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) on tax matters.

It is seemingly the latest small broker/dealer or investment advisory firm to collapse and be placed under court-supervised liquidation. Tribune Business has extensively reported over the past decade on the failures of companies such as Caledonia Corporate Management, Owen Bethel’s Montaque Capital Partners and Tillerman Securities.

All these companies, as well as Pacifico, appear to share common characteristics in that they were all small, independent firms without a large parent network to provide distribution access to clients. And all seem to have been controlled by a single, or small group of like-minded, shareholders and managers.

Meanwhile, Mr Rahming’s report to the Supreme Court revealed that Eliano Tamburini and Luca Lanciano, respectively Pacifico Global’s former chief executive and chief operating officer, were responsible for securing the majority of the company’s clients.

The duo would thus have earned the bulk of these “introduction” commissions, which were calculated as a percentage of the gross value of client investments. While they took these clients with them when they left, some of these “transfers” were not executed due to reasons that included “insufficient Know Your Customer (KYC) on customer files”.

Following Messrs Tamburini and Lanciano’s departures, Mr Brune and Ms Butler conducted an internal investigation into Pacifico’s affairs. “The reported findings were that the company lacked clear operational and compliance-related policies and procedures,” Mr Rahming alleged in his report.

“There were no internal controls, there were no corporate resolutions for decisions made, there was no operational transparency. Management personnel operated independent of each other, and there was no knowledge of what the other was doing.

“Many of the client files lacked proper KYC documentation, and some of the clients appeared to be involved in suspicious transactions. As a result of the internal investigation, a total of seven suspicious transactions reports (STRs) were filed with the Financial Intelligence Unit (FIU) and copies were provided to the Securities Commission.”

Mr Rahming alleged that one consequence of the probe was that Pacifico Global elected not to take on any new clients until it had “cleared all irregularities and closing existing accounts that did not have KYC documentation, raising red flags”. This meant no new clients were taken on from August 2017, resulting in reduced revenue streams that contributed to the insolvency.

Revealing that he was still piecing together Pacifico Global’s true financial position, Mr Rahming said he had “concerns that the accounting records of the company cannot be fully relied upon” as they were “at least nine months in arrears” - with eight months of journal entries waiting to be entered into its system - when he took over in October 2019.

An extension for the 2018 audit had been sought from the Securities Commission, and the liquidator added: “We understand the company’s external auditors, Kikivarakis & Co, had begun the audit of the year-end 2018 financial statements and found missing information and errors - management fees and commissions payable requiring adjustments.

“We were told the external auditors also had concerns about the solvency of the company. The company was to revert to the auditors with updated financial information, including solvency information, to complete the audit.... We understand the company did not revert to the external auditor with updated financial statements/information before it was placed into voluntary liquidation.”

Pacifico Global’s chief operating officer for the seven months prior to its insolvency was Kareem Kikivarakis. Prior to that, Pacifico Global had outsourced its accounting functions from April 2018 onwards to Kicays Accounting and Consulting Services, a company owned and operated by Kareem Kikivarakis.

Multiple sources in the financial services industry told Tribune Business that Kareem Kikivarakis is either the son or nephew of Anthony Kikivarakis, principal of Kikivarakis & Co, Pacifico Global’s external auditor, although this could not be confirmed before press time as neither returned Tribune Business calls and e-mails seeking comment.

Kikivarakis & Co was named as the company’s external auditor well before Kareem Kikivarakis became involved with Pacifico Global. No adverse findings are made in the liquidator’s report, and there is nothing to suggest either man or Kikivarakis & Co has done anything wrong in relation to Pacifico Global.