Feb/5/2011

First conference call February/4/2011.

There was a conference call on Friday with Richard Friedman and the group's representative, . The following was the agenda:

1. Service upon Anthony in the Bahamas;

2. Change the mandate to include certain modifications including but not limited to; the sharing of the costs in the event that they are assessed against Bayfield Holdings Ltd., the Association or Len Davies.

3. A proposed further assessment of $ 2000.00 to assist in covering the amount outstanding to McCarthy Tetrault.

4. Website for the Association

A) The service of the Petition was a technical problem that was quickly dealt with.

B) Changing the mandate to include the sharing of costs was agreed by everyone even though the possibility of Bayfield getting called upon for costs is slight. However, the chance is there and this addition to the mandate outlining our agreement to institute the action against Jitney and Penson, is simply a precaution but one that we all owe both Bayfield and the association's President Len Davis. The amendments outlining this will be circulated to everyone for their signature soon.

C) We discussed the need to call for an extra $2,000 per client in part:

So we would have at least $85,000 in our trust account to indicate to a judge that we possess the financial ability to prosecute the Class Action and to cover the remaining balance for the legal opinion.

Richard reminded us that he based part of is decision due to the fact that he benefited from the opinion of McCarthy Tétrault to work from which saved time and expense.

We may be required by the judge to indicate that our financial strength is deeper than our current kitty and if that is the case, one action may be to provide letters from our banks that the companies have sufficient funds. Details or amounts would not have to be provided.

Keep in mind that the Mandate which we all signed originally spoke of the possibility of having to put up 1% of what we each are claiming as security for the court costs but in a class action that 1% is not necessary. This is vague at this point and if it is necessary, there will be plenty of notice and careful planning.

We now have 17 clients who have paid or are in the process of transferring their money and are supporting the case. If we are certified as a class action, our case will represent more than 100 clients who lost money as a result of the Jitney – Penson actions. We should know if we can be certified as a class action within the next six months.

All the defendants have filed their respective Appearance with the court. An Appearance is a one page document acknowledging they were served with the Petition and are prepared to defend the case and who their lawyer is.

D) The website.

We will add the association information to this Website.

Published On:Thursday, December 16, 2010

By NEIL HARTNELL

Tribune Business Editor

The liquidator of a collapsed Bahamas-based broker/dealer has determined that 54 per cent of a $1.47 million shortfall, which is in excess of the $25 million loss that caused the company's failure, can be recovered, pledging that he wanted the winding-up to come to an end "as much as" the fiduciary clients.

Anthony Kikivarakis, the Deloitte & Touche (Bahamas) accountant and partner, in his fifth report to the Bahamian Supreme Court as the liquidator for Caledonia Corporate Management, said he would have to seek the court's directions on how the shortfall should be handled - whether it should be borne only by clients who had assets in the impacted accounts, or shared across all clients and deducted from the second tranche of their assets, some 8 per cent of their total portfolio - which is held in escrow by himself.

Noting that the $1.47 million "shortfall" was identified in seven accounts at two Bahamas-based institutions, FirstCaribbean International Bank and EFG Bank & Trust, Mr Kikivarakis said he had either recovered or identified for recovery some $791,000, roughly 54 per cent of this amount.

Omnibus

"From a review of the company's records and discussions with the company's and discussions with [Caledonia's] previous employees, the FirstCaribbean account operated as an omnibus account through which cash balances of clients were deposited and transfers made to other accounts," Mr Kikivarakis alleged.

"The amounts therefore coming out of the FirstCaribbean accounts had been comingled and were not separately identifiable."

Detailing other issues that required approval from Supreme Court Chief Justice, Sir Michael Barnett, the liquidator said a hearing was supposed to have taken place last Friday over his contention that Caledonia's sole preference shareholder had received $5.636 million from the broker/dealer after it was placed into liquidation. That allegation has been vehemently denied by the preference shareholder, and Mr Kikivarakis has reduced the amount alleged to be involved from the $5.909 million originally estimated.

Apart from difficulties in identifying beneficial owners of Caledonia accounts, Mr Kikivarakis added: "Certain clients' assets are held in securities, and the values of those assets have decreased considerably since September 30, 2008. In light of this, some clients have refused to pay 2 per cent of their assets into the Clients Security Account or to provide appropriate instructions to transfer their securities to a new custodian. In one case, the assets have decreased by $593,400."

Other problems, the liquidator alleged, stem from the fact that two Caledonia clients have overdrawn cash balances on their accounts, yet he is holding insufficient securities to cover these.

As at September 30, 2010, while these clients held securities worth a collective $101.700, their overdrawn cash positions totalled $430,116 - a more than $300,000 shortfall. Mr Kikivarakis said he would seek a Supreme Court order authorising him to sell some of these securities.

Elsewhere, out of 34 accounts that were overdrawn, Mr Kikivarakis said three balances worth $328,112 had been recovered, but 23 accounts "appear unrecoverable, with balances ranging from $1.08 to $1,725". The aggregate amount represented by these accounts was $5,386.

Analysing the 94 accounts for whom he had not received instructions to transfer their assets, Mr Kikivarakis said that because 76 of these contained cash, he would merely retain 4 per cent of their assets - worth $171,486 - to cover his costs.

As for the 18 accounts holding just securities, the liquidator said he needed them to provide cash equivalent to 4 per cent of their assets to effect the transfer.

"Of the 18 accounts, 12 of these clients' securities values have decreased substantially," Mr Kikivarakis said. "These clients' assets have decreased by approximately $370,000, with one client's assets decreasing by approximately $143,000. It should also be noted that the marketability of these securities is questionable."

And he added: "A number of clients are displeased that some of their securities have fallen in value and, as a result, the increased cost of the liquidation will affect them more now than earlier. Some of these clients clearly stated that they did not wish to sell their securities or to pay the initial 2 per cent, and have not done so to date."

Despite Sir Michael previously expressing hope that the Caledonia liquidation could be wrapped up by year-end, Mr Kikivarakis said some cases involving client ownership of assets would "carry over into the New Year".

"The company's fiduciary clients would like to see this liquidation come to an end, as much as I would, and I hope that we can do so shortly in this regard," Mr Kikivarakis said.


Reader Comments - 5 Total

'black hole', be completed by year-end,"

Tribune Business Editor

The Chief Justice has urged that the winding-up of a Bahamian broker/dealer, which collapsed due to a $25 million trading 'black hole', be completed by year-end, rejecting opposition by the company's clients and creditors to the liquidator's costs being paid out of a further 8 per cent of their assets.

Sir Michael Barnett, while making some mild criticisms of Deloitte & Touche (Bahamas) partner Anthony Kikivarakis, the court-appointed liquidator of Caledonia Corporate Management, ruled that the accountant should be paid his costs out of a further 8 per cent of fiduciary client assets he had retained, the original 2 per cent having been virtually exhausted.

In a November 8, 2010, verdict that is likely to disappoint Caledonia clients and creditors, many of whom had objected to a further 8 per cent of their assets - which the broker had held in trust on their behalf - being used to pay Mr Kikivarakis's fees, Sir Michael ruled: "In my judgment, the additional costs of the liquidator should be met in the same fashion as provided for in the original order of October 21, 2008, out of the 8 per cent retention.

"The liquidator's costs must be taxed as was before, and any challenges to their reasonableness should be made at taxation."

Alfred Sears, of Sears & Co, who is representing Mr Kikivarakis in the liquidation, and a host of attorneys representing various Caledonia clients , are now attempting to settle an Order reflecting Sir Michael's verdict, Tribune Business understands.

The ruling effectively tells Caledonia's clients, including the Client Monitoring Committee that was formed to work with Mr Kikivarakis on the liquidation, that any objections they have to his fees must be raised at hearings before the Supreme Court Registrar, where the liquidator applies for court approval of the payments.

Meanwhile, Sir Michael also pushed Mr Kikivarakis to complete Caledonia's almost two-year liquidation process by year-end, ordering him to report back to the Supreme Court on November 30, 2010, on his progress in meeting this deadline.

"This liquidation is nearing completion," Sir Michael found. "Indeed, it can be completed before the end of the year, and I expect the liquidator to comply with his representation to the court that it will be completed this year."

His judgment traced the origins of Caledonia's demise, namely the move by its Canadian correspondent broker, Jitney, to sell off some $25 million worth of client assets to cover a margin call on an overdrawn balance created by now-convicted securities fraudster, George Georgiou, who was running a 'pump and dump' financial fraud scheme with self-pr0claimed Canadian 'mobster', Vince de Rosa.

Noting that Mr Georgiou had been allowed to margin trade using other Caledonia clients' assets as collateral, Sir Michael noted: "As a result, the company was unable to return to its clients 100 per cent of the fiduciary assets, pay its own outstanding creditors and fund the company's liquidation.

"The clients of the company were primarily fiduciary in nature, and their assets were not a part of the assets of the company [Caledonia]. Consequently, the assets of the clients should not have been pledged or used as collateral without their express consent, nor should assets of one client have been used to benefit another. The company had no continuing cash flow to fund the liquidation going forward."

Hence the difficulties in paying Mr Kikivarakis his costs. Eventually, after negotiations with Caledonia's clients and creditors, a Supreme Court order on October 21, 2008, allowed the liquidator to retain 2 per cent of their assets to cover his costs.

This was subsequently amended in December 2008 to allow Mr Kikivarakis to retain a further 8 per cent of client assets in escrow. This meant that ultimately 10 per cent of each client's assets were retained, with 90 per cent set to be returned to them by the liquidator.

"I am satisfied that at the time the Order was made, it was anticipated that the 2 per cent would cover the liquidator's costs in discharging his duties," Sir Michael found. "Indeed, it is also apparent that when the Order of October 21, 2008, was amended to provide for the 8 per cent retention, it was still not anticipated that any part of the 8 per cent would be used for the payment of the liquidator's fees."

According to Mr Kikivarakis's report to the Supreme Court, the extra 8 per cent withholding was necessary to cover an unexpected shortfall "of at least $500,000", something he blamed on the "mismanagement" of Caledonia's former management. He therefore did not have 100 per cent of the assets under his control.

"There is nothing in his second report which suggests that the liquidator expected that the costs may have exceeded the 2 per cent, and that the 8 per cent should be available to meet any excess costs. No doubt, if he did, he would have expressed that fear to the court and reflected that concern in his report," Sir Michael said.

Yet Mr Kikivarakis's costs had now exceeded the initial 2 per cent withholding, and he was applying to be paid from the other 8 per cent asset retention, something the clients were objecting to.

Their reasons differed. Brian Moree QC, the senior McKinney, Bancroft & Hughes partner representing the US-based receiver of the Peter Rogan Irrevocable Trust and RPP Finance Trust, one of Caledonia's largest clients, said he would only accept deductions from his client's 8 per cent for work directly relating to its assets.

Yet veteran Bahamas-based banker, Len Davies, a member of the Client Monitoring Committee, had articulated different concerns. Mr Davies, in an affidavit, said he was worried that the investigation into the $500,000 'shortfall' had not been "accurately evaluated" for two years, and nor had 90 per cent of their assets been returned to all clients.

He alleged that Mr Kikivarakis and his agents had "antagonised many of the fiduciary clients for the past two years" by not providing information on the liquidation, adding that only one meeting had been held so far this year with the Monitoring Committee.

Alleging that Mr Kikivarakis's outstanding fees to December 31, 2009, were $800,000, and that his fees to May 31, 2010, were $350,000, Mr Davies said these sums compared to $53,393 in the client security account.

Mr Davies had urged the court to put a figure on the shortfall and determine who should suffer from this - the specific clients involved, or all - and set a timeframe for the return of the 8 per cent minus this sum. He also called on the Supreme Court to order Mr Kikivarakis to support client efforts to sue Jitney and the perpetrators of the 'pump and dump' scheme that led to the $25 million collapse.

Sir Michael, pointing out that no one objected to Mr Kikivarakis being paid for his work, said: "Mr Moree rightly points out that the liquidator ought to have come to the court for further directions prior to incurring costs in excess of the 2 per cent.

"I accept that Mr Moree is correct on this point, and to avoid the dispute which has now arisen, the liquidator ought to have made application for further directions the moment it became apparent that the 2 per cent was insufficient to cover the costs of his remuneration."

Sir Michael said the liquidator should not be penalised for work he had done, and Mr Kikivarakis said in response to Mr Moree that while the QC was correct in theory, "in the reality of this case it was not practical to segregate the work done by him" by client.

The Chief Justice said that while there "seems to be some merit" in Mr Moree's argument, and that client segregation which "ought to have been done in the first place" could have been accomplished in certain instances, there was "no basis" for disagreeing with Mr Kikivarakis.

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Caledonia's $25 million collapse resulted from allowing a now-convicted fraudsters to trade on margin as part of a 'Pump and 'Dump' stock manipulation, using other clients' assets - without their knowledge - as collateral for his activities. When the margin became unsustainable, the Canadian correspondent broker sold off innocent clients' assets to cover the hole, something that has been admitted by a former senior Caledonia executive in sworn testimony.

Yet the Securities Commission, at least publicly, appears to have taken no action in more than two years against the principals at Caledonia.

Published On:Friday, October 01, 2010

By NEIL HARTNELL

Tribune Business Editor

A leading attorney yesterday expressed concern that the Bahamas was running "a real computational risk" because very few fraudsters and wrongdoers responsible for financial collapses in this nation had been brought to justice, while the regulators rarely failed to detect such problems in their infancy.

Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that the Bahamas and its financial services industry "had to be concerned" about the message being sent to clients/foreign investors when it came to holding financial criminals and wrongdoers to account for their actions.

And he argued that Bahamian financial services regulators needed to take a more proactive approach and deal with problems as early as possible wherever they arose, detecting warning signs before situations got out of hand and became impossible to rectify.

"The regulatory oversight, in many instances, seems to be more reactive than proactive, and not always efficient in detecting when it should fraudulent activity or wrongdoing that ultimately leads to the collapse of investment funds, banks or some other entity," Mr Moree told Tribune Business.

He declined to cite specific situations, but one where the "writing was on the wall" from at least 2005-2006, prior to its eventual placement into Supreme Court-supervised liquidation in early 2009, was CLICO (Bahamas).

The sector regulator, the then-Registrar of Insurance, had been aware that CLICO (Bahamas) had been moving substantial funds (eventually totalling $73 million) out of the Bahamas for investment in Florida-based real estate projects since 2003-2004, and this newspaper since 2007 had been raising questions about the company's financial health, particularly why there was such a large concentration of its assets in a single, illiquid development.

Yet no regulatory action to protect policyholders and creditors was taken until CLICO (Bahamas) problems, and those of its Trinidadian parent, CL Financial, had become so terminal that they were impossible to correct.

Meanwhile, Mr Moree added: "Once the collapse occurs, we've not always been very good at bringing wrongdoers to account in a way that protects the overall integrity of the industry, so that the message goes out that if you're involved in fraudulent activity in the Bahamas, you run the real risk of being caught and brought to justice, rather than the Bahamas being seen as the 'Wild Wild West', where if these failures happen you can run off to other countries and nothing happens to you.

"The point is: How does the jurisdiction deal with the failure from the point of view of bringing wrongdoers to account, and how efficient is the court system and regulatory structures in offering the highest level of protection to investors in getting back their money?"

It was here, Mr Moree said, that the "reputational risk" lay for the Bahamas. Financial collapses and frauds took place throughout the world, he noted, even in the US, UK, Canada and major G-7 countries, but the key was what happened post-collapse and whether this nation was doing enough to give comfort to foreign investors/clients that their interests would be sufficiently protected and looked after.

The leading QC added: "That is something we have to take a look at - the regulators, the white collar crime prosecutors, and the directors of the police force responsible for commercial crime.

Record

"It seems to me that that they all have to look at their record for bringing people responsible for white collar crime, domestically and through cross-border activities, to justice."

Strong action, Mr Moree emphasised, would "act as a deterrent to those prepared to perpetrate fraud through activities and operations in the Bahamas.

"We've got to demonstrate through actions and regulatory structures that if you rip off investors in the Bahamas, you will be brought to justice and held accountable for your conduct. That is a very important aspect to maintaining our reputation as a first-tier international financial centre. It is only in that environment investors feel comfortable in Bahamian entities.

"It's easy to say that we have integrity, and the financial services industry is first-class and well-regulated, but we have got to demonstrate that is indeed the case when something happens."

One such example was the $25 million collapse of former broker/dealer Caledonia Corporate Management that the resulting fall-out, which has been covered extensively by Tribune Business.

This newspaper has regularly been contacted, via phone and e-mail, by Caledonia clients questioning what action the Securities Commission of the Bahamas will take in relation to the collapse, and whether it actually has any regulatory enforcement teeth.

Caledonia's $25 million collapse resulted from allowing a now-convicted fraudster to trade on margin as part of a 'Pump and 'Dump' stock manipulation, using other clients' assets - without their knowledge - as collateral for his activities. When the margin became unsustainable, the Canadian correspondent broker sold off innocent clients' assets to cover the hole, something that has been admitted by a former senior Caledonia executive in sworn testimony.

Yet the Securities Commission, at least publicly, appears to have taken no action in more than two years against the principals at Caledonia.

The Bahamas has also had to deal with its fair share of investment fund implosions over the past decade, such as the collapse of the Olympus Univest fund and potential loss to investors of an estimated Cdn$440 million.

The Securities Commission began investigating the fund's Canadian manager, Norshield, in 2004, but it is not known whether any enforcement action was taken. The collapse also appeared to play a major role in the closure of Bahamian fund administrator Cardinal International, although the company denied any wrongdoing and no findings have been made against it so far by the liquidators.

"evidence of how some clients have become dissatisfied with the liquidation's progress."

September 23, 2010

Published On:Thursday, September 23, 2010

By NEIL HARTNELL

Tribune Business Editor

By NEIL HARTNELL

Tribune Business Editor

A client of a former Bahamian broker/dealer, which collapsed after sustaining a $25 million trading 'black hole', has alleged it is suffering "loss and damage" as a result of the liquidator's failure to date to return some $277,735 of its assets. It is also vigorously denying the liquidator's claim that it wrongly received $562,987 from the broker after it was placed under Supreme Court-supervised liquidation.

Andrew Crosbie-Jones, a director of Bahamas-based financial institution, The Private Trust Corporation, in an August 16, 2010, affidavit filed in the Supreme Court to support a summons filed on behalf of Ingelby Holdings, alleged that Caledonia Corporate Management's liquidator had failed to justify why he had not returned the company's assets. Nor had he produced documentary evidence to back his conclusion that Ingelby had received a 'preference' through the $562,987 payment.

The affidavit, which is supporting a summons seeking a Supreme Court order requiring liquidator Anthony Kikivarakis, the Deloitte & Touche (Bahamas) partner, to transfer a mix of cash and securities that Caledonia held on Ingelby's behalf, is evidence of how some clients have become dissatisfied with the liquidation's progress. Mr Kikivarakis did not return a phone message left by Tribune Business at his office.

Mr Crosbie-Jones, giving evidence in The Private Trust Corporation's capacity as trustee of the trust that owns all Ingelby Holdings' shares, alleged: "It was the hope of Ingelby that this matter could be resolved without requiring Ingelby to issue a summons to compel the official liquidator to transfer its assets.

"The official liquidator's failure to do so and to provide evidence to Ingelby justifying his refusal to do so is causing Ingelby loss and damage. The assets held by the official liquidator are currently valued at approximately $277,735."

He further alleged: "The $562,987, which the official liquidator alleges was received by Ingelby after Caledonia was placed into liquidation, were not assets managed by Caledonia. These were assets held in a separate account in Ingelby's name, and which account the former officers of Caledonia were signatories, and at no time were these assets administered by Caledonia. Caledonia has no authority to deal with these assets.

Method

"In respect of the $5.909 million that was allegedly transferred, the same method of holding these accounts was used, and they at no time constituted assets under the management or control of Caledonia."

Mr Crosbie-Jones alleged that Mr Kikivarakis had not met with Ingelby's attorneys, Alexiou, Knowles & Co, "to explain his concerns" regarding the return of Ingelby's assets, or the conclusions he had drawn in previous reports to the Supreme Court.

Describing Ingelby as a fiduciary client of Caledonia, Mr Crosbie-Jones added that the company had complied with Supreme Court orders to pay 2 per cent, followed by an additional 8 per cent, of its assets into escrow accounts to fund the liquidation.

That meant the official liquidator retained 10 per cent of its assets.

After Mr Kikivarakis allegedly failed to tell Mr Crosbie-Jones why Ingelby's assets had not been transferred as promised, Alexiou, Knowles & Co sent the liquidator a letter on August 26, 2009, demanding that this happen and that he "give an explanation" for why this had not happened. Legal action was also threatened.

In his September 1, 2009, response, Mr Kikivarakis alleged that Ingelby had received the $562,987 after Caledonia was placed into liquidation on February 12, 2008.

He also expressed concern that "the beneficial owner of Ingelby was a preference shareholder of Caledonia, and received a number of payments prior to the date Caledonia was placed into liquidation. It was necessary for him to meet with the beneficial owner of Ingelby prior to approaching the Supreme Court for the release of assets held on behalf of Ingelby".

In response on September 22, 2009, Alexiou, Knowles & Co asked the liquidator to "identify the payments allegedly received, the dates the payments were received, and to whom the payments were made" in relation to the $562,987. They purportedly received no response.

Further correspondence was exchanged, including an alleged October 15, 2009, letter asking for a meeting to discuss Mr Kikivarakis's concerns regarding this and the alleged $5.909 million that was sent to five former Caledonia clients after the firm was placed into liquidation.

Caledonia collapsed into liquidation after suffering an almost-$25 million trading loss, which resulted when Jitney, its Canadian correspondent broker, sold off assets to cover an overdrawn margin loan balance that was not collateralised by the client who had created the 'hole' in question.

That overdrawn balance was in an account operated nominally by a Ron Wyles, whose trading activities were directed by George Georgiou, a Canadian who has since been of securities fraud in.

Much of the fraudulent activity was allegedly directed from the Caledonia account.

Jitney ended up selling off assets belonging to Caledonia clients other than Wyles/Georgiou because they were all pooled in one omnibus account with it, with no segregation. The duo had allegedly been engaged in short-selling, a high-risk trading strategy supposedly collateralised by so-called 'penny stocks', and incurred substantial losses that eventually sunk Caledonia.

Friday, August 27, 2010

During the week of the 23rd Richard Friedman was introduced to several persons that are key to making our action move forward. Participating clients can feel confident that Richard Friedman is a qualify, dedicated and motivated lawyer.

We have had important and very constructive meetings every day. Richard made is position absolutely clear to all persons that will be called to collaborate or to testify.

We spent three hours with the liquidator and his lawyer. Richard made it very clear on what he needs and expect from him. Antony now understand all the implications and agreed to provide Richard with all the documents and files he may need for is case. Antony may be called to testify in Canada to confirm the last Jitney statements and he agreed. Richard was very precise and explained that once all the clients have been informed there are no liabilities for Antony even in a class action. The meeting was long and he covered all the aspects including the fact that the moneys recuperated would be reimbursed to the clients and not to Caledonia. My understanding is that Antony would not object if a group of clients submitted a proposal to the court to clear the 8% situation and move on. This was a suggestions that I made to him and is obviously subject to more discussions with all the comity members.

Richard interrogated Robert Dunkley and demanded is total collaboration. I can not go in details but lets just say that it was a trade-off that should motivate Robert's collaboration and testimony.
.
We spent time with Peter Fletcher on Thursday and Friday. Peter represent several corporations and had several justifiable concerns. We had previously liaised with an International law firm in order to be able to address Peters concerns. Richard was finally able satisfy and to addressed most of those concern and several companies that he represent will now join the action. I think it is fair to say that we accomplished every thing the we had set up to do.

Expenses where at a minimum. Actually Richard paid me a $5,00 Bahamas Submarine for lunch. I hope that it will be approved by the comity.