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.


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