Montaque Capital Partners allegedly in breach of Companies Act

By Neil Hartnell (Business BVI)–A Bahamas-based broker/dealer could not renew its Business Licence because it had allegedly breached the Companies Act by failing to file audited financial statements and annual returns, its auditors having warned regulators about “certain irregularities” for the 2009 financial year.

While unable to put a figure on the possible loss suffered by clients and creditors of Owen Bethel’s “insolvent” Montaque Capital Partners, liquidators Kenneth Krys and Ed Rahming, of the KrYs Global accounting firm, warned “that further financial and legal analysis” – including a forensic accounting – was required to determine what led to the company’s failure.

There is nothing, though, to suggest that Mr Bethel, Edison Sumner, the company’s chief operating officer, and other staff and directors, have done anything wrong in relation to their duties to clients. The former two were assisting the liquidation effort, and while Montaque Capital Partners’ seven staff were terminated when the liquidation began, two were subsequently retained.

In their first report, Messrs Rahming and Krys said a preliminary analysis had identified “a number of areas of concern”, including the fact that Montaque Capital Partners’ accounting records were “several months in arrears” as of their September 30, 2011, appointment date.

“Further, audited accounts have not been issued since the 2008 financial year, in breach of Section 126 of the law [Companies Act],” the joint liquidators alleged, adding that staff had been retained to bring the accounts up to date.

Montaque Capital Partners’ business licence, they added, had expired on April 30, 2010. “The company was prohibited from applying for the renewal of the Business Licence until finalised financial statements and annual returns were obtained from Gomez & Co,” the liquidators alleged.

“It became clear as the liquidators conducted their initial investigations that the books and records of the company and, in particular, its accounting records, are several months in arrears, at least…

“The liquidators were advised by the company’s auditors, Gomez & Co, that they had advised the Securities Commission of the Bahamas of certain irregularities in the accounts during their audit of the 2009 financial year. As a result of those concerns, the audit for that year has not been completed.”

Messrs Rahming and Krys are currently awaiting a date for the Supreme Court to hear their petition moving Montaque Capital Partners’ liquidation to a court-supervised process.

They warned, though, that they were also likely to apply to the Supreme Court for the winding-up of a Montaque affiliate, Montaque Corporate Partners, on the grounds that the financial and corporate services provider’s affairs were heavily “intertwined” with Montaque Capital Partners.

Outlining their other concerns, they alleged that Montaque Capital Partners “paid substantial funds, estimated to be in the millions, to and on behalf of related entities”. Messrs Rahming and Krys said they had been unable to-date to review these payments to see what they were for, and if they “were for the benefit or in the best interests of the company”.

Montaque Corporate Partners, they alleged, managed 277 registered Bahamian International Business Companies (IBCs), of which 77 appeared to have investments placed with Montaque Capital Partners.

“Based on the information reviewed by the liquidators, it appears that Corporate often paid bills on behalf of the company, and vice versa, which appears to account for the majority of inter-company account balances in the accounting records,” the liquidators alleged.

“As at September 30, 2011, Corporate appears to have a cash balance of $112. Financial statements have not been prepared for Corporate, and it appears that Corporate’s operations were intertwined with that of the company.”

Messrs Rahming and Krys said they had taken control of Montaque Capital Partners’ account balances at Royal Bank of Canada, Scotiabank and Credit Suisse, totalling some $163,185. Most of this, some $124,020, was held at Royal Bank, and the remainder – largely held at Credit Suisse – is being transferred to the former account.

Marketable investments were given a $109,789 valuation on Montaque Capital Partners’ balance sheet as at April 30, 2011, the liquidators alleged, split into $30,000 worth of ‘equities’ and $798,789 described as ‘house funds’.

Detailing the findings of their initial financial review, Messrs Rahming and Krys said some $461,229 was listed as owing to Montaque Capital Partners as at July 31, 2011, in terms of client commissions due to it. Liabilities, though, showed some $249,335 was due to trade creditors for items such as rent, electricity and “unpaid statutory fees”.

The company’s unaudited financial statements for 2009 showed a total loss of $118,216, based on total revenues of $451,681 and total expenses of $548,337. Montaque Capital Partners’ balance sheet, as at April 30, 2009, indicated total equity (net assets) of $651,823, with total assets and total liabilities standing at $996,846 and $345,023 respectively.

Other concerns identified by the joint liquidators included Montaque Capital Partners’ record keeping. They alleged there was “limited or little documentation of instructions” given by its clients, and claimed: “Further complicating this issue is that the customer contact details are often non-existent or not up to date.”

Several Montaque Capital Partners’ clients, wanting to retain anonymity, had placed their statements on ‘hold mail’.

“Based on initial investigations undertaken to date, it appears difficult to segregate the company’ assets from the assets of customers which were placed with the company for investment on their behalf,” the liquidators alleged.

“Moreover, the liquidators believe there may be substantial difficulty in identifying the source of funds from customers to investments held with custodians on their behalf.”

Messrs Rahming and Krys said records as at July 31, 2011, showed a total of $7.392 million had been placed by Montaque Capital Partners between some 21 custodians.

But the custodians had confirmed that of the same date, they held securities worth a collective $4.531 million and a negative net cash balance of $1.357 million, resulting in a total net value of $3.174 million.

This was a $4 million difference, and Messrs Rahming and Krys said they had received account balance confirmations from 16 of the 21 custodians. The remaining five were said, by Montaque Capital Partners’ accounts, to hold a collective $881,320.

The majority of client investments were said to be held by Macquarie Private Wealth, which had produced information showing Montaque Capital Partners had some $197,777 worth of securities with it, but a negative cash balance of $3.125 million – creating a deficit of $3.018 million.

It appeared, Messrs Rahming and Krys alleged, that Macquarie was relying on guarantees from Montaque Capital Partners to cover the overdrawn account and close it out.

The liquidators said there were several occasions where it appeared “margin liabilities accrued which could not be satisfied from assets held for that purpose, either because the assets were illiquid or the assets’ value had decreased and was insufficient to meet margin calls”.

The liquidators expressed fears this may have resulted in custodians’ settling margin calls with assets belonging to other clients. They added that some custodians had continued to liquidate assets held inMontaque Capital Partners’ name to settle margin calls despite their appointment.

“Customers were allowed to maintain margin accounts with negative balances at the custodians and use penny stocks as the main equity position,” the liquidators alleged.