By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Questions were last night being raised over the future viability of a BISX-listed company, after court documents disclosed that an entity accused of perpetrating a major multinational fraud held all its $5 million preference share capital.

Documents filed with the Supreme Court by the liquidators for BC Capital Group reveal that the company, which they certified as insolvent, was among the “principal and largest customers” of Alliance Investment Management, the Bahamian broker/dealer that is wholly-owned by BISX-listed Benchmark (Bahamas).

PricewaterhouseCoopers (PwC) Bahamas accountant, Kevin Cambridge, alleged that Alliance owed BC Capital “a portion” of the $48.7 million that was due to the Bahamian broker’s customers as at-end 2011.

And he also revealed that BC Capital and its entities owed $5 million of Alliance’s preference share capital.

Mr Cambridge described the insolvent company as an “equity holder, creditor and customer” of the Bahamian broker/dealer. His affidavit implies that Alliance and, by extension, Benchmark (Bahamas), may represent of the best recovery sources for BC Capital Group’s credit.

Noting that Alliance “features prominently as regards the BC Capital entities’ dealings in the Bahamas”, Mr Cambridge alleged: “According to Alliance’s most recent audited financial statements, as at December 31, 2011, Alliance’s indebtedness to its customers stood at $48.7 million.

“Per Alliance’s president in teleconference with the joint official liquidators on November 20, 2012, the BC Capital entities were Alliance’s principal and largest customers, and a portion of the due to customer balance is said to be owed to the BC Capital entities.”

And Mr Cambridge added: “Separately, the BC Capital entities were the holders of $5 million of Alliance’s issued and outstanding preference shares as at December 31, 2011.

“Altogether, the BC Capital Group entities are substantially interested in Alliance as equity holder, creditor and customer.”

The significance of the liquidators’ findings is that the Alliance financials quoted by Mr Cambridge appear to mirror Benchmark (Bahamas) financial statements for year-end 2011 and the 2012 half-year.

Both Benchmark’s 2011 year-end “due to customer balances” and preference share capital are $48.7 million and $5 million, respectively, indicating that the BISX-listed company’s financials are the same as Alliance.

The figures for end-June 2012 show that Benchmark had a current solvency deficiency (liabilities exceeding assets) of $289,820, with the “due to customer balances” exceeding what was owed to the company by its clients by over $8 million.

In addition, successive annual and quarterly losses have pushed Benchmark (Bahamas) into a $7.065 million retained deficit, and BC Capital’s $5 million worth of preference shares were playing a key role, it seems, in keeping Benchmark (Bahamas) and Alliance in net shareholder equity territory. The latter totalled $2.385 million.

Those preference shares now seem likely to be “called in” or sold by BC Capital Group’s liquidators in a bid to recover assets for its investors, indicating both Alliance and Benchmark (Bahamas) are likely to require recapitalising.

At the very least, the liquidators’ findings raise major question marks over the financial solvency of both Benchmark (Bahamas) and Alliance. Benchmark (Bahamas), as the publicly-traded entity on BISX, has 735 Bahamian retail and institutional investors, who are likely to be concerned as to the safety of their investments.

Julian Brown, Benchmark (Bahamas) president and chief executive, was said to be out of office when Tribune Business called seeking comment yesterday, not returning until Tuesday. Calls to his cell phone, and messages left, were not returned.

Mr Brown had previously issued a profits warning for 2013, indicating that this was tied to the liquidation of a major client, although he did not name BC Capital or go into details. BISX is likely to request that more information be released to shareholders and the market generally.

Mr Cambridge’s affidavit also indicates that Alliance, BC Capital and their relationship are under investigation by the Securities Commission of the Bahamas (SCB).

The documents were filed with the Supreme Court as part of an application by the PwC liquidators for an Order that will see them exchange information with, and assist, the Securities Commission, and vice versa, over the whole affair.

“As a Class 1 broker/dealer, the Securities Commission has a substantial regulatory interest in the affairs of Alliance,” Mr Cambridge said, noting that the regulator would also be concerned with BC Capital Group’s securities dealings in the Bahamas.

“The joint official liquidators have spoken to senior management of the Securities Commission. The Securities Commission’s regulatory interest in Alliance and, generally, relative to the BC Capital entities in the Bahamas, has been confirmed.”