By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BAHAMIAN broker/dealer is facing liquidation after its $307,748 capital deficiency was "exacerbated" by whistleblower revelations of legal violations and corporate governance woes.

The Securities Commission successfully petitioned the Supreme Court to place Biscayne Capital into provisional liquidation last week, after its entire Bahamian staff warned the regulator that the situation was becoming "more severe" with clients unable to recover their funds.

Carla Taylor, Biscayne Capital's general manager, revealed to the Securities Commission in a November 2, 2017, letter that decisions concerning the company's business were being taken without the knowledge of Bahamian management, and by persons "who have no authority to do so".

She also disclosed that Biscayne Capital's principals had ordered the transfer of its $300,000 in regulatory capital, held in escrow at the Dupuch & Turnquest law firm, while the broker/dealer only had sufficient funds to cover its operating expenses until end-November 2017.

"Furthermore, Biscayne Capital will not be receiving any form of revenue until the second week in January 2018, and the shareholders have not confirmed any form of capital injection," Mrs Taylor told the Securities Commission.

"I continue to have concerns as to the persons from whom I should receive and accept instructions. I am loathe to place myself in a position whereby my reputation is prejudiced. I also do not wish to see any damage, unnecessary liability or negative consequences for myself."

Christina Rolle, the Securities Commission's executive director, revealed in a November 8, 2017, affidavit how Mrs Taylor and Biscayne Capital's two other remaining staff reinforced those fears the very next day by coming to the regulator's office "unsolicited and expressing their urgent concerns".

Besides the termination of two staff members on October 30, Ms Rolle said the trio also disclosed "that in recent months the staff had not been performing the functions for which they were registered". And Caryl Lashley, the Dupuch & Turnquest attorney and partner, who had been nominated as a director withdrew "citing several concerns about Biscayne Capital".

Other revelations included the transfer of "a large number of client accounts" away from Biscayne Capital"; the fact the broker/dealer was making no income; and "scepticism" over whether the $300,000 regulatory capital would be used properly if transferred from Dupuch & Turnquest's escrow account.

"In the week prior to the meeting there were several client complaints, one client having flown in from Ecuador and attended Biscayne Capital's office directly to request his/her funds," Ms Rolle said.

Legal documents obtained by Tribune Business reveal that the letter, and meeting with Biscayne Capital's remaining staff, brought the Securities Commission's concerns - which had been brewing for at least four months - to a peak.

Determining that the broker/dealer was insolvent; had no directors; and was operating outside its client mandates and license, the capital markets regulator moved rapidly to place Biscayne Capital into provisional liquidation to protect both its clients and the Bahamas' financial services reputation and integrity.

"Your petitioner has concluded that, currently, Biscayne Capital has no one on record to responsibly oversee the operations of the company, and there is sufficient basis for concern that the company is existing in the Bahamas in contravention of both Bahamian corporate and securities laws," the Securities Commission said. "Existing investors may be in jeopardy of losing part, if not all, of their investment in the company."

Following a November 9, 2017, hearing before Justice Ian Winder, the Securities Commission obtained a Supreme Court Order appointing Deloitte & Touche (Bahamas) accountants, Raymond Winder and Mark Munnings, as Biscayne Capital's provisional liquidators. All client accounts and deposits with it have been frozen.

"The Commission has determined that Biscayne Capital does not have sufficient operational capacity to be allowed to remain in operation," Ms Rolle explained in her affidavit.

"It is a paramount duty of the Commission to protect the welfare of investors and/or clients, as well as to maintain the integrity of the Bahamas' securities and capital markets.

"In the circumstances, I submit and confirm that it is the view and position of the Commission that the continued operation of Biscayne Capital would be detrimental to the public interest, and to the interests of Biscayne Capital's clients."

Biscayne Capital is the latest in a long line of small, standalone Bahamian broker/dealers that have collapsed and been put into court-supervised liquidation. The list includes the likes of Caledonia Corporate Management, Montaque Capital Partners and Tillerman Securities.

Detailing Biscayne Capital's seeming 'road to ruin', Ms Rolle said the Securities Commission already had concerns "about its ability to operate as it did not meet the statutory regulatory capital required under the Securities Industries Act" prior to the regulator's first meeting with Mrs Taylor on August 1, 2017.

The Biscayne Capital general manager disclosed numerous regulatory breaches, including the complete absence of a Board as "no approved directors" had existed since April 28, 2017.

The most serious revelation, though, was the disclosure that the US capital markets regulator, the Securities & Exchange Commission (SEC), had issued sanctions against Roberto Cortes, Juan Cortes and Ernesto Weisson - Biscayne Capital's majority shareholder - barring them from participating in the securities industry.

The trio were found to have concealed "multiple conflicts of interest" and material information, in breach of US laws, by promoting and selling securities to investors without disclosing that the proceeds would be used to finance a troubled south Florida real estate developer, South Bay Holdings, which Roberto Cordes and Weisson owned.

South Bay Holdings, together with the trio sanctioned by the SEC, figured prominently in Biscayne Capital's ownership complex, which Ms Rolle described as so complex that it created "suspicion" during a September meeting with the broker/dealer's management.

Mrs Taylor's August revelation's prompted the Securities Commission to conduct an 'inspection for cause' of Biscayne Capital, which occurred on August 9, 2017, at the firm's then-offices in the British Colonial Hilton's Centre of Commerce on Bay Street. It subsequently moved out west to Caves Village.

The inspection confirmed her concerns were spot on, with Biscayne Capital having held no Board meetings for 2017 amid the complete absence of any directors. While an application had been submitted for Herman Oosten, a protector for several trusts in the broker/dealer's ownership structure, to be approved as a director this had not happened because of its "fit and proper issues".

The inspection also found that Biscayne Capital's staff had been cut by more than 50 per cent, from 11 to five, in just 17 months, while its Uruguay-based affiliate was performing the Bahamian broker/dealer's back office functions without an outsourcing agreement approved by the Securities Commission - a violation of industry regulations.

Its e-mails and electronic files were also being stored outside the Bahamas in West Palm Beach, and Ms Rolle said: "The Commission also confirmed that Biscayne Capital did not meet the requisite regulatory capital...

"When the Commission performed a recalculation of Biscayne Capital's regulatory capital, based on Biscayne Capital's June 30, 2017, interim filings to the Commission it was determined that Biscayne Capital had a regulatory capital deficiency of $307,748."

The Securities Commission also found Biscayne Capital had breached the Securities Industry Act by acting as a 'clearing house' for client securities and cash, despite not being registered to perform this function.

And it was also unable to supply discretionary management agreements signed by its clients, with all trade orders and decisions taken by its Uruguay affiliate before being relayed to the Bahamas.

Ms Rolle's affidavit details numerous correspondence and meetings between the Securities Commission and Biscayne Capital following the August 9 inspection, in a bid to get the Bahamian broker/dealer to resolve its capital, corporate governance and legal/regulation violations.

These efforts, though, proved fruitless, until Biscayne Capital revealed on September 26, 2017, that it would seek "new ownership" for the company and had "engaged in negotiations with potential purchasers".

A Uruguayan national, Andres Pieroni Ruiz, ultimately submitted a 'Letter of Intent' to acquire Biscayne Capital, which at that point was said to have $255 million in assets under management spread between 300 accounts.

Mr Pieroni's plan, according to court documents, was to increase assets under management by $100 million within 12 months, aided by a former Biscayne Capital director, Pablo Perrotta.

The acquisition offer, though, was overtaken by events - chiefly Mrs Taylor's "great concern".