By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known Bahamian banker has been barred for life from the securities industry over the “conflicts of interest” and client losses involved in his broker/dealer’s $17m collapse.

The Securities Commission imposed the ultimate sanction on Owen Bethel, Montaque Capital Partners’ principal and 95 percent majority shareholder, for the mismanagement of client funds and using the broker/dealer to “fund personal loans” to directors and related party entities.

Despite Mr Bethel denying he had “engaged in any unscrupulous conduct” relating to client assets, the settlement deal agreed with the Securities Commission confirms that he used Montaque Capital Partners to finance his other ventures - especially the Islands of the World fashion show and film/movie-related initiatives.

These ventures owed $3.5m to Montaque Capital Partners at the time of its collapse, and the June 18, 2018, settlement between the capital markets regulator and Mr Bethel said they involved transactions for the latter’s “personal benefit”.

The Securities Commission, showing increased teeth in what appears to be a crackdown on rogue capital markets operators and their infractions, said reports by the broker/dealer’s liquidators, accountants Ed Rahming and Kenneth Krys, exposed three major legal and regulatory breaches by Mr Bethel’s firm.

Besides failing to maintain proper books and accounting records, the regulator identified a “failure to segregate clients assets and/or accounts” and “conflict of interest” as the two principal failings at Montaque Capital Partners prior to its collapse into insolvency in 2011.

“During the material times and notwithstanding the defendant’s [Mr Bethel] explanation, the defendant’s actions violated the securities laws and were contrary to the public interest,” the settlement agreement stated. “The defendant’s conduct was both detrimental and prejudicial to the interests of Montaque and its clients.”

“The issues revealed in the [liquidators] reports included Montaque being used, either directly or indirectly, to fund personal loans which the directors obtained for themselves, for related parties and for third parties, including about seven companies belonging to [Mr Bethel].”

These companies include Mode Iles Ltd, which was formed to produce Mr Bethel’s Islands of the World Fashion Week, and Bahamas Film Invest International, an entity that led a failed bid to acquire the Bahamas Film Studio project in Grand Bahama.

The settlement agreement noted that numerous transactions relating to these ventures were conducted via accounts at Montaque Capital Partner and its affiliate, which were “authorised” by Mr Bethel “for his own personal benefit” as well as that of the seven companies.

It added that this use of monies “belonging to Montaque and/or its clients” was confirmed by an affidavit sworn by Mr Bethel on March 2, 2016. “The Commission further notes that, contrary to the defendant’s [Mr Bethel] assertion in his affidavit that Montaque did not suffer any loss as a result of the transactions, the official liquidators have concluded otherwise, attributing the resulting loss as having been borne by either Montaque of its clients,” the settlement deal stipulated.

“The official liquidators noted that it was hard to say with any precision who bore the loss because of the poor maintenance of books and records. However, the loss was borne by one or the other.

“Following on from the above, the reports also outlined Montaque’s failure to maintain books and records as required by statute, and the extensive comingling of client and company assets resulting from the failure to segregate accounts as required by statute.”

The Securities Commission settlement said Mr Bethel’s 2016 affidavit “further demonstrated the intermingling of funds” belonging to clients, although he asserted “there was no intent to deprive clients of their assets”.

“The defendant indicated that although he does not agree with the premise for the Commission’s sanctions, he has accepted that as a director his actions ultimately negatively impacted Montaque and its clients,” the document, obtained by Tribune Business, states.

“The defendant further noted that, to expedite the conclusion of this matter, he will accept ‘without prejudice’ sanctions imposed by the Commission. The defendant has also declared his current inability to pay penalties in full.”

The Securities Commission, borrowing language used by the US Securities & Exchange Commission (SEC) in its agreements, allowed Mr Bethel to “neither admit nor deny” the allegations against him or associated liability.

In return, Mr Bethel accepted the facts in the settlement agreement and to be gagged from speaking publicly about the details. The Securities Commission then imposed a life ban on Mr Bethel participating in the capital markets industry, although he can apply for this to be lifted after 15 years.

Other sanctions included fines of $200,000 each for the record-keeping, client funds comingling and “conflict of interest”, making a total of $600,000. Mr Bethel is also required to “pay to the official liquidators an acceptable amount” from the $3.5 owed to Montaque Capital Partners by himself and related parties.

The Securities Commission pledged “not to pursue criminal offences that may potentially be commenced via the Office of the Attorney General” if Mr Bethel complied with the sanctions and settlement terms, with payment of the fines “expected within 30 days” of June 18. It is unclear if payment has been made, but this seems unlikely.

Tribune Business revealed early last year how Montaque Capital Partners’ lliquidators had recovered just 15 per cent of its identified assets, while clawing back minimal sums from Mr Bethel and overdrawn clients.

Messrs Rahming and Krys, in their fourth and final report to the Supreme Court, said they had only been able to recover $2.6 million out of almost $17 million held in the broker/dealer’s name.

They claimed to have received just $75,000 from Mr Bethel, despite determining that he - and entities he controlled - owed around $3.5 million, with related party transactions having played a significant role in the company’s insolvency.

But Mr Bethel, in his 2016 affidavit, alleged he had been informed by his attorneys that many of the related party debts owed to Montaque Capital Partners were “not recoverable” since they were more than 12 years-old and therefore “statute barred”.

He argued that he had been co-operating with Messrs Rahming and Krys, even though the liquidators had told him they “may have potential claims against me personally” over the company’s failure and that of its affiliate, Montaque Corporate Partners.

Mr Bethel, as at March 2, 2016, said he had already paid the liquidators some $156,707 as a sign of “good faith”. He alleged: “At no time did I engage in any unscrupulous conduct so as to deprive the companies and/or clients of their funds.

“As was the custom of Corporate and Capital, several clients over the years agreed to invest in certain deals and financial initiatives, which were speculative in that they may not prove to be immediately financially rewarding.

“In some instances the charges for expenses were applied to the clients’ account at Corporate and Capital, and either I or a nominee company would serve as director or shareholder,” Mr Bethel continued.

“In cases where there were financial losses, Corporate and Capital did not pursue recovery of the debts as the clients remained valuable clients of the businesses and it was felt that the funds would be paid and credited.

“As far as I am aware, and based on the course of dealings, at no time did I or any officer or employee of Corporate and/or Capital benefit from clients’ funds otherwise as stated herein.”

Mr Bethel, though, said he took “full responsibility for any accounting irregularities that may have resulted” due to this policy. However, when it came to the seven related-party companies that led his fashion and film/movie interests, he said all had virtually no assets or cash, and collection of the debts was “statute barred” in any event because there were so old.

Among the related parties was TropiKids, 45 percent of which was owned by Mr Bethel, with other directors including Paulette and Marion Bethel. They were not involved in Montaque’s collapse, and there is no suggestion they have done anything wrong.

The affidavit, though, admitted that Mr Bethel owed his company’s estate a net $330,061 for personal expenses. These included $35,127 for repairs to his personal home; $66,975 for unidentified “special projects”; and $384,665 for credit card payments.

“In 2008-2009 a decision was made to reduce my salary by 25 percent with the intent that the difference would be applied to an ongoing settlement of these personal expenses,” Mr Bethel alleged.

“This arrangement was in place for two years prior to the winding up Order and resulted in $60,000 of my salary remaining with Capital. As explained further below, I am currently not in a financial position to repay these amounts owing.”

Mr Bethel alleged that his remaining net worth was largely tied up in his equity interest in Bethel Brothers Morticians, and that he was unable to pay the sums owed as a result.