A Bahamian bank's liquidator has "entirely rejected" a $330 million claim made against it by US victims of a financial fraud, a move that has prompted attorneys acting for the group to file a summons with the Supreme Court.
Craig Gomez, a partner with the Baker Tilly Gomez accounting firm, "absolutely denied" that Leadenhall Bank & Trust had knowingly aided the principals of the Cash 4 Titles ponzi scheme, but it appears likely that the victims will press ahead with legal action in a bid to enforce the judgment they obtained in a FIorida court.
Mr Gomez, in a letter to the victims' Bahamian attorneys, Peter and Charles Maynard, said: "I have completed my review of the claim you submitted to me on behalf of the Cash 4 Titles claimants, attempting to have the default judgment by the Florida court recognised in the Bahamian liquidation proceedings.
"I take this opportunity to advise you that after my review of the information sent to me, FROMpagelB
the claim is rejected and shall not be considered in our prorata distribution of the assets of the Bank."
Outlining his reasons for rejecting the Cash 4 Titles victims' complaint in his October 2, 2008, letter to Maynard & Co, Mr Gomez said: "The default judgment in Florida is not recognised by the Bahamas Supreme Court.
"The allegation that the Bank aided and abetted the Cash 4 Titles principals is absolutely denied. I contend that at all mafetianiiii-es the Bank simply conducted nomlal banking business, as any other bank in the Bahamas would have.
"All actions against the Bank, both local and abroad ceased, or ought to have ceased, by virtue of the Order of the Bahamas Court placing the Bank into liquidation.
That position is likely to be put to the test, though, as Mr Gomez himself acknowledged in his eighth report to the Supreme Court on Leadenhall Bank & Trust's liquidation.
Following receipt of the initial documents from Messrs Maynard, which included written submission from the Cash 4 Titles victims to prove the debts owed to them bv Leadenhall, and reasons as to why the Bahamian courts should accept the Florida judgment, Mr Gomez said the response to his October 2 letter was a summons, filed with the Supreme Court on October 29, 2008, that sought "to appeal my rejection of their claims".
Subsequently, Mr Gomez said he was served with another batch of documents by Maynard & Co on November 4, 2008, and eight days letter received a letter from that firm informing him he had been advised to attend the Supreme Court on November 21, 2008, to appear before Senior Justice John Lyons.
The hearing was due to have dealt with the summons, and agree dates for the hearing of submissions by both parties, but the matter was adjourned on that date to give the Cash 4 Titles victims and their attorneys time to "perfect the original bundle" of documents filed with the Supreme Court registry.
Cash 4 Titles was an Atlanta-based investment scheme that provided vehicle purchase financing to lower income individuals, with the collateral being the title to vehicles subject to the loan. Pawning car titles received favourable tax treatment in Georgia, and with the high interest rates involved - due to the high risk attached to many borrowers - the scheme attracted multiple investors.
Ultimately, some $140-$150 million was invested into Cash 4 Titles, but it developed into a Ponzi scheme where new investor monies were used to repay old investors. Leadenhall, and its former Bahamas-based affiliate, Axxess International, were sued because they had provided financial services to Cash 4 Titles, the investors alleging they had knowingly aided and abetted the fraud.
Some 2,600 former Cash 4 Titles investors are part of this latest claim against Leadenhall, having won a $110.076 million judgment in the south Florida district court. The ultimate award, using the US Racketeer Influenced and Corrupt Organisations Statute (RICO), was trebled by the court to $330 million.
The Cash 4 Titles' issue's fresh emergence is an inconvenience for Mr Gomez's attempt to complete Leadenhall's liquidation, as he has recently settled litigation between the bank and Turks & Caicos-based First Financial Caribbean Trust Company (a firm owned by a ' number of former Axxess International executives) over the Bahamian bank's former MasterCard credit card portfolio.
An August 25, 2008, Supreme Court order attached to Mr Gomez's liquidator's report, confirmed Tribune Business's previous revelation that Justice Faisool Mohammed had authorised First Financial to distribute some 70 per cent of the card portfolio's assets back to cardholders.
The total amount involved in the distribution was $9.8 million, coming from the $14 million in cash deposits Leadenhall had already transferred to First Financial in the latter's capacity as successor trustee.
The order noted that some $17 million was due to the credit card holders, the balance being made up of $1.3 million still owed by those clients and a further $1.898 million held by MasterCard as a licence issuing fee.
MasterCard, the Supreme Court Order stated, was prepared to return $284,551 to First Financial, as it was claiming a $1.7 million termination fee as a result of suspending Leadenhall's card issuing licence.
In addition, the Order authorised the Bahamas-based branch of BNP Paribas Bank to pay Gibson, Rigby & Co, First Financial's attorneys, some $253,000 from an account under the name Axxess Investments Funds Ltd.
Meanwhile, Mr Gomez's report indicated that Leadenhall's creditors were unlikely to recover the full sums owed to them, as there were insufficient assets to meet all the bank's liabilities to them.
Currently, Leadenhall's assets total $24.303 million, of which $20.063 million is cash in the bank at the liquidator's disposal. However, the total sum owed to creditors is $26.774 million, leaving a shortfall of $2.471 million.
At current standing, this means creditors stand to recover $0.91 out of every $1 owed not a bad sum for most courtsupervised liquidations. However, Mr Gomez warned that he might not be able to recover all outstanding loans owed to Leadenhall by borrowers, which amounted to $3.458 million as at November 30, 2008, meaning that the sum recovered by creditors could be less than the $0.91 ratio.
Mr Gomez said he was "considering whether it is feasible to further deplete the assets of the Bank to recover the remaining loans, which in my assessment would be difficult as many of the borrowers reside in foreign countries".
The same applied to an alleged forged cheque incident involving $125,937 in Canadian dollars, as the person in question also resided outside the Bahamas.
The strengthening of the US dollar against its Canadian and British counterparts had depleted Leadenhall's cash deposits on hand at banks by more than $900,000 between July 16, 2008, and November 30, 2008, Mr Gomez added, directly impacting the sums available to investors.
The liquidator said some $2.963 million had been recovered from the liquidation of Caledonia 'Fund Investments Ltd, in which Leadenhall had held a 78 per cent stake, although this had resulted in an actual loss of $36,743.
Mr Gomez added further that the Ministry of Finance's secretary for revenue, Ehurd Cunningham, had contacted him to request the reproduction of information on Leadenhall and Axxess International's former cardholder customers.
Source: The Tribune