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Galleria Cinemas: Two Thumbs Down

Bill Hogg is a savvy investor.  He used to head the corporate services department at BDO Mann Judd in Nassau, for twenty years.

Now, after “shabby” treatment from Galleria Cinemas, Mr Hogg is calling for the government to extend investor protection for those who invest in private Bahamian companies.

As Parliament prepares to debate the revised Securities Industry Bill and accompanying regulations, Mr Hogg is demanding that the Government include a provision requiring private Bahamian companies to provide audited financial statements to all shareholders who have bought in via Private Placement Memorandums (PPMs).

Hogg’s wife and son invested in Galleria Cinemas’ two PPMs, in 1996 and 1997, providing financing to help Mr Mortimer start operations. However, depsite repeated requests for financial information, over a nine-year period, the Hoggs were denied access to any audited financial statements on how the company was performing.

Hogg says that Galleria management, including Mr Mortimer, repeatedly “stonewalled” them in their attempts to obtain financial information. Finally, exasperated, the Hoggs wanted out of the investment. But, in the absence of any valid financial information, they had no choice but to sell the shares back to the company, which means there was no way of knowing whether they recieved fair value for the shares.

Hogg also alleges that, since the mid-1990s, Galleria filed incomplete financial returns with the Companies Registry since. In fact, the company failed to show the common share (equity) holdings of Mr Hogg’s wife and their family investment company, PAK Ltd. The holdings of other investors who had bought into the same PPMs were also not diclosed.

In an interview with the Tribune newspaper, Mr Hogg had this to say about doing business with mr Mortimer’s company, “It’s been an eye-opener really. How can someone refuse to give you information on how the company’s been doing, and your shares in it?

“I’m very disappointed in how we’ve been treated, and the maddening thing is we don’t know why. We’ve been forced to sell our shares with no meaningful information to arrive at a proper price, or at least a reasonable price, in negotiations.”

In a twelve-page letter to Attorney General John Delaney, Hogg asks that government change the law to  ensure that minority shareholders get financial information on the company they invest in. That, Hogg says, is a basic shareholder right.

“This is particularly of concern where the shares are issued subsequent to a ‘private offering’ during which certain financial projections are given. In our case, the amount involved, not to mention the exorbitant cost and well-known experience of delay and frustration when attempting to obtain redress through the court system in the Bahamas did not justify the retention of an attorney. The only remedy in such a case, therefore, appears to be for the minority shareholder to sell their shares. Without the necessary financial information, they are unable to arrive at a proper valuation for the shares, and there is no way that any third party would be interested in buying their shares either. They are left at the mercy of the company with regard to the price offered. My wife will never know whether the price received for her shares was reasonable or not,” Hogg wrote to Delaney.

“It cannot be right that a company can refuse to provide minority shareholders with any information on the company should the majority shareholders desire not to do so,” the investor added.

Of course, Chris Mortimer, Galleria’s managing director, is quick to point out that he didn’t break the law.

But isn’t that always the first thing a scam artist says? It’s what Rudy King, the notorious Bahamian con man, always says after he pulls a fast one.

Posted in Business

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