A $2 million investment in a project linked to the brother of a Government Minister, off-the-floor share sales and breaches of legislation are some of the alleged incidents at FNCU-Venture Capital Company which are now under the microscope of the Venture Capital Incentive Programme (VCIP) and the Securities Exchange Commission (SEC).
AN INVESTIGATION BY JOEL NANTONWith two directors being kicked off the board at a recent, heated annual general meeting and the Stock Exchange suspending the trading of the company's shares last Thursday, key shareholders are now demanding answers from the remaining board members.
Some are even calling for the head of fund manager Daniel Lambert, whose company, Financial Concepts Ltd (FCL), piloted FNCU Venture Capital's Initial Public Offer (IPO) back in 2001, raising some $4.4 million in one-dollar ordinary shares mainly in the credit union movement.
Lambert's company almost entirely manages the venture capital company, whose operating office is at 42, Dundonald Street, Port of Spain, the registered office of FCL.
FNCU Venture Capital is sponsored by the First National Credit Union (FNCU) which, up to July 30 this year, held a total of 2,610,877 shares in the company and was by far the largest shareholder.
A list of the share register shows the other major shareholders as: the Credit Union Stabilisation Fund with one million shares; Tateco Credit Union with 500,000; and Venture Credit Union with 200,000.
Most of the other 56 listed shareholders-several of which are employees of FNCU-hold a few hundred shares. The Sunday Express understands Lambert is in Miami and his return flight has been delayed because of Hurricane Frances. Other company officials declined comment yesterday, saying they were awaiting Lambert's return before making any statements.
Lambert faced a barrage of incisive questioning from a number of shareholders at the AGM held at Paria Suites, La Romaine, two Wednesdays ago, including one about $57,000 his firm owed to the venture capital company.
The meeting, to report on operations for the year 2003, came almost a full year after the close of that financial year on October 31 last year-and just two months before the start of the 2005 financial year.
The Sunday Express was at the meeting, which was also attended by representatives from the SEC and the VCIP.
The questioning zeroed in on what shareholders felt was the lack of transparency in the fund manager's report, and on two investments in particular that together accounted for about 98 per cent of all the investments undertaken in the financial year ended October 31, 2003.
One was an investment in Salybia Resort and Spa Project-a luxury beach resort in Toco and the brainchild of Sport and Youth Affairs Minister Roger Boynes and his brother Ronald.
The other was a $1.9 million investment in the First National Credit Union.
Boynes and Co Ltd are the attorneys for the venture capital company. Ronald Boynes was also at the AGM.
A total of $2.17 million was invested in the resort which opened its doors to the public about 14 months ago. That figure represented more than half of the total funds invested by the company in the year ended October 31, 2003.
Shareholders complained that no details were forthcoming on the investment. They also wanted to know what was the expected rate of return, what was the financial instrument used in the deal and what was used as security.
The Sunday Express understands the investment was actually a loan to Boynes's company to complete the construction of the resort.
Lambert said he could not recall the exact rate of return, suggesting that the shareholders peruse more detailed documents at the company's offices.
He sought to assure, though that the investment had already been recouped and said the full transaction would be reflected in the accounts for 2004 which should become available by year's end.
He explained, too, that the interest rates being offered by regular investments, such as mutual funds and fixed deposits, were too low and so his company had to seek projects that would bring in higher returns, such as the Salybia deal.
Contacted yesterday, Ronald Boynes confirmed that the money was a loan to his business. He said it was a straightforward business deal "that concluded well" and has been fully repaid.
He insisted, too, that there was no conflict of interest in his company sitting as attorneys for the venture capital company and the loan transaction.
"I sit as attorney for two commercial banks and I take loans from them. I go through the normal application process," he said yesterday. Boynes warned that he was well capable of defending his reputation, if it was brought into disrepute.
Lambert said 37 investment prospects were considered before the list was narrowed to the FNCU, the beach resort and a hydro-technology project.
The million-dollar investment in the credit union has also raised concerns.
The credit union has not yet declared its accounts for the year ended December 31, 2003.
The Co-operative Societies Act requires credit unions to have audited results within two months of the end of the financial year.
On July 29, however, in an unprecendeted move the FNCU published in a daily newspaper its interim unaudited results for the first six months of this year. The report showed total assets of $167.9 million, with net income of $15.88 million for the period. It also had a $2.17 million overdraft.
The report was signed by general manager Mayon Murray, who is also a director in Lambert's FCL. Murray said the results showed an emerging upward trend which was encouraging.
Key shareholders are now questioning the reliability of the venture capital company's cash flows, pointing to the fact that close to 75 per cent of its investment income of $414,482 for the year were receivables and that directors' and fund management fees remain unpaid.
Lambert countered that the company ended the year with a cash balance of $21,320 which was up from an overdraft of $3,375 the year before.
Despite these assurances however, the VCIP suspended the operations of the company just a week after the meeting, citing operating deficiencies within the company as its main reason.
In a statement issued late Friday, the VCIP said that once the deficiencies were addressed the suspension would be lifted and the company would resume operations.
The VCIP, which is responsible for the development and regulation of the venture capital industry, is saying the move should be seen as a step towards ensuring market efficiency.
"The industry is in its embryonic stage and every attempt must be made to build investors' confidence. This is necessary to provide the much-needed capital and management support to small and medium enterprises," the release stated.
The VCIP suspended the company's operations in accordance with Section Seven of the 1994 Venture Capital Act which lists five reasons for possible suspension, including:
-the company failed to supply prescribed information or records
- the company supplied false or misleading information
- it failed to comply with any condition of approval given by the Administrator;
- it contravened the provisions of the Act.
The VCIP representative at the meeting confirmed that the venture capital company had not in fact filed required financial reports on time. He said this was the case with most of the venture capital companies and warned that the VCIP would be moving to ensure compliance.
Stock Exchange sources confirmed too that an off-the-floor exchange of one million shares recently took place, which had raised eyebrows in the SEC and VCIP.
The transaction was a sale of shares from S&M Construction Ltd to the FNCU, sources said.
Sources close to the investigation said at least two directors of the company, Dr Anthony Elias and David Pierre, both of whom were not re-elected at the recent AGM, had serious concerns about the management of the company and lodged complaints with the SEC and the Stock Exchange.
Elias complained at the meeting that, as a director he was unable to obtain critical financial information from the company. He attempted to raise a question about an increase in the company's share capital by $55,000 but was told by chairman James Lambert that he was out of order. Elias also complained about not being informed of the date of the AGM even though he was a director.
One director, speaking on condition of anonymity told the Sunday Express, Board members had not received any financial statements from the company since November last year.
Pierre is out of the country but, contacted yesterday, Elias confirmed that both he and Pierre had been raising several questions about the company's operations.
He said, too, that they had been told the AGM was scheduled for August 17 but when he showed up at Paria Suites he found out it had in fact been scheduled for August 25.
"Neither Mr Pierre nor myself was informed of any change of the meeting," Elias said. The Sunday Express understands that Lambert should return to the country early this week and is likely to seek a meeting with the VCIP and SEC to "clear the air" on the issue.
