UPDATE: I first wrote this post in 2011 for another one of my publications, and it is certainly relevant today. This is a fine example of things gone terribly wrong in a small company where the directors did not follow corporate protocol or make a record. Talk about insider loans and company stakeholders’ with differing memories. Then, bring in the authorities and, voila! Criminal charges.
In the end, the Boldens were convicted and sentenced for misleading the Bermuda Monetary Authority (BMA). After a five-week jury trial. Count of the cost, folks!
This could have been avoided.
The original Royal Gazette (Bermuda) articles are here and here. The case was before the Bermuda Supreme Court. David and Antoinette Bolden were charged with 18 counts of theft, six counts of money laundering and one count of misleading the Bermuda Monetary Authority. The case stemed from a dispute between the directors of Emerald Capital International (ECI). Jason Bagg was one of two Canadian directors of the company who claimed the Boldens stole over $300,000 from the company.
Bagg was a director and shareholder of ECI, together with John Wright and the Boldens. Mr. Bagg said that the Boldens transferred up to $37,000 a day between November 2008 and January 2009 from the ECI accounts to their personal and business accounts without proper authorization. He also alleged that there was no supporting documentation for the movements. Prosecutors said the Boldens pludered the ECI accounts to support their own failing company, to pay personal debts, and to continue to live beyond their means.
The Boldens denied all the charges. Their lawyer Saul Froomkin, QC (Queen’s Counsel) suggested the payments to the Boldens were legitimate payments and reimbursements for expenses incurred on behalf of the company. Mr. Froomkin also announced his plans to provide “back-up documents” to prove the transfers were warranted.
However, Mr. Bagg had said “There would only be reimbursements if approved by the directors.” He also said that expenses would be claimed by filling out an expense form that is subject to the approval by the directors, which, he claimed, would be approved by three directors: himself, Mr. Wright and Mr. Bolden.
He alleged that the movements of the funds were not authorized, that here were no supporting documents for them, and that he had not approved them.
The Boldens should have documented their expense claims, and the directors’ approvals of the payments in corporate minutes and resolutions. Instead, they claimed everything was “discussed” and “approved” verbally by the directors.
Note to directors and shareholders: Discussion and approval of formal matters, such as reimbursement plans, and significant payments from company accounts to directors (i.e. “insiders”), are best documented in the minutes. Instead, Mr. Bagg conceded: “I do agree the corporate minutes and resolutions was a bit sloppy.”
You get the point? The minutes and resolutions would make this discussion – and prosecution, perhaps – moot. Now, the Boldens are facing a sentence; and the company and its remaining directors and shareholders may have jeopardized their claim of wrongdoing by the Boldens. Why? Because, they were sloppy with their formal records.
A word to the wise is sufficient.