Fraud-hit Stocks & Securities Limited (SSL) had exhibited flagrant problems from as far back as a decade ago, with two sets of directives issued by the state regulator in 2013 instructing the investment firm to, among other things, “refrain from soliciting business from members of the public”.
The instructions formed part of an October 2013 letter sent to then CEO of SSL, Mark Croskery, by the Financial Services Commission (FSC), in which it demanded that the firm cease all aspects of its securities business unless it had its prior approval.
SSL was told to refrain from accepting new securities business; dealing in securities; granting credit to other parties or related persons; and soliciting business from members of the public. It was also ordered to provide all information, documents, records, access, other assistance, and cooperation to any special auditor appointed by the FSC.
The directives were additions to those issued on January 3, 2013, when the commission wrote to Croskery instructing that SSL refrain from purchasing or acquiring any assets that would affect the balance sheet of the company without the FSC’s approval or except to comply with directives given.
Among the directives was also the requirement of a detailed listing of all on-balance sheet repo liabilities and corresponding assets used to collateralise contracts to be provided to the FSC.
Additionally, the FSC required a detailed listing of all off-balance sheet portfolios/contracts to include the beneficiary, description and value of assets within each portfolio/contract.
The FSC also instructed that by January 15, 2013, the directors of SSL should have ensured that sufficient capital is injected into the company, allowing it to satisfy the relevant benchmark relating to the ratio of capital to risk-based assets and other risk exposures.
The directives followed several issued in October 2010 and were varied in July and August 2012.
Dr Peter Phillips, finance minister from 2012 to 2016, told The Gleaner last week that he could not recall whether he had been alerted to SSL’s financial state during his tenure.
A 2019 report by the FSC ultimately concluded that there were serious concerns regarding the adequacy of securities to cover clients’ obligations as well as the magnitude of operational risk faced by SSL because of poor record-keeping.
It noted, as well, the seeming inadequacies of management oversight of the operations of the investment firm.
The report said the lack of up-to-date and comprehensive policies and procedures to guide daily operations seemed to have a negative impact on the daily operations.
Further, it said that the financial reports submitted to the FSC that are used to compute early warning test ratio was questionable.
The FSC also concluded that violations and concerns noted in a targeted examination on SSL in 2016 were similar in 2019.
The regulator said while SSL completed an operation software migration in January 2019, sufficient board and management oversight was not given to the process, as five months later, there were seemingly serious operational deficiencies in the system.
Between March and May 2019, the FSC said that there were significant shortfalls between the liquid funds held in bank accounts and the clients’ fund held in cash, which suggested that clients’ fund held in cash by SSL were used to fund its daily operations.
The FSC subsequently instructed SSL to refrain from conducting any new securities business with its clients and prospective clients until it was satisfied that clients’ liabilities were adequately covered by appropriate securities.
The FSC also directed that the $1.1 billion of clients’ funds not invested be eliminated and that an auditor it approved verify the adequacies of the off-balance sheet assets to cover the related clients’ liabilities.
Verification of SSL’s liquid assets position segregating proprietary from clients’ fund was also mandated and clients’ funds were not to be commingled by the firm.
The directives were also detailed in an October 2019 letter to SSL Chairman Jeffrey Cobham.
But there are questions arising from the independent audit of the off-balance sheet portfolio and on-balance sheet client interests.
The FSC requested evidence of the value of client assets and liabilities within the off-balance sheet portfolio as at September 30, 2019; the value of on-balance sheet client liabilities; and the value of assets (including liquid assets effectively segregated) that is assigned to on-balance sheet client liabilities.
The conclusion of the independent audit report seen by The Gleaner gave SSL a clean bill of health.
It said that auditors obtained all information and explanations that were deemed necessary for the audit.
“In our opinion, proper accounting records have been maintained so far as appears from our examination of those records, and the statements on and off balance sheet assets and client liabilities, which are in agreement therewith, give the information required by the Jamaica Companies Act in the manner required,” the report dated January 27, 2020, said.
It indicated that SSL’s assets within the off-balance sheet portfolio and client liabilities within the off-balance sheet portfolio reflected $34.8 billion.
Adjusted portfolio balances reflected $31 billion in assets.
The accounts of more than 40 people, including track legend Usain Bolt, were defrauded at the investment firm. A former employee has been implicated.
Bolt’s account is believed to have been defrauded between 2012 and 2017.
kimone.francis@gleanerjm.com