$400m SSL takeover deal collapses

Fraud-hit Stocks & Securities Limited (SSL) was anticipating close to half a billion dollars in capital injection under a now seemingly failed deal that was likely to see the business taken over by Spectrum Capital Partners.

Spectrum, a private equity company, was long considered the investment arm of UCC Group Limited, but the entity now says that was a “loose” reference that has been corrected as there is no legal relationship.

Spectrum’s website, though, says: “We are the driving force behind the UCC Group’s diversification strategy. We provide financing to the UCC Group, in addition, to directly acquiring stakes in other subsidiary companies.”

The money and takeover were crucial to helping to address the dire financial condition of the SSL Group, which had a net loss of $297 million and an accumulated deficit of $2.9 billion up to June 2022, according to documents filed in court last week by former SSL director Peter Knibb.

The disclosure of the once-anticipated inflows came from Caydion Campbell, the trustee of SSL, who has lamented that efforts to reorganise the private investment and brokerage firm are in danger of falling through because of a court order blocking the company from winding up SSL or liquidating its assets.

The Financial Services Commission (FSC), which regulates brokerages and investment houses, obtained the order on January 25, days after an alleged $3-billion fraud at the company was publicised. Sports legend Usain Bolt is among the affected investors.

On Friday, the Supreme Court extended the order to February 28 to allow the Government to respond to affidavits filed by the defendants, including Campbell. SSL’s founder and executive director Hugh Croskery is also a defendant.

Delay discourages investors

“While the freezing order remains in place, the potential investor(s) cannot make any step(s) towards improvement of the 1st Defendant’s (SSL) overall position. Delay discourages investors and protracted litigation is usually discouraging,” Campbell wrote in his affidavit dated February 14, a copy of which was seen by The Sunday Gleaner.

“There is some risk of loss of interest in the party identified by me in this affidavit as having expressed their desire to conclude a substantial investment in the business of the 1st Defendant,” added the licensed trustee, who is the principal adviser of the St Andrew-based Phoenix Restructuring, Advisory and Insolvency Services Enterprise.

The potential investor was identified as Spectrum.

UCC Group founder and executive chairman, Dr Winston Adams, who is listed by the Companies Office of Jamaica as a director and shareholder of Spectrum, said the agreement is no longer being pursued.

He said Spectrum “had explored the possibility as an investor, but clearly, this has not materialised as there were serious concerns based on due diligence reports, coupled with recent developments”.

That was in a January 23 reply to a Sunday Gleaner query on whether the UCC Group had an interest in or had taken steps to acquire SSL.

On Saturday, he said the two entities are not legally related and reiterated that the agreement was cancelled.

Spectrum’s most recent leadership includes Chairman Clinton Brooks, a former managing director of investments at SSL. Companies of Jamaica records show that Brooks ceased being an SSL director in 2014 but remains a shareholder. Other UCC Group executives hold board directorship and executive positions at Spectrum.

A post on Spectrum’s website said it is “a member of the UCC Group”.

“We will gradually expand the UCC Group’s other businesses in incubating and developing new ideas. After all, UCC is known as an innovation hub,” a note on the website said.

Campbell said that upon his appointment as SSL trustee, he received two documents which he said were provided to the FSC – a share subscription agreement of October 2022 between Spectrum and SSL and a shareholders’ agreement among Spectrum, SSL Growth Equity Limited and George Chai.

SSL Growth Equity trades as SSL Group, of which SSL is a subsidiary and in which Chai is a shareholder.

Prepared to be flexible

Campbell said he had discussions with the principals of Spectrum and their attorneys and “they have indicated that they would wish to move forward with these agreements and are prepared to be flexible and allow some modifications in light of the changing circumstances”.

That is contained in a letter he wrote to interim FSC boss Major Keron Burrell on January 23, 2023.

“I believe that Spectrum would be a contributory of SSL for the balance payable to finalise the purchase of the shares that are being allotted to it. The completion of the share subscription agreement would mean that SSL would become a subsidiary of Spectrum and, therefore, part of the Spectrum Group,” he said in the document filed in the Supreme Court.

He added: “The winding up of SSL would facilitate restructuring of this group.”

“Given the position adopted by Spectrum, an updated statement of affairs of SSL as at 16 January 2023 would include a US$2.9 million (approximately J$441 million) as due from contributory,” the trustee stated.

Campbell argued that the completion of the agreements would represent “one possible framework” for the resolution plan for SSL, which would “preserve shareholder value in addition to protecting creditors and clients of SSL”.

The letter to Burrell came seven days after SSL’s shareholders and directors approved a resolution appointing Campbell a trustee to wind up the company through a process of reorganisation.

It appeared Campbell’s letter was to address FSC concerns about his appointment and the motives of SSL, given that the regulator had issued directives on January 12 restraining SSL from “transferring assets held on SSL’s own behalf”.

“Although an unfortunate and unnecessary development, it now appears that the FSC is disregarding my appointment and may see my role as a trustee in an adversarial manner,” Campbell said.

“However, please note that I believe there are genuine issues for discussions and I’m willing to work cooperatively with the FSC on these matters while being compliant with the Companies Act,” added Campbell.

It doesn’t appear that he got a response.

The trustee acknowledged that his appointment may raise a series of questions, including whether SSL had the capacity to do so, and over the vesting of SSL assets in the trusteeship, but he asserted that there was nothing in law for the FSC to “suspend or take away” the right of members to approve a winding-up resolution.

A trustee is a person given legal control or powers to administer the property or assets solely for specified purposes. Among other things, the trustee is to determine whether the company is solvent, the true assets and also assess claims.

A few days before Campbell’s January 23 letter, the FSC wrote to him advising of its actions up to that time, and included the directions issued and the appointment of Ken Tomlinson as temporary manager on January 17, a day after the trusteeship was decided.

It pointed to the FSC Act, which said that, upon the appointment of a temporary manager, the commission vested “full and exclusive powers of management and control of the institution”, which may include deciding whether to discontinue the operations of SSL.

“We are of the view that the work of the trustee does not take precedence over that of the temporary manager,” stated then-FSC head Everton McFarlane, who warned Campbell against having any independent communication with SSL’s clients and customers.

Those issues, among others, were highlighted by the FSC in its successful bid for the injunction.

Donia Fuller-Barrett, the acting general counsel at FSC, argued that the injunction was needed because SSL had taken steps to wind up the company and liquidate its assets and liabilities, a move that “will have serious repercussions” for clients.

She also argued that Campbell’s letters of January 20 and 23 “strongly suggest” that he “is either acting or intends to so act contrary to the Financial Services Commission Act generally and contrary to the claimant’s temporary management”.

“If this were allowed to happen, the claimant (FSC) anticipates that the 1st Defendant’s clients will not recover their funds and/or assets, if the company is dissolved,” Fuller-Barrett continued.

She added: “This is a matter of national importance and of public interest as it affects the financial institutions and the security of investment and money and investments of several individuals and entities.”

But Campbell has hit back, accusing the FSC of obtaining the injunction through “gross misrepresentation and omissions”.

He presented a series of communications between officials of SSL and FSC to reject the assertions that the defendants were “impeding” the work of the temporary manager.

He said, if the “plethora of communications”, which included email trails, were presented to the court, “it would be clear that the opposite is true”.

Campbell noted that he had not issued certain notifications and communications, which he said would have been customary in a members’ voluntary wind-up, because he was “awaiting feedback” from the FSC.

He expressed surprise that Fuller-Barrett did not mention in her affidavit that, on January 13, SSL wrote to Karene Blair, FSC’s senior director for securities, about its action plan to respond to the alleged fraud.

“The claimant’s failure to disclose this letter which followed the January 12 meeting can hardly be accidental. In my view, this letter was concealed in an effort to create a false impression that the 1st Defendant was being vague in order to conceal its next steps,” he answered.

A copy of the letter shows SSL telling the FSC of the immediate appointment of a receiver, effective January 16, and that it was proposing Campbell oversee, among other things, the investigation, carry out an independent business review, and to determine the true state of SSL’s affairs.

It also said the receiver would oversee the implementation of FSC directives.

Campbell has argued that the term receiver was the incorrect one and pointed to his contract which refers to him as a trustee.

According to Campbell, the injunction is not necessary as his work does not conflict with the special auditor and he had already proposed that efforts be pursued in the court to have the FSC’s temporary manager be named a joint trustee.

He also said the freezing order could prove disadvantageous to SSL’s clients.

“The more time that passes, the greater the opportunity for a person to say that their position, as at January 16, 2023, was made worse by the trustee’s inaction after that time, and the exposure would need to be covered by a trustee. This is a personal risk,” he argued.

The matter is scheduled for another hearing on February 28.

jovan.johnson@gleanerjm.com