FID probing Barita, Cornerstone controversy
Investigator says there may be ‘some merit’ to claim Humphries-Lewin was pressured into $2 billion deal
Published:Sunday | August 6, 2023 | 12:09 AMJovan Johnson - Senior Staff Reporter
There may be “some merit” to a claim that businesswoman Rita Humphries-Lewin, who is reportedly battling dementia, was pressured to spend $2 billion to buy shares in investment firm Cornerstone, says the agency that probes financial crimes in Jamaica.
But the Financial Investigations Division’s (FID) principal director, Keith Darien, says the agency is not close to any definitive conclusions.
“We are nowhere near the stage of saying that the allegations are valid and whether anyone will be charged criminally,” he told The Sunday Gleaner last week.
“The allegations warrant this investigation because there appears to be some merit to what has been outlined to us, but it will take some time to really unravel what is the true situation,” he said, adding that “we have to take into consideration the fact that the entity involved is an established, highly respected public listed company”.
He was referring to Barita Investments Limited, the company from which Humphries-Lewin sold shares to get money to pay for the Cornerstone stocks in 2021.
Barita was founded in 1977 by Humphries-Lewin, who sold it to Cornerstone in 2018 in a deal involving more than $3 billion.
But it is the transactions in 2021 that have emerged as a problem for Cornerstone United and Cornerstone Financial Holdings Limited, their founder and CEO Paul Simpson and Chief Investment Officer Jason Chambers.
In September 2021, Humphries-Lewin sold more than US$15 million ($2 billion) worth of her remaining shares in Barita to pay for her acquisition that month of approximately 1.4 million Cornerstone shares that were put to her in a private offering.
Simpson, Chambers and the Cornerstone entities filed a claim in the Supreme Court in May rejecting allegations that they secured the deal through fraud. They are seeking a declaration that the transactions involving Humphries-Lewin are “legally justified, valid and enforceable”.
Humphries-Lewin’s niece Deborah Mordecai Edwards – an attorney and director of BPM Financial Limited, a competitor of Barita – asked the Bank of Jamaica (BOJ) in a March 31, 2022 letter to investigate the circumstances surrounding her 86-year-old aunt’s acquisition of the Cornerstone shares and the selling of a significant chunk of her remaining stocks in Barita.
She claimed that the 2019 dementia diagnosis of her aunt was known to her, Simpson and Chambers, a point rejected by both senior executives; and that the signatures on the transaction documents were wrong, specifically the inclusion of ‘Lewin’, which she said Humphries-Lewin never used.
Mordecai Edwards also claimed that Cornerstone took advantage of her aunt by getting her to pay US$10.80 per share when US$1.40 per share was offered to existing shareholders, and that shares worth about US$3.4 million are unaccounted for.
REQUEST MADE TO PROBE TRANSACTIONS
A request was also made of the FID and the Financial Services Commission (FSC), which regulates the securities industry of which Barita is a member, to probe the transactions.
Mordecai Edwards claims she got power of attorney from Humphries-Lewin in August 2022 to examine the transactions because, according to her, Humphries-Lewin believed that she had enough money in Barita to cover the purchase of Cornerstone shares and did not realise she would need to sell Barita stocks to cover the cost.
Cornerstone said it got a copy of the letter in September 2022.
Simpson is urging the Supreme Court to treat his application as a matter of urgency because “unless definitively addressed, the allegations against us can have serious damaging consequences on our personal and on our business operations”.
“They (the allegations) impugn our character, given that they raise questions as to our honesty which will be of concern to a regulator,” Simpson added in his affidavit.
The BOJ regulates the Cornerstone Trust and Merchant Bank, which is a member of the Cornerstone Group.
“It is the policy of the bank not to comment publicly on communication with and/or regarding licensees,” the BOJ told The Sunday Gleaner on August 2.
Barita is a licensee of the FSC. That regulator acknowledged our questions, but a response was not available up to press time.
The FID said its investigation is being led by a multidisciplinary team consisting of a senior detective sergeant of the Constabulary Financial Unit, a “very experienced” senior financial forensic examiner, and legal officers of the agency.
Cornerstone is partly relying on Sonia Owens, one of Humphries-Lewin’s financial advisors, who admitted to recommending the deal to the retired stockbroker who was the first female chairman of the Jamaica Stock Exchange and the first woman to establish a stockbrokerage (Barita) in the Western Hemisphere.
In an affidavit, Owens said she has been with Barita since 1984 and worked “very closely” with Humphries-Lewin, who “reposed full confidence and trust in me”.
She said Humphries-Lewin showed no signs of being unwell.
“Leading up to the Cornerstone transaction, she did not exhibit or indicate any mental illness or mental incapacity that I saw. In fact, if anything, Humphries-Lewin demonstrated a firm grasp of the management of her account,” said Owens, the vice-president, treasury and financial institutions at Barita Investments Limited.
THE LEWINS ‘SEEMED SATISFIED’
On April 28, 2021, Chambers called her into a meeting to review a term sheet outlining the details of the Cornerstone offer and to discuss the matter with Humphries-Lewin, Owens said. The offer was for the purchase of Cornerstone shares at US$10.80 per stock and the sale of sufficient stocks in Bartia at J$80 per share to settle the costs.
Owens said that afternoon she was only able to speak with Humphries-Lewin’s husband, Karl, about the deal on the phone. She said Karl raised questions about Cornerstone’s profitability and dividends payments, among other things. Chambers said he was present during the call.
“I freely of my own volition recommended the transaction to the Lewins and acted ethically and in good faith in doing so as I believe the transaction to be beneficial to Humphries-Lewin and a good addition to her portfolio,” said Owens, who indicated that Humphries-Lewin grew to call her the “Exchequer”, an apparent reference to the title of the British finance minister.
Following the phone conversation, Owens said she asked Chambers to prepare a brief on the Cornerstone Group, which she sent to the Lewins by email on April 29.
A day later, Owens and Chambers met with the Lewins at their home to discuss the offer. She argued that the investment would diversify Humphries-Lewin’s risk exposure, provide an opportunity for earning hard currency in the future and allow her to become a Cornerstone shareholder.
Owens said the Lewins “seemed satisfied” with responses to their various queries and “it was very clear to me that Humphries-Lewin wanted to participate in the Cornerstone transaction, because she said if Cornerstone had left her out of the transaction, she would have been very disappointed”.
Owens said when she telephoned the Lewins on May 1 or 2, 2021, Karl advised that the documents with the terms were signed.
Owens has joined Simpson, Chambers and the Cornerstone companies in denying Mordecai Edwards’ claims of wrongdoing. She said the allegations of “deception, coercion and/or fraud are completely unfounded and false” and that she has found Simpson and Chambers “to be persons of integrity”.
“Since the signing of the documents, I have had many conversations with Humphries-Lewin and not once has she expressed any discomfort with, or regret for entering into, the Cornerstone transaction,” she said.
Between April and September 2021, through various “undated transaction documents”, the former Barita boss agreed to accept the Cornerstone offer and acquired approximately 1.4 million Cornerstone shares at US$10.80 per share.
LETTERS OF AUTHORISATION
Humphries-Lewin also reportedly signed two letters of authorisation, which were later dated September 24, 2021 and addressed to Barita to sell enough of her shares and then use the funds to pay Cornerstone.
An excerpt of one of the letters quoting Humphries-Lewin said: “I hereby confirm and advise that I fully understand and appreciate the nature of this authorisation and have had the opportunity to or have voluntarily agreed to waive my right to seek, and be independently advised in respect of the effect and implications of this authorisation.”
Simpson, the Cornerstone boss, has said he was not “directly” involved in the negotiations leading up to the close of the deal. But he said he was present when Humphries-Lewin signed the two sets of undated letters of authorisations, and that Karl was a witness to most of the documents.
“As far as I am aware, Rita signed all the documents after consultations with Karl, and based on representations by Karl, after consulting with their attorney,” Simpson said, adding that “at no time did I (or any of the Cornerstone companies) or Jason ever commit any criminal offence in relation to the transactions”.
Cornerstone has insisted that Mordecai Edwards’ comparison with the US$1.40 share price was wrong as that price was involved in a “separate and unrelated” transaction with existing shareholders of Cornerstone Barbados in a bid to raise money for the company.
Meanwhile, Chambers, Cornerstone’s chief investment officer, said the first time he heard of any mental incapacity involving Humphries-Lewin was through a letter dated February 18, 2022 from Sagicor Investments Jamaica Limited, a member of the Sagicor Group.
In his affidavit, he said Sagicor Investments, a shareholder of Cornerstone, requested certain details relating to the transactions now in question.
Chambers said Sagicor Investments followed up with a letter in April 22, 2022 in which it raised “certain allegations strikingly similar” to those raised by Mordecai Edwards in her 2022 missive to the BOJ.
A copy of the Sagicor Investments’ letter was included in Chambers’ affidavit. A response from Cornerstone was not seen.
In the April 2022 letter, Sagicor said it was writing to the Mark Myers-led Cornerstone United Holdings board because it did not receive a response to its February letter and it needed “complete transparency”.
It said Sagicor Investments is “concerned to verify that all aspects of the RHL (Rita Humphries-Lewin) transaction were undertaken in good faith and in compliance with the law and acceptable practices for regulated entities”.
Cornerstone is being represented by the law firm Hylton Powell.
King’s Counsel Walter Scott has now taken over the case for Rita Humphries-Lewin, who is named a respondent in the claim.
Mordecai Edwards is the second respondent. Her representation is not clear.
The first hearing of Cornerstone’s claim is set for October 2, 2023.