$685m SSL bill

It could cost clients and creditors of Stocks & Securities Limited (SSL) a projected $685 million to administer the estate of the scandal-scarred investment firm, a new report obtained by The Sunday Gleaner has revealed.

Already, the cost to administer the affairs of SSL over the first 16 months after the multibillion-dollar fraud was uncovered in January last year has been put at $500 million, according to the 120-page court-ordered report by Caydion Campbell, the trustee overseeing the winding-up of SSL.

This amount includes temporary manager’s fees totalling $160 million.

And Campbell’s team is projected to incur costs totalling $185 million between June this year and May next year to administer SSL’s estate.

Approximately $95 million is for the trustee’s fees.

The costs incurred during the temporary management period and the winding-up exercise will ultimately be borne by creditors and claimants of which over 99 per cent are SSL clients, according to the report.

SSL was under the temporary management of the Financial Services Commission (FSC) over the 16-month period between January last year and the end of May this year.

The FSC regulates non-deposit-taking institutions such as insurance companies, pension funds, and brokerage firms.

The report flagged “some matters” related to the administration of SSL’s estate during the period of the temporary management, which it said may require “further enquiries and likely applications for directions from the court”.

The allocation and utilisation of a US$1 million payout on SSL’s employee dishonesty insurance coverage was among the issues raised. The payout was used to “cover temporary management expenses”, the report claimed.

“No payment was made to the victims of the fraud,” it said.

Other issues that were flagged include the apportionment of the temporary management costs, the recognition and treatment of the different types of claimants, and the classification of “certain” liabilities now that the SSL is in bankruptcy.

In May this year, Supreme Court Justice David Batts ordered an immediate end to the FSC’s temporary control of SSL and affirmed the trustee’s appointment.

Batts said Campbell’s appointment, which the FSC challenged, was “valid” and that the FSC’s temporary management was “ill-advised”.

SSL losses at approximately $4 billion

The Campbell report placed the value of SSL losses at approximately $4 billion, including $3.2 billion to just over 200 non-proprietary clients and $800 million to almost 100 propriety clients.

It provides a further update to figures that were released publicly by the Financial Investigations Division (FID) of the Ministry of Finance in December last year , which indicated that the alleged fraud involved over 200 SSL accounts “and a staggering amount exceeding US$30 million”.

Jamaican sprint legend Usain Bolt and octogenarian Jean Forde are listed among the alleged victims. Both have pursued court action in relation to their investments.

“In the trustee’s opinion, there were some antecedent issues with respect to fraud, mismanagement and inadequate governance, which would have played a part in SSL’s failure,” the Campbell report claimed.

The revised report was ordered by the Supreme Court as part of the lawsuit filed by the FSC to wind-up the operations of SSL and is expected to be distributed to creditors and clients during a meeting scheduled for Friday.

Former SSL Client Relationship Manager Jean-Ann Panton is facing a 21-count indictment charging her with forgery, larceny as a servant, and engaging in a transaction involving criminal property.

She is the only person charged in connection with the alleged multibillion-dollar fraud, though a sprawling probe by the FID was “far advanced” up to last December, the agency said in a public statement at the time.

It said a case file was submitted to the country’s prosecutorial authority, the Office of the Director of Public Prosecutions (ODPP), “who are reviewing the evidentiary material with a view to discerning the possible charges”.

The ODPP has not yet dispatched to investigators a legal opinion indicating whether others should face criminal charges in relation to the fraud at the investment firm, sources disclosed on Friday.

The book value of the assets that were handed off to Campbell’s team when the temporary management arrangement ended on May 31 this year was $770 million, the report by the SSL trustee revealed.

It noted, however, that the realisable value of the assets was expected to range between $107 million and $254 million.

That represents the preliminary range of cash likely to be derived from the collection of receivables and the disposal of the remaining assets on the balance sheet of SSL, one financial expert explained.

SSL’s total liabilities were estimated at $1.03 billion up to the end of May this year, the report said.

The report opined that with the most optimistic projection, this could be reduced to $904 million, assuming that the contingent liability is settled from a proposed SSL Victims’ Compensation Fund.

Expected final outcome

The report said the expected final outcome (EFO) in a “base case” scenario is that “only 68 per cent of SSL’s category one obligations would be satisfied. No distribution would be made to category two and category four creditors.

According to the report, category one creditors comprise legal fees, trustee fees as well as the fees for the former temporary manager and other transaction costs related to the winding-up of SSL.

Category two covers SSL statutory obligations, while category four comprises clients, promissory notes and “other accounts payable”.

“The EFO under the base case indicates that there would not be sufficient realisation – 23 per cent of the book value – to even cover the estimated category one expenses in full,” it explained.

In a “worst-case” scenario, the SSL trustee said there would be insufficient realisation – 14 per cent of book value – to cover the estimated category one expenses in full; with only 42 per cent being covered. Again, there would be no distribution to category two or category four creditors.

But the report said an “optimistic” outlook would see a 100 per cent payout to category one priority creditors and category two preferred creditors and a 7.5 per cent distribution to category four unsecured creditors.

“If all the assets that could be monetised were realised for their book value, there would be [the] potential for a 30 per cent distribution to category four creditors with category one and category two creditors being satisfied in full.”

The Campbell report also proposed that a 7.5 per cent quasi-management fee charge on the administration of SSL’s off-balance sheet portfolio would be used to create the proposed SSL Victims’ Compensation Fund.

It is estimated that the proposed charge would yield approximately $345 million, $153 million – or 44 per cent – of which would be deposited to the fund. Approximately $113 million or 33 per cent would go to proprietary estate recovery and $74 million to clients’ payable funding deficit.

livern.barrett@gleanerjm.com