SSL owes Government $40m in payroll taxes
Published:Monday | February 13, 2023 | 12:12 AMJovan Johnson - Senior Staff Reporter
Stocks & Securities Limited (SSL) owes the State $40 million in taxes, some representing deductions from employees’ wages, in the latest unravelling of the internal affairs of the 50-year-old investment and brokerage firm at the centre of a multibillion-dollar fraud scandal.
Tax data obtained shows that up to January 30, 2023, SSL had an outstanding balance in payroll taxes of $40.5 million. Interest and penalties are not clear.
The bulk of that amount is $27 million for income tax deductions (PAYE). Additionally, $5 million is outstanding for education tax and $3 million in employers’ contribution to the training agency HEART/NSTA Trust.
The outstanding amount for the National Housing Trust was $327,000, while the figure for the National Insurance Scheme was $4.5 million.
SSL is a private company whose financials are not disclosed to the public or investors, a situation the Government says will soon change for dealers in securities such as stocks and bonds.
However, some information from SSL’s audited financial statement for the year ending June 2022 revealed that SSL accumulated approximately $36 million in general consumption tax and “staff-related liabilities”.
Staff-related liabilities typically refer to deductions from employees’ salaries that have not been paid to the relevant authorities.
The unpaid taxes up to June 2022 were more than three times the figure for 2021, which was $11.7 million, according to the audited document.
Questions on SSL’s tax liabilities were sent by The Sunday Gleaner last week to Tax Administration Jamaica (TAJ), the Government’s chief revenue collecting agency.
Among the questions were whether SSL had a tax compliance certificate, the nature of any arrears, and if there is any arrangement in place for the clearance of the tax debts.
TAJ was also asked to indicate whether SSL has benefited from any tax write-offs.
The TAJ has not responded to the questions. A senior official said it would be difficult to do so without breaking the law.
Section 17 of the Revenue Administration Act imposes an obligation to secrecy on persons who deal with revenue-related matters. It said persons who communicate tax information outside of stipulated circumstances face a fine of up to $100,000 or nine months in prison.
Similar questions were asked of the Financial Services Commission (FSC), which regulates non-deposit taking institutions such as investments houses. The watchdog took over as temporary manager of SSL soon after the entity reported the $3 billion fraud to it on January 10.
SSL’s difficulties in paying its taxes bring into question the claim by the companies’ directors last month that the firm was in a position to pay “in full” its debts when they applied for a voluntary wind-up last month.
A statement of the company’s assets and liabilities, signed by SSL founder and executive director Hugh Croskery, Laurence Adamson, and Peter Knibb, showed net assets of $1.3 billion and total liabilities at $1.1 billion as at June 30, 2022. Chairman Jeffrey Cobham’s signature was missing from the January 16 document.
Finance Minister Dr Nigel Clarke disclosed those details, which contradicted a claim by SSL that it was not seeking to dissolve the company days after the fraud was reported. The Supreme Court has since blocked SSL from efforts to wind up the entity.
VIOLATION OF JSE AGREEMENT
Tax issues are not the only headaches for the SSL.
The Jamaica Stock Exchange (JSE) has now disclosed that SSL is in violation of one of the rules under its agreement to be a member/dealer of the exchange.
“SSL is currently in breach of a rule, which requires it to have and maintain fidelity insurance, which expired January 22, 2023,” the JSE said Tuesday in emailed responses to Sunday Gleaner questions, which included whether it has suspended SSL from doing business with the exchange.
Fidelity insurance protects a company against the dishonest or illegal behaviour of its employees.
The JSE said the temporary manager has been notified to address the matter and “failing renewal of the policy, the JSE will take the necessary action(s) as contained in the member/dealer agreement”.
It is not clear what those actions may be and the FSC has not responded to questions on that issue.
The JSE has confirmed that at SSL’s request on January 30, it suspended SSL’s online trading account with the exchange’s JTraderPro on January 31. The impact on clients is not clear.
“The JSE continues to review all matters in relation to SSL and is in close contact with the FSC and the temporary manager,” the JSE said.
The SSL fraud probe has captured global attention because one of at least 40 impacted investors is sports legend Usain Bolt, who has reported losing $2 billion.
A former senior staff member has reportedly admitted to syphoning off around 20 per cent of the value of the nearly 40 accounts that she managed.
No one has been charged in the ongoing fraud probe, although several persons have been questioned.
YEARS OF FINANCIAL TROUBLES
Separately, multiple Gleaner investigative reports have unveiled a decade and a half of financial troubles and questionable practices flagged by the FSC since at least 2008.
The latest included SSL’s use in 2008 of almost $200 million from ‘client accounts’ to fund investments in three companies at a time when SSL was under “severe financial stress”.
And although the FSC routinely issued directives, SSL was constantly in breach of the regulations such that by 2017, the regulator labelled it a “problem institution” with a “a culture of non-compliance and mismanagement of client funds”.
The company, which was named Paul Chen-Young and Company up to 2006, also seriously struggled for money to keep the business going. Croskery took it over in 2001 and his son Mark was president and CEO from 2007 to 2018.
The money problems continued even after SSL was forced to sell 500 client accounts to JN Fund Managers in 2013.
Bolt opened his account in 2012.
By 2016, SSL had a US$1.5 million deficit. More directives were issued but the non-compliance persisted.
Questions abound as to why SSL’s licence was not yanked given the spectre of fraud, chronic non-compliance and serious financial problems that were repeatedly raised by the FSC over the last 15 years but never publicly disclosed until the recent Gleaner’s investigative series.
The FSC threatened to suspend the licence in February 2017, but the SSL gained compliance by August that year and averted the ultimate sanction. The FSC’s intervention continued, however, because of “unsafe and unsound” business practices.
The finance minister has questioned how the alleged fraud went undetected by external, special, and internal auditors on whose reports he argued that the FSC relied.
FSC documents shows that in 2009, staff pointed to “possible fraudulent and/or deceptive practices” at SSL.
At least three of the audit firms that have done work with SSL responded to questions from The Sunday Gleaner.
Clarke has questioned a special audit of the value of SSL’s client assets and liabilities within the off-balance sheet portfolio as at September 30, 2019.
Off-balance sheet items include liabilities such as loans that are not recorded on a company’s balance sheet, but which still form part of the entity’s assets and liabilities, according to Investopedia.
It said off-balance sheet items can be used to keep debt-to-equity ratios low, but can be difficult to identify and track within a company’s financial statements because they often only appear in the accompanying notes.
The January 2020 audit report, which was seen by The Sunday Gleaner, indicated that SSL’s assets and client liabilities within the off-balance sheet portfolio reflected $34.8 billion.The equity-adjusted portfolio balances reflected $31 billion in assets.
Auditors said proper accounting records were maintained “so far as appears” from their examination of records.
Baker Tilly did not go into detail, but confirmed that it conducted “ONE special purpose review (not an external audit) in December 2019 for which we submitted the report in January 2020”.
“Baker Tilly is NOT the external auditors for SSL,” emphasised Wayne Strachan, a senior partner at the firm. “We are the external auditors of SSL Venture Capital Jamaica Limited (SSLVC), which is a former subsidiary of SSL and this entity has no funds under management and/or any related amounts payable to clients.”
Strachan noted that effective August 3, 2022, SSLVC’s name was changed to MFS Capital Partners Limited after it was sold.
SSLVC first came to the stock market in 2012 as a music publishing start-up called C2W Music Limited, a business that ultimately failed and racked up losses amounting to US$1.5 million up to December 2017, based on audit reports by Baker Tilly.
Since inception, the company never achieved the level of projected revenues required “to sustain operations”, Baker Tilly said in a 2017 audit report.
SSL, which were major shareholders, and brokers of the $129-million IPO in 2012, took control of the C2W in 2018 and renamed it SSLVC. That effort failed and the business was sold to MFS in 2022.
Chartered accountants BDO Jamaica would not be drawn. Managing partner Sonia McFarlane told The Sunday Gleaner: “We have no comments”.
KPMG said it was “unable to comment on recent developments” with SSL because it “has not audited Stocks & Securities Limited (SSL) since June 30, 2017 year-end audit”.
KPMG provided a qualified opinion in its audit of SSL for the year ending June 30, 2016, according to FSC documents obtained by The Sunday Gleaner.
The firm said then that the US$1.5 million deficit, along with other issues, including the lack of sufficient evidence to assess management fees of $135 million, raised questions about SSL’s financial viability.
The 2017 FSC reports also quoted the SSL indicating that it would engage BDO (Jamaica) as internal auditors.
A local multi-agency probe, with help from the US Federal Bureau of Investigation, is under way. A preliminary report was submitted recently. A final report is due by month-end.