$187m SSL lawsuit revealed as legitimacy of trustee appointment tested in court

AN investor to whom Stocks and Securities Limited (SSL) was looking for financial help has filed a $187-million lawsuit against the firm for alleged failure to complete an agreement.

The lawsuit was filed in the Supreme Court on December 8, 2023 by Spectrum Capital Partners and names three defendants; SSL Growth Equity Limited, businessman George Chai and SSL (Jamaica).

News of the lawsuit came on Thursday, the fourth day of a trial involving the Financial Services Commission (FSC), which is suing SSL over the appointment of a trustee on January 16, 2023. The trustee, Caydion Campbell, is also a defendant.

The beleaguered SSL has been reeling from an alleged multi-billion dollar fraud that it reported to the FSC, the regulator, on January 10, 2023. The FSC has held control of SSL since January 17, 2023.

In its suit, Spectrum said in October 2022 it entered into a shareholders' agreement and a share subscription with SSL Growth, its subsidiary SSL (Jamaica) and Chai.

Spectrum said that, based on the terms, it agreed to acquire 53 per cent of SSL through a cash payment. It exercised an option to acquire a further six per cent of the shares at the end of a due diligence period.

The total cash involved was US$4 million and was to be paid in four instalments, with a final transfer for no later than March 1, 2023.

Spectrum said it paid out US$2 million up to January 13, 2023 across four transfers.

Spectrum said SSL Growth and Chai approved a resolution on January 16, 2023 for the winding up of SSL, which, it said terminated the shareholder agreement.

But it said the agreement “provides that the termination of the agreement shall not affect the rights accrued to the parties under the agreement prior to its termination”.

“As a consequence thereof, the defendants are in breach of the agreements by virtue of their failure to complete the terms agreed,” noted that court document.

Spectrum said it received US$900,000 in February 2023 that was held in escrow and is “entitled” to a further $173 million plus interest and legal costs, pushing the total amount to $186.5 million.

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

Spectrum's claim form was signed by Dr Winston Adams, the founder and executive chairman of the UCC Group. The company is represented by King's Counsel (KC) Georgia Gibson Henlin.

The financial boost from Spectrum has been among the major highlights of the ongoing trial where the FSC is insisting that SSL directors were not entitled to declare that the company was solvent on January 16, 2023.

That's the date that SSL appointed the trustee to pursue the voluntary winding up and reorganisation of the entity under the Companies Act of Jamaica. A trustee is a person or firm that holds or administers property or assets for the benefit of a third party.

The FSC claims SSL could not pay its bills as its liabilities exceeded its assets at that time.

“SSL was insolvent as of 16th January (2023) if appropriate adjustments which were within the knowledge of the directors were made and where those adjustments would have resulted in a material deficit of SSL's assets,” noted an expert report being relied on by the FSC at the trial.

SSL and, in particular, the trustee, through his attorney, KC Caroline Hay, have argued that the SSL's accounts up to December 2022 showed a positive cash flow, which was buttressed by the Spectrum investment.

But the expert witness, Brian Hackett, a Trinidad-based senior partner for international consultants and advisory services firm PwC, disagreed.

He argued that the directors did not give sufficient consideration to the alleged fraud and SSL's financial problems.

“As at June 2019, 60% of the asset base of the company was comprised of cash and other liquid assets. As at January 2023 that figure had declined to 22 per cent which speaks to declining solvency,” Hackett said.

“So, in the context of declining liquidity due to trading losses as well as the marked changed of the character of the balance sheet from liquid to illiquid assets, coupled with the negative position as at January, …in addition to the potentially material, now, material contingent claims led me to the view in that context that the position at January 31st was more likely to represent a truer reflection of the solvency of the company than as at January 16.”

During cross-examination by Hay, the expert admitted that he was not aware of the Spectrum agreement for the investment of US$4 million cash into SSL.

FSC-appointed Temporary Manager Kenneth Tomlinson acknowledged during his cross-examination that he reversed the Spectrum investment in March because the agreement was not “consummated”.

“Would you agree that if there were inaccurate or incomplete information from the temporary manager this would materially impact your assessment and conclusions as to the solvency of SSL as of 16th January 2023?” Hay questioned Hackett during Wednesday's hearing.

“I would agree,” he said.

Hay then asked: “So, if there was an error in reversing Spectrum, would you consider that material?”

“It would be considered,” Hackett replied.

Meanwhile, the expert witness was challenged by SSL's attorney, KC Carlene Larmond over his conclusion that the SSL directors were aware of the allegations of fraud from as early as October 2022 and not from January when a report was made to the authorities.

Hackett's report said the conclusion was based on three “contingent claims” or lawsuits filed against SSL.

They are the Jean Forde claim, the second by Welljen Limited, which is owned by sports legend Usain Bolt, and the third by Robert Clarke, Brian Clarke and Tanya Wildish.

“Based on court filings, SSL became aware of the fraud in October 2022. This is evidenced in letters to the employee allegedly responsible for the fraud. Additionally, SSL notified the FSC of fraudulent activities in 10th January 2023. SSL's directors were therefore aware of the losses as a result of fraud before 16th January 2023 and should have properly considered this in deciding on the company's status,” Larmond read from Hackett's report.

Hackett confirmed to Larmond that he only received three court filings from the FSC in order to do his assessment – the ones involving Forde, Welljen and the third involving the Clarkes and Wildish.

Larmond went through each claim and asked Hackett whether there was anything in them that spoke to the directors being aware of the fraud from October 2022.

“I cannot specifically recall,” was Hackett's refrain when asked whether he was referring to the claims to make his conclusion.

He also indicated that he did not review all the documents submitted to PwC, although he contended that other members of his team did.

Larmond's refrain to each of Hackett's uncertainties was: “I am going to suggest to you Hackett that there is nothing in this court filing that indicates that SSL first became aware of the fraud in October 2022.”

Hackett was invited to review the claims to be sure.

After going through one of them, he acknowledged that, “based on the documents before me, I see no evidence of the October date claim but I do feel confident that that October date would have been picked up by my team based upon the conversations and documents provided to us but I do not have what that specific source document is… .”

Former SSL Client Relationship Manager Jean-Ann Panton is the only person charged in the SSL fraud case so far.

It came out in the trial that SSL served Panton a notice of suspension dated August 22, 2022, levelling fraud allegations against her.

She was accused of “knowingly providing inaccurate financial information to our client and shareholder George Chai on numerous occasions …over a period of several years”.

Larmond asked Hackett whether he agreed with her that the letter “relates specifically to allegations in respect of fraud against George Chai” to which he answered “yes”.

Chai has filed a lawsuit against SSL, demanding over US$24.3 million and J$380 million.

Hackett said it was not one of the three claims that formed the basis of alleging that SSL knew of the fraud at SSL in October 2022.

SSL reported the fraud to the FSC on January 10. Two days later, the FSC issued directions to SSL, which, among other things, required that the FSC approve all transactions and further that SSL and its officials not take any action involving the company's assets.

The FSC claims that SSL breached the law by convening an extraordinary general meeting, board meeting and directors' meeting on January 16, 2023 and later approving and filing a special resolution with the Companies Office of Jamaica which appointed Campbell and authorised a members' winding up of SSL.

Campbell's purported appointment on January 16 took place one day before the regulator took temporary management of the investment firm.

The regulator wants the court to declare that Campbell's appointment was null and void.

However, Campbell has insisted that he was properly appointed, which, if accepted by the court, would dislodge the FSC's role in SSL.

Campbell argued in court documents that the FSC was fully aware of SSL's decision to appoint him as a trustee. He said concerns raised by the FSC that funds may not be recovered if he is allowed to operate were unfounded.

jovan.johnson@gleanerjm.com