Delta Capital denies wrongdoing amid SSL scrutiny

The top executive at a private equity firm that is facing scrutiny over its financial dealings with the fraud-hit Stocks & Securities Limited (SSL) says his company has not broken any laws nor has it done anything wrong.

Zachary Harding, executive chairman of Delta Capital Partners (DCP), also confirmed the finding of a report by the trustee overseeing the winding-up of SSL that his company owes the scandal-stained investment firm $47 million, but insisted that this was for the supply of services to Delta.

“No other reason,” Harding said in an emailed response to The Sunday Gleaner last Wednesday, which also included an undertaking to the trustee that the debt would be cleared within the next six months.

He also pushed back at claims in the court-ordered report by SSL trustee Caydion Campbell that SSL client funds were used as working capital for his four-year-old company and that “imprudent investments” may have contributed to the loss of those funds.

“Inaccurate. SSL never funded Delta or provided working capital for Delta,” Harding said, claiming that this has been pointed out to Campbell, who has agreed to make the necessary “correction”.

Harding was a part of the SSL executive from 2019 to 2022 when he resigned to focus on DCP, the firm he co-founded in July 2020.

The Campbell report, which was filed in court on October 15, is part of SSL’s court-supervised winding-up process.

SSL collapsed last year after allegations of multibillion-dollar fraud involving clients’ funds came to public attention.

The approximate value of SSL’s losses is $4 billion, including $3.2 billion to more than 200 non-proprietary clients and $800 million to almost 100 proprietary clients, according to the report.

Jamaican sprint icon Usain Bolt and octogenarian Jean Forde are listed among the alleged victims.

The trustee noted, however, that his team found related-party receivables totalling approximately $670.12 million, with SSL Growth Equity (SSLGE) owing $391 million; SSL Capital Cayman owing $222 million; Delta’s $47 million debt; and additional amounts of $9.5 million due from other parties.

The Campbell report charged that funds advanced to SSL were used to provide working capital support to Delta while the SSL Capital Cayman debt was “related to the former Papa John Pizza Franchise in the Cayman Islands”.

Delta’s debt to SSL was reduced from $98.5 million to $96.7 million at the end of last year before it was further slashed to $47 million in August this year, according to the report.

imprudent investments

“Delta has invested in several equity and loan deals in the region, most of which have not turned out favourably,” Campbell noted in his report. “It is to be further enquired into whether some imprudent investments were made with and through these entities, since it does appear that some clients’ funds were used to finance these investments.”

The SSL trustee said additional enquiry is also required into whether, in other instances, clients of the fraud-hit firm were “induced” into investing in SSLGE and Delta by key representatives of SSL.

According to the report, some SSL clients have asserted that they gave no instructions or authorisation to make these investments and were “surprised” that these investments were part of their holdings.

Delta had 39 SSL clients while SSLGE had 30, the report said.

“An initial assessment suggests the recovery prospects for affected clients are very negligible, with the best chance being from Delta,” the Campbell report said, making reference to the related-party receivables.

It said available information indicates that a significant majority – if not all – the legal and natural persons who would ultimately have a claim against these related-party entities are direct SSL clients.

But in his response, the Delta Capital executive chairman acknowledged that some of the investments by his company did not turn out favourably, but said the suggestion that SSL clients’ funds may have been lost because of imprudence “is not true”.

Some of the projects, including a commitment for US$20 million in debt and equity by two licensed investment bankers in New York, were impacted by the fallout from the alleged SSL fraud, and before that, the effect of the coronavirus pandemic, he asserted.

“The investments Delta made are no different from what other investment houses have done. Some work, some may not, but that doesn’t mean fraud was committed,” Harding insisted.

According to his account, Delta engaged SSL as its broker to raise funds to fulfil its private equity mandate.

SSL was also engaged to provide administrative and back-office services for which it charged Delta a fee and was paid a standard rate, he explained.

Harding noted also that Delta had a suite of deals for which it contracted SSL – the second-oldest brokerage house in Jamaica at the time – to analyse and prepare investment decks.

“SSL had a well-respected analytical department having analysed and brokered several blue-chip and private equity deals on behalf of both accredited and institutional clients for decades and so Delta relied on their expertise.”

Further, he said top accounting firm PWC was engaged to assess all deals and provide a report with an estimate of value and to compute present values so that Delta could determine the price point at which to invest.

arm’s-length contract

Noting that Delta and SSL are not related entities or a subsidiary of each other, Harding said the arrangements between the two entities were governed by an arm’s-length contract and that his company paid SSL based on bills submitted.

“There was a Chinese wall between both companies.”

He said when Delta determined that it no longer required SSL’s services, the contract was terminated and his company was billed for the remaining work. “That is why Delta paid what it did to SSL and the balance remaining is based on what SSL later claimed was owing,” he said.

Harding said he could not respond to the claim in the trustee’s report that SSL clients were “surprised” to learn that they had investments linked to Delta.

According to him, SSL handled all the arrangements and was the registrar and paying agent and provided each client with the respective investment decks.

Harding said “many” SSL high-net-worth clients contacted have indicated that they had an agreement for SSL to determine “what SSL invests their money in at their own discretion”.

In addition, he said his company has seen communication from all these clients, “whether in writing or email”, where “SSL advised and got their permission to invest in a Delta note”.

“So, if it is now being said otherwise, the evidence can be researched to tell the truth. Delta was not given an opportunity in many cases to converse with SSL clients as SSL made it abundantly clear that was not to be.”

livern.barrett@gleanerjm.com