Gov’t fights for control of SSL
Published:Sunday | July 14, 2024 | 12:09 AMJovan Johnson - and Barbara Gayle - Sunday Gleaner Reporters
The government is fighting back for control of Stocks and Securities Limited (SSL) with an appeal against a court decision that ended a financial regulator’s temporary management of the fraud-hit company.
In May, Supreme Court Justice David Batts ordered the immediate end of the Financial Services Commission’s (FSC) control of SSL and turned over the reins to the company’s appointed trustee, Caydion Campbell.
Batts said Campbell’s appointment, which the FSC challenged, was “valid” and that FSC’s temporary management was “ill-advised”.
Campbell is now leading a court-supervised winding-up of SSL.
The FSC, which has a statutory mandate to supervise and regulate investment houses, filed an appeal on July 8, claiming that Batts made several errors of fact and law.
The regulator is challenging the findings and orders made by Batts, and is seeking, among other things, an order from the Court of Appeal to restore its temporary management of SSL and to restrain Campbell and other SSL officials from dealing with the company’s assets and liabilities.
Breach of directives
The regulator sued SSL and Campbell on January 25, 2023, contending that Campbell’s appointment to pursue the winding-up of the company was in breach of directives and an attempt to frustrate the fraud probe.
SSL reported the fraud to the FSC on January 10, 2023 and, two days later, the regulator issued the several directives. Campbell was appointed on January 16, 2023 to lead a winding-up and reorganisation, the same day SSL directors also declared solvency. On January 17, 2023, the FSC took over the management of SSL through Ken Tomlinson.
The judge said the winding-up by the directors was properly started before the FSC took over the firm.
But the regulator is contending that Justice Batts was wrong to find that Campbell’s appointment took precedence over the temporary management and that there was no entity for the temporary manager to control, because the winding-up of SSL was already underway. It is also arguing that the judge was wrong in asserting that the FSC did not have the authority to curtail a winding-up initiated by SSL shareholders. The FSC also took issue with Batts accepting that a declaration of solvency was inaccurate yet declaring that it was not fatal to Campbell’s appointment.
The FSC is also claiming that Justice Batts made a mistake in allowing SSL and Campbell to pursue damages from the FSC over an injunction that was put in place last year until the lawsuit was resolved. It said Batts made the order without a formal application for an enquiry into the damages which would have allowed the FSC to mount a response.
In dismissing the FSC’s lawsuit, Batts ruled that “the court should also be slow to confer on the regulator, or any agent of the state, the power to restrict what essentially amounts to a property right”.
But the FSC is insisting that the judge failed to recognise that the commission’s lawful powers to take over temporary management of a regulated entity “is wide” and not limited to circumstances where a receiver is appointed.
On the issue of the solvency declaration by the SSL directors, Batts accepted that “at the date the declaration was filed, the company was already in an insolvent position” but “whether the declaration of solvency was truthful or inaccurate is irrelevant because the declaration was unnecessary for the winding-up process”. He also said that, on a balance of probabilities, the directors “acted honestly and with good intentions” in signing the document based on information before them.
Could prejudice
future proceedings
However, the FSC is insisting that the judge should not have pronounced on the honesty of the directors, because it was “unnecessary”, and could prejudice future proceedings where the intentions or honesty of the directors will be an issue.
The regulator has always argued that the company was insolvent and that the directors acted prematurely, as they did not know the scale of the fraud before declaring that the company had enough money to pay its debts.
It also wants the order for the FSC to pay the legal costs of SSL and Campbell to be overturned, pointing to section 22 of the FSC Act, which it said protects it from liability when doing its work in good faith.
In his judgment, Batts said that the FSC never sought to shut down the firm before, despite its long-standing problems. “The 1st defendant (SSL) had for some years been in a precarious position and was under ‘enhanced supervision’. The regulator, up to the 10th January 2023, the date it was informed of the fraud, saw no need to wind up the 1st defendant,” the judge said.
In 2017, FSC flagged SSL for a “culture of non-compliance and mismanagement of client funds”.
The multibillion-dollar fraud and irregularities uncovered at SSL last year January total more than US$30 million, or J$4.7 billion, with more than 200 accounts impacted. Sports legend Usain Bolt is among dozens of clients whose accounts were allegedly affected.