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Investment schemes under pressure
published: Friday | December 28, 2007
Carlos Hill, chairman of Cash Plus Group. - File '
In 2007, most of the theatre occurred in what can be tagged informally as the 'alternative investment sector', now populated by at least two dozen self-styled investment clubs, plus their offshoots — all said to be immersed in currency trading.
It emerged that church groups had become big players in the market, and that the theology school was about to launch a course in foreign exchange trading for pastors.
But it was Carlos Hill's Cash Plus Limited, and to a lesser extent, David Smith's Olint Corporation, that would be cemented as household names, not because of their legal tug of war with regulators but moreso resulting from friction with the banks, the conduit through which investors were being paid their lucrative returns of 10 per cent per month and more.
The Financial Services Commission's warnings grew more dire as the months wore on and the schemes proliferated.
"All have found a big financial secret," said outgoing FSC Executive Director Brian Wynter at a November 11 'Think and Check Before You Invest' forum. "The best kept secret is how the funds are made."
But Wynter's utterings were so carefully nuanced that instead of communicating the degree of regulatory concern and action he could take under the law, he telegraphed a certain level of helplessness to earn the ire of those hoping for direction.
"We need hard facts, not scaremongering," said one forum participant. "I am disappointed in you."
BANKS AS SUPER VILLAINS
The banks and securities firms, it was rumoured, were jealous of the business being done by the ballooning investment schemes and feared the competition to whom they were said to losing customers.
Suddenly, the largely underground sector began to take the spotlight and formerly quiet investors - or lenders as the schemes define them - who were content before to remain well below the radar, rose up and attacked the banks as being anti-small investor and exploiters of the poor. The FSC was simply tagged a bugbear and opting for name calling over concrete action.
The numbers did not support the assertion that the banks were losing business to the clubs - to the contrary.
In fact, both Bank and Nova Scotia Jamaica and National Commercial Bank grew their deposits and loan portfolios to record super-profits, each hitting a new record of $7.6 billion and $6.6 billion of net income, respectively.
And, up to September, the banking sector's profit and efficiency ratios were healthier.
Still, by November the banks had joined the cast as super villains after it emerged that instructions had been passed on to staff about the treatment of transactions linked to about 12 named schemes to conform with reporting guidelines under money laundering laws.
'NO' TO OFFSHORING FUNDS
The central bank remained above the fray, even though it was rumoured in the market that the stance taken by the banks to record, scrutinise and report the dealings of the investment schemes was at the Bank of Jamaica's behest.
The central bank's voice was only heard once or twice when it issued notices reminding foreign exchange traders that such commercial transactions could be done only under licence by the BoJ, and in some circumstances by the FSC.
Then at his November 19 quarterly monetary policy media briefing, central bank Governor Derick Latibeaudiere gave a precise signal of where he stood: any attempts by th schemes, he said, to convert and take funds offshore would not be allowed by the BoJ.
That comment followed Prime Minister Bruce Golding's clearly stated position that there would be no rescue for investors were the schemes to fail, but it also came behind a Cash Plus declaration that it was planning to bypass local banks and would conduct its business with its Jamaican members from overseas, ostensibly Dominica Republic, as worries about its cash flows surfaced.
Before that several Cash Plus investors were being told of insufficient funds to cover their cheques, while others were experiencing up to two weeks delay in the payment of their returns.
But the investment scheme explained it away as a bank conspiracy.
So even though Cash Plus' Carlos Hill denied again and again that he was in a liquidity squeeze by spreading himself too thin with downpayments on several business acquisitions, and later admitted to his criminal past, with legal documents showing he went to prison in the United States for financial fraud, club members with 'billions' tied up in his scheme rose up in his defence and against the banks, whose returns on customer deposits were unmoved at 5.0 per cent per annum.
CASH PLUS ULTIMATUM
Some of that confidence would wane during Christmas however after Cash Plus announced at the top of December that it would disburse no funds until January 2 to reform its payment system.
Many who turned up for their funds, anyway, wanting to cash out their investments, were put on a waiting list extending to the end of January. Others who merely wanted funds for Christmas spending were also denied.
At one point during the year, Michael Lee Chin, billionaire owner of NCB, was pulled into the maelstrom, forcing him to publicly deny a rumoured association with World Wise, one of the more recent clubs, even as Higgins, another of the high-yield schemes operating from Montego Bay, attempted to revive them with unsubstantiated accusations about discriminatory treatment by three banks.
In the meantime, the FSC continued to warn that the resistance by the schemes to regulation made it difficult to predict how sustainable their activities were and continued to telegraph that it was worried about the safety of investors' funds.
The FSC would further add to the drama as the year was drawing to a close — issuing a public notice on December 14 that Cash Plus had failed to deliver certain financial information by December 10, as instructed, to verify its health and sustainability.
Those financials were delivered by the extended deadline on December 20, but the unaudited balance sheet served to raise more questions than it answered.
The company declared assets of J$21.9 billion, the majority of which is tied up in 'investment properties'.
What was clear was that Hill's company was in a liquidity crunch with short term or current liabilities of $3.94 billion outpacing current assets by $28 million.
Additionally, the big acquisitions were far from paid for, including the Hilton Hotel real estate on which US$12.5 million remained outstanding on the US$21.5 million purchase price, while US$6 million was outstanding on the US$9 million deal struck for Drax Hall.
OLINT LOSES
David Smith, CEO of Olint Corporation. - File
The very next week, December 24, Olint was dealt a big blow when Smith was told by the Supreme Court — in a ruling six months after the close of hearings in a three-year-old case — that yes, his activities were deemed as the business of investment under the ambit of the law policed by the FSC, and as such the regulator had the power to oversee his company's operations.
Olint got six weeks to get itself licensed, which means it has to open its books to the FSC and will likely have to justify the returns it pays its clients.
But, the victory to the FSC would be much bigger than just Olint and Lewfam, by virtue of the latter's having joined Olint in its suit against the FSC.
Finally, the FSC would have the legal means on which to proceed against other schemes that were also resistant to its offer to register their activities.
The FSC's second in command, George Roper, said the ruling serves to establish more clearly precisely what constitutes an investment contract. lavern.clarke@gleanerjm.com
published: Friday | December 28, 2007
Carlos Hill, chairman of Cash Plus Group. - File '
In 2007, most of the theatre occurred in what can be tagged informally as the 'alternative investment sector', now populated by at least two dozen self-styled investment clubs, plus their offshoots — all said to be immersed in currency trading.
It emerged that church groups had become big players in the market, and that the theology school was about to launch a course in foreign exchange trading for pastors.
But it was Carlos Hill's Cash Plus Limited, and to a lesser extent, David Smith's Olint Corporation, that would be cemented as household names, not because of their legal tug of war with regulators but moreso resulting from friction with the banks, the conduit through which investors were being paid their lucrative returns of 10 per cent per month and more.
The Financial Services Commission's warnings grew more dire as the months wore on and the schemes proliferated.
"All have found a big financial secret," said outgoing FSC Executive Director Brian Wynter at a November 11 'Think and Check Before You Invest' forum. "The best kept secret is how the funds are made."
But Wynter's utterings were so carefully nuanced that instead of communicating the degree of regulatory concern and action he could take under the law, he telegraphed a certain level of helplessness to earn the ire of those hoping for direction.
"We need hard facts, not scaremongering," said one forum participant. "I am disappointed in you."
BANKS AS SUPER VILLAINS
The banks and securities firms, it was rumoured, were jealous of the business being done by the ballooning investment schemes and feared the competition to whom they were said to losing customers.
Suddenly, the largely underground sector began to take the spotlight and formerly quiet investors - or lenders as the schemes define them - who were content before to remain well below the radar, rose up and attacked the banks as being anti-small investor and exploiters of the poor. The FSC was simply tagged a bugbear and opting for name calling over concrete action.
The numbers did not support the assertion that the banks were losing business to the clubs - to the contrary.
In fact, both Bank and Nova Scotia Jamaica and National Commercial Bank grew their deposits and loan portfolios to record super-profits, each hitting a new record of $7.6 billion and $6.6 billion of net income, respectively.
And, up to September, the banking sector's profit and efficiency ratios were healthier.
Still, by November the banks had joined the cast as super villains after it emerged that instructions had been passed on to staff about the treatment of transactions linked to about 12 named schemes to conform with reporting guidelines under money laundering laws.
'NO' TO OFFSHORING FUNDS
The central bank remained above the fray, even though it was rumoured in the market that the stance taken by the banks to record, scrutinise and report the dealings of the investment schemes was at the Bank of Jamaica's behest.
The central bank's voice was only heard once or twice when it issued notices reminding foreign exchange traders that such commercial transactions could be done only under licence by the BoJ, and in some circumstances by the FSC.
Then at his November 19 quarterly monetary policy media briefing, central bank Governor Derick Latibeaudiere gave a precise signal of where he stood: any attempts by th schemes, he said, to convert and take funds offshore would not be allowed by the BoJ.
That comment followed Prime Minister Bruce Golding's clearly stated position that there would be no rescue for investors were the schemes to fail, but it also came behind a Cash Plus declaration that it was planning to bypass local banks and would conduct its business with its Jamaican members from overseas, ostensibly Dominica Republic, as worries about its cash flows surfaced.
Before that several Cash Plus investors were being told of insufficient funds to cover their cheques, while others were experiencing up to two weeks delay in the payment of their returns.
But the investment scheme explained it away as a bank conspiracy.
So even though Cash Plus' Carlos Hill denied again and again that he was in a liquidity squeeze by spreading himself too thin with downpayments on several business acquisitions, and later admitted to his criminal past, with legal documents showing he went to prison in the United States for financial fraud, club members with 'billions' tied up in his scheme rose up in his defence and against the banks, whose returns on customer deposits were unmoved at 5.0 per cent per annum.
CASH PLUS ULTIMATUM
Some of that confidence would wane during Christmas however after Cash Plus announced at the top of December that it would disburse no funds until January 2 to reform its payment system.
Many who turned up for their funds, anyway, wanting to cash out their investments, were put on a waiting list extending to the end of January. Others who merely wanted funds for Christmas spending were also denied.
At one point during the year, Michael Lee Chin, billionaire owner of NCB, was pulled into the maelstrom, forcing him to publicly deny a rumoured association with World Wise, one of the more recent clubs, even as Higgins, another of the high-yield schemes operating from Montego Bay, attempted to revive them with unsubstantiated accusations about discriminatory treatment by three banks.
In the meantime, the FSC continued to warn that the resistance by the schemes to regulation made it difficult to predict how sustainable their activities were and continued to telegraph that it was worried about the safety of investors' funds.
The FSC would further add to the drama as the year was drawing to a close — issuing a public notice on December 14 that Cash Plus had failed to deliver certain financial information by December 10, as instructed, to verify its health and sustainability.
Those financials were delivered by the extended deadline on December 20, but the unaudited balance sheet served to raise more questions than it answered.
The company declared assets of J$21.9 billion, the majority of which is tied up in 'investment properties'.
What was clear was that Hill's company was in a liquidity crunch with short term or current liabilities of $3.94 billion outpacing current assets by $28 million.
Additionally, the big acquisitions were far from paid for, including the Hilton Hotel real estate on which US$12.5 million remained outstanding on the US$21.5 million purchase price, while US$6 million was outstanding on the US$9 million deal struck for Drax Hall.
OLINT LOSES
David Smith, CEO of Olint Corporation. - File
The very next week, December 24, Olint was dealt a big blow when Smith was told by the Supreme Court — in a ruling six months after the close of hearings in a three-year-old case — that yes, his activities were deemed as the business of investment under the ambit of the law policed by the FSC, and as such the regulator had the power to oversee his company's operations.
Olint got six weeks to get itself licensed, which means it has to open its books to the FSC and will likely have to justify the returns it pays its clients.
But, the victory to the FSC would be much bigger than just Olint and Lewfam, by virtue of the latter's having joined Olint in its suit against the FSC.
Finally, the FSC would have the legal means on which to proceed against other schemes that were also resistant to its offer to register their activities.
The FSC's second in command, George Roper, said the ruling serves to establish more clearly precisely what constitutes an investment contract. lavern.clarke@gleanerjm.com
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