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EDITORIAL - Time for investment companies to come clean
published: Tuesday | July 22, 2008
It is high time that the so-called alternative investment schemes come clean, so that people can have a real sense of their financial circumstances and get on with the business of rebuilding their lives.
To do otherwise is to heap ignominy on the economic pain that people are already feeling, in an ultimate statement of disrespect of their investors. At the same time, they, by themselves, achieve what, despite their claims, no regulator was able to accomplish: a long-time undermining of public confidence in high-risk, high-margin alternative investment schemes. Indeed, they will cause questions to be posed, in new quarters, whether they do, or did, trade in real securities.
The greatest responsibility, in this regard, rests with David Smith and his Olint Corporation, which, by most estimates, has between US$600 million and US$1 billion under its management. Olint was not only the first, and largest, of the so-called alternative schemes, but the one in which people invested most trust. It was held to be a genuine trader in foreign exchange, even if it fought hard to operate beyond the oversight of Jamaican regulators.
Jealous Jamaican banks
For several months, Smith has been unable to pay investors promised returns, with the blame shifting from one source to another: the actions of jealous Jamaican banks, which wanted to close its accounts; because of due diligence by foreign banks; the failure of foreign brokers to release cash because of investigations of one sort of another; and now, the freezing of Olint's assets by the Turks and Caicos Islands' police because of a probe into its business.
But the fundamental question is whether there are assets to freeze. Mr Smith needs to say whether there are, or if, as many people suspect, his business became over-leveraged and that huge sums were lost on trades. The problem, this argument goes, would have been exacerbated by Olint's decision largely to guarantee high returns to investors, rather than have them absorb losses when these occurred.
World Wise is another company that needs to come clean quickly. It needs a better explanation than moving office and reconciling accounts for failing to pay out investors.
Why the cash crisis?
Here is a point that needs clarity: if, as its 'partnership' contract suggests, only 20 per cent of an individual's 'investment' goes into the foreign exchange trading while the rest is put into less volatile securities, why does the company seem to have a major cash crisis? We can imagine the money invested in foreign exchange arbitrage being lost, but what of the return of safe instruments such as government bonds?
It has not escaped many people that the fallout among these unregulated investment companies appears to be systemic, leading to an assumption that they may all be linked.
The suggestion here is that small operators like World Wise and Mae Daisy and others sought to piggyback on Olint's supposed experience and trading skills by parking a portion of their cash with David Smith's business. The upshot: if David Smith fell into trouble, then so would they.
The meltdown, therefore, would be systemic, well beyond the regulatory issues faced by these organisations. Already, the problems with these institutions have begun to have a negative impact on consumption and will, over time, feed into the broader economy. It has already affected consumer and business confidence. By coming clean, the traders will cause investors to face reality.
published: Tuesday | July 22, 2008
It is high time that the so-called alternative investment schemes come clean, so that people can have a real sense of their financial circumstances and get on with the business of rebuilding their lives.
To do otherwise is to heap ignominy on the economic pain that people are already feeling, in an ultimate statement of disrespect of their investors. At the same time, they, by themselves, achieve what, despite their claims, no regulator was able to accomplish: a long-time undermining of public confidence in high-risk, high-margin alternative investment schemes. Indeed, they will cause questions to be posed, in new quarters, whether they do, or did, trade in real securities.
The greatest responsibility, in this regard, rests with David Smith and his Olint Corporation, which, by most estimates, has between US$600 million and US$1 billion under its management. Olint was not only the first, and largest, of the so-called alternative schemes, but the one in which people invested most trust. It was held to be a genuine trader in foreign exchange, even if it fought hard to operate beyond the oversight of Jamaican regulators.
Jealous Jamaican banks
For several months, Smith has been unable to pay investors promised returns, with the blame shifting from one source to another: the actions of jealous Jamaican banks, which wanted to close its accounts; because of due diligence by foreign banks; the failure of foreign brokers to release cash because of investigations of one sort of another; and now, the freezing of Olint's assets by the Turks and Caicos Islands' police because of a probe into its business.
But the fundamental question is whether there are assets to freeze. Mr Smith needs to say whether there are, or if, as many people suspect, his business became over-leveraged and that huge sums were lost on trades. The problem, this argument goes, would have been exacerbated by Olint's decision largely to guarantee high returns to investors, rather than have them absorb losses when these occurred.
World Wise is another company that needs to come clean quickly. It needs a better explanation than moving office and reconciling accounts for failing to pay out investors.
Why the cash crisis?
Here is a point that needs clarity: if, as its 'partnership' contract suggests, only 20 per cent of an individual's 'investment' goes into the foreign exchange trading while the rest is put into less volatile securities, why does the company seem to have a major cash crisis? We can imagine the money invested in foreign exchange arbitrage being lost, but what of the return of safe instruments such as government bonds?
It has not escaped many people that the fallout among these unregulated investment companies appears to be systemic, leading to an assumption that they may all be linked.
The suggestion here is that small operators like World Wise and Mae Daisy and others sought to piggyback on Olint's supposed experience and trading skills by parking a portion of their cash with David Smith's business. The upshot: if David Smith fell into trouble, then so would they.
The meltdown, therefore, would be systemic, well beyond the regulatory issues faced by these organisations. Already, the problems with these institutions have begun to have a negative impact on consumption and will, over time, feed into the broader economy. It has already affected consumer and business confidence. By coming clean, the traders will cause investors to face reality.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
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