Caledonian accused of $75M penny stock scam

| 10/02/2015 | 0 Comments

(CNS Business): Caledonian Bank is facing legal action from the US Securities and Exchange Commission over allegations it and three other companies based in Panama and Belize were involved in a $75 million penny stock scam. It a statement released Monday the Cayman-based bank said it was cooperating with SEC and “working to prove that its actions were appropriate”.

Cayman News Service

Caledonian House, George Town

The action was filed in New York on Friday against the CIMA-regulated bank and its securities entity, as well as Verdmont Capital, Clear Water Securities and Legacy Global Markets.

SEC said the firms received $75 million through unregistered sales of “virtually worthless” shares in four Nevada-domiciled “shell companies”. The US agency alleged that in each case the issuers filed “bogus registration statements”, with the SEC purporting to register securities to “public shareholders”, when in reality the shares were still controlled by the issuers and their affiliates.

“In the sham offerings, the issuers pretended to sell securities to shareholders in such places as Serbia, Mexico, Ireland, Norway, Panama and Jamaica,” the suit reads. These restricted securities were then said to have been “passed off” as free-trading stock and sold to the public in the United States.

In a short statement in response to the SEC action the bank stated, “Caledonian has always held itself to a high standard within the international business community and we are confident that this will be evident as this matter unfolds.  We thank our many clients for their words of encouragement and support.”

However, the bank made no mention of how the situation would now impact its local employees and potential job losses at its offices in Dr Roy’s Drive.

The Cayman Islands Monetary Authority (CIMA) also released a statement Monday implying that it had been aware of the situation for quite some time, though it had not taken any action.

Confirming that Caledonian Bank and Caledonian Securities are regulated by CIMA, a spokesperson said, “As part of our ongoing regulatory role, CIMA has been working with Caledonian to address matters of concern, some of which are outlined in the SEC filings. For the past 18 months, the Authority has also been engaged with the SEC on a regulator-to-regulator basis. In light of this development, the Authority will take whatever action available to us, in the best interests of depositors and investors in the Caledonian entities.”

Financial Services Minister Wayne Panton also said Monday that he was aware of the legal action taken by SEC but said it was a regulatory matter which was being dealt with by CIMA.

“I am advised that the Caledonian Entities have been in discussion with the SEC and CIMA over the weekend. I have every confidence that CIMA will seek the best possible resolution and take the necessary action available to it, in the best interests of depositors and investors,” he added.

As well as outlining the details of SEC’s case against Caledonian and the other defendants and the alleged scam, the suit also calls for them to give up their “ill-gotten gains”, having been ”unjustly enriched”, and to pay damages and relief to the investors.

See lawsuit: SEC v Caledonian Bank and others

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Category: Finance, Financial Crime

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