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SEC reduces injunction on Caledonian’s US assets to $7M

| 27/03/2015 | 26 Comments

(CNS Business): The US Securities and Exchange Commission reduced the freeze on the beleaguered Caledonian Bank’s assets this week from $76 million to just $7 million, the creditors have revealed. The bank was brought to its knees when the SEC filed suit against it and its bosses over an alleged $75m penny stock scam and froze the bank’s assets held in the US. As a result, the more than 40-year-old offshore Cayman bank and its securities branch are now in the hands of liquidators.

In a short statement Thursday, Keiran Hutchison and Claire Loebell of Ernst & Young, who are handling the liquidation, said that since their appointment, with the assistance of Walkers and Proskauer Rose LLP New York, they have been in active discussions with the SEC in respect of the claims against the companies.

“In this regard, on 23 March 2015 the US District Court made Orders which, inter alia, had the effect of reducing the quantum of the freezing order to USD$7m,” the liquidators stated, but warned creditors this does not mean that the SEC’s proceedings against the companies are concluded and the JOLs will continue to take steps in the proceedings on the bank’s behalf.

The temporary restraining order of $76 million of Caledonian’s US assets caused a run on the bank by its depositors, forcing it to suspend operations in February just a few days after the SEC suit.  The local regulator, the Cayman Islands Monetary Authority, then appointed controllers, who later took on the liquidator role.

The new restraining order requires Caledonian to maintain a minimum balance of $7 million and the liquidators must now demonstrate that the cash is needed to meet the claims of Caledonian’s customer and creditors and those creditors were not involved in the scam.

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Category: Finance, Financial Crime, Uncategorized

Comments (26)

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  1. Anonymous says:

    This is a significant development for all parties concerned, it’s hard to believe that there has been no communication or comment from the JOLs or CIMA on the potential impact to depositors, creditors and employees.

  2. Anonymous says:

    As a result of the SEC admitted over reaching and now lowering of the restraining order to a mere 7mm, essentially makes Caledonian Bank solvent. Furthermore, the stated purpose of CIMA and the bankruptcy filings due to the stated $68mm “run on the bank” can now easily be covered. It’s hard to believe as an innocent depositor, the only news in over a week since the material ruling on the matter, there is only a meaningless quote from EY contained in this article, for those whose lives have been negatively impacted by this mess.

    • Anonymous says:

      “The property, business and affairs of the Company are being managed by the Joint Official Liquidators, Keiran Hutchison and Claire Loebell, who act without personal liability.”

    • Anonymous says:

      The Caymans will eventually learn the reason for the judge’s recent decision to reduced the restraining order, prior to trial or a final judgement. Caledonian still have to prove that their cross-border activities were in fact compliant with SEC Laws governing securities trading & other economic exchanges. Generally, Cayman laws are open to economic exchanges that are absent of scrutiny or concern for fairness. However, in this case, the SEC will argue to Caledonian’s involvement in the “shell” scheme, (ultimate) intent of its activities, and who benefited from the financial transactions in question.
      It is quite apparent that the SEC is still adamant about E&Y JOLs concluding the liquidation process prior to trial – or entering plea deals, if they are found guilty. Caledonian (via Legal Representation) will have a chance in court to answer (to the USDOJ & SEC) on their associates, activities, and distribution of profits.

      • Anonymous says:

        The SEC already know the direction in which this lawsuit is heading. Caledonian & its affiliated “shell” companies have essentially been ban from financial trading in the U.S. Its already public knowledge through other accredited medians, so why is CIMA so silent. The freeze was not a mistake; Caledonian broke several SEC regulations. Under New World Holdings Inc. (Caledonian Group Ltd. parent company), these “shell” companies illegally penetrated U.S. markets and began trading without SEC authorization- and hugely profited from it. Breaking SEC Rules will get you barred from trading or accessing U.S. financial markets.
        I think Mr. Terrence Duffy has gotten the message, loud & clear, about the questionable choice of strategy & companies structure employed & what these companies can & cannot do according to U.S. SEC regulations.
        Now, with more anticipated job losses, CIMA has to realize that just because Cayman’s financial industry is so poorly regulated and companies are welcomed to operate there as they wish, doesn’t mean that another country will allow for the same.

    • Anonymous says:

      Anonymous 12:55 am – CNS’s article still doesn’t explain WHY the restraining order was reduced to $7Mil. The liquidation is still ongoing, so there is some credence given to the SEC’s lawsuit.
      The USDOJ & SEC has agreed to return depositors monies with warnings/conditions in place, for which the public knows nothing of. So, until we know what was agreed we can’t say the “over-reach” was ever wrong, except that Caledonian is entitled to due process – which predicate “Innocent until proven guilty” by a court of law.
      As a result, Caledonian will now have its chance to proof the intent of its activities, the distribution of related profits, and the parties (apart from depositors) positioned to benefit from its sophisticated “shell” scheme.

  3. Anonymous says:

    If the SEC had simply levied the $7mm fine to begin with chances are that Caledonian Bank would still be in business today. Will Caledonian attempt to resolve the issue and get back to business? What steps will CIMA and the appointed JOL from Ernst and Young do now? At the very least, it appears that as a result, Caledonian becomes more attractive to potential suitors, and it should be considered good news to employees, creditors and depositors.

    • Anonymous says:

      The reduction places CBL back into solvency given that Assets ($585M) exceed liabilities ($560m). However that may not be such good news for EY as they bill by the hour. There is an inherent conflict of interests here. Have yet to meet Lawyers who put their clients interests above their own.

    • Anonymous says:

      One would think EY would be delighted to share this good news with depositors. Have received 5 “notifications” from EY written in Latin and yet one week after this development? Absolute (ungolden) silence. Way to go E(y)w

      • Anonymous says:

        EY is not delighted now that the potential millions in fees may be slipping away. Will someone please tell EY and CIMA to plug the ATM machines back in now that Caledonian is solvent?

    • Anonymous says:

      SEC getting it wrong by an order of magnitude? Unconscionable. Did they even know CBL was a Bank with real depositors? Probably cannot spell either (CSL)

  4. Anonymous says:

    Why do the depositors have to bear the brunt and be held ransom to SEC allegations when the delinquent directors should be held accountable for their actions. Freeze the assets of the directors and allow depositors who have absolutely no role in these shenanigans to withdraw the funds that rightfully belong to them and were deposited for safekeeping. It seems financial institutions are prosecuted rather than the individuals who act with impunity.

    • Gabriel Bush says:

      Ridiculous. Can anyone point to a single piece of evidence provided by the SEC? None has been provided. I agree that the depositors are innocent parties in this, but the directors (like all people in our country) are entitled to be presumed innocent until PROVEN guilty. The directors and management of this company are the same people who emptied hundreds of Caymanians over the years. They have supported many local charities, particularly childrens’ charities. They have contributed to our economy and our society. If you’re willing to throw them under the SEC’s bus so quickly and without sight of any evidence, then you’re probably willing to do the same to other business leaders in Cayman. Think about it. If you are willing to live with the benefits that caledonian and its directors gave to this island when the times were good, then shouldn’t you stand by them in times of difficulty when nothing has been proven (by a foreign regulator who is clearly trying to close down Cayman Inc.)?

      • Gabriel Bush says:

        “Employed” not “emptied”. Sorry. Auto spell…

      • Anonymous says:

        100% on the innocent until proven guilty maxim. Just seems really ‘guilty’ behavior to run for cover into voluntary liquidation. If they were innocent why did “The Group” not stand behind them? The SEC appears to be as reckless in their actions. They seem little more than government sanctioned bullies trying to extort funds.

      • Anonymous says:

        “… depositors are innocent parties in this, BUT …”

        So “Forget about the one thousand five hundred customers, why should we the Five Directors be judged and suffer”?

        No lets just throw our clients under the bus and sprint to bankruptcy protection. Which is precisely what they did seeking voluntary liquidation.

        • Anonymous says:

          CIMA decided to put the business into Controllership BEFORE Caledonian tried to place it into voluntary liquidation.

          So why did Caledonian try to place itself into voluntary liquidation?

          Probably because it was near on guaranteed that the Controllers would recommend that anyway, but in another 2 weeks, which is in fact exactly what they did do.

          So why forestall the inevitable and the additional 2 weeks of Controllers fees?

          • Anonymous says:

            There is a huge difference between a voluntary and an involuntary liquidation.

            • Anonymous says:

              “A resolution by shareholders of Caledonian Bank and Caledonian Securities to put the companies into voluntary liquidation in an apparent attempt to stymie regulatory action locally has been rejected by the Chief Justice of the Cayman Islands”.

              And more pertinently from the ruling:

              “This appointment was made by CIMA in its role as regulator, I am told by Mr. Mondesir, out of concern about the regulatory
              implications of the SEC allegations and actions, as well as out of CIMA’s concern for the interests of depositors; having regard, among other things, to evidence of attempts by officers of the Bank to transfer funds away to a related entity …”


          • Anonymous says:

            Controllership = independent audit.

            Guilt = only reason to jump to voluntary bankruptcy.

            CBL has repeatedly denied any wrongdoing and yet it chose to short circuit due controllership process.

      • Anonymous says:

        Now that the SEC has reduced the freeze to only 7mm, what impact will this have on the liquidation and the creditor/depositor meeting called for April 16. Does anyone have the timing and amount that the liquidators will be now to distribute to depositors?

  5. Gabriel Bush says:

    This bank did not have to be destroyed. The SEC seems to have shot first and asked questions later. How else can you explain suddenly freezing all of Caledonian Bank”s assets, nearly $400m, only to reduce it by 98% to only $7m just a few weeks later? What did CIMA do to intervene? Caledonian Securities traded through US licensed brokerage firms. Why are they not involved in this? If these allegations by the SEC are so common (as this story suggests), does the SEC always start by freezing 100% of the defendants assets? Or is this the special “Cayman Islands treatment”? If the SEC took a more measured approach from the beginning, would Caledonian still be alive today? What about “due process”? Has anyone even seen any of the SEC”s evidence?

    • Anonymous says:

      10:31 am – Perhaps you should try reaching out to the head-honchos of Caledonian with an inquisition as to what has transpired. The Executive branch of the bank and its UBO are the best persons to fill you in; but, like CIMA, they too are busy tussling with the liquidation process and court matters to speak on it.
      It’s worrying knowing that people’s jobs are in limbo over this ordeal. Ugh.

      CIMA? Help!

  6. Anonymous says:

    The SEC needs to be held accountable for its reckless actions “trumping and dumping” charges that precipitating this mess. They are no better than the SBL Banksters.

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