Caledonian’s demise was SEC blunder

| 11/11/2015 | 60 Comments
Cayman News Service

Caledonian House, George Town

(CNS Business): A federal judge has said that the US Securities and Exchange Commission (SEC) got it very wrong when it issued an order earlier this year that froze more than $88 million in assets belonging to two financial institutions suspected of securities fraud that led to the collapse of Caledonian Bank in Grand Cayman. Although the SEC recently authorized a settlement with Caledonian Bank that is awaiting approval by Cayman Island authorities, it comes too late to rectify the mistakes that brought the forty-five 45-year-old bank to its knees.

In a ruling dismissing a pre-trial motion in the bankruptcy case, Manhattan District Court Judge William H. Pauley said blunders by the SEC triggered the collapse of the bank and other “collateral damage” in a case involving an alleged penny stock scheme, according to US press reports.

“This case offers fertile ground for agency self-examination,” the judge said, adding that the SEC was mistaken and its key allegations were wrong when it issued the order to freeze assets that closed one of Cayman’s oldest financial institutions.

In February SEC lawyers asked the court to approve its decision to freeze assets of Caledonian as well as three offshore brokerages. They claimed the financial institutions had illegally sold “large swathes” of worthless, unregistered penny stocks to investors as part of a “pump and dump” fraud and were holding millions of dollars in proceeds from those transactions in their company accounts.

Caledonian Bank Ltd and its related financial entities collapsed and filed for bankruptcy after a depositors’ run on the bank. But the SEC later revealed that they got it wrong and that Caledonian’s role in the alleged fraud was far more limited than the agency had first claimed. The firms were not directly selling the penny stocks but trading them on some customers’ behalf.

“For an enforcement agency with vast investigative powers, the SEC’s disclosure was chillingly casual,” Judge Pauley wrote in his ruling.

“Bureaucratic siloing and missed opportunities” ensured the failure of Caledonian but the judge also blamed the bank for agreeing to the regulator’s freeze on $76 million, which was more than three times its capital. “This case reveals the dire consequences that flow when the SEC fails to live up to its mandate and litigants yield to the government’s onslaught,” stated Pauley, the judge who had agreed to freeze the assets.

“The bank collapsed because of your actions, didn’t it?” Pauley asked Richard Simpson, a SEC lawyer, during a May hearing and Simpson agreed.

“It’s stunning,” Pauley said, according to Bloomberg reports at the time. “It’s incredible government overreach.”

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Category: Finance, Financial Services

Comments (60)

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  1. Frustrated says:

    We are now 10 months down the road and it s obvious that the SEC was wrong. They were wrong about the substance of their allegations and they were wrong in how they handled the situation. THIS IS THE OPINION OF A US FEDERAL COURT JUDGE!!!!

    The question now is: WHAT WILL CIMA and THE GOVT DO ABOUT THIS????

    If they do nothing and simply hope that this fades away, then we as a business jurisdiction are doomed.

    The US govt literally just STOLE FROM THE CAYMAN ISLANDS!!! They stole jobs, our reputation and the confidence of the people that use Cayman as a jurisdiction to do business. If someone steals from you, what would you do?

    CIMA and CIG, please speak up! Say something! We are all waiting!

    • Anonymous says:

      The SEC was wrong on this also can we hear some news about the $100,000 reward that is being posted for the whereabouts of a class B Cayman bank manager.

      • Gabriel Ebanks esq says:

        you mean B&C Capital and it’s former investors offering the reward not the SEC

        why let the truth stand in the way of a good story…

        idiot

  2. Anonymous says:

    This was not just overreach but a fraud as admitted by the SEC agent – they want to make their numbers look good for personal and departmental gain and he admits he knew the case was fraudulent in its scope and effect in advance yet still pursued it. The SEC should therefore be compensating victims. It almost deserves a RICO action given how widespread this abuse of power is.

    CIMA agents are complicit of course as they should have had adequate understanding and resolve to properly analyse the situation and take measured actions. We need to call it what it is and the likes of Tim Ridley will not get the appropriate jobs in CIMA or in other similar jurisdictions because of a nationalist hiring based also on race. We need knowledge, experience and integrity in those positions.

  3. KD says:

    To my former colleagues at Caledonian, I once told you that, “The worth of a man is measured by the strength of his character.” Thank you for the positive messages that you’ve posted. We were indeed a family and I miss you all, more than I ever thought that I would.

  4. Friday the 13th says:

    As a former employee I take offence to finger pointing at the staff…we are just as much victims.

    I thankfully have found employment after a 6 month search. I found that doors were slammed in my face because I have the Caledonian “scar”. I was blatantly told by a number of HR professionals that the will not be “taking on Caledonian staff at this time”.

    I was shocked having 15 years experience, a degree and a very good reputation that because I was a former employee it somehow negated all of that.

    Shame on all of those business that slammed the door in the face of any ex-caledonian staff, you missed out due to your shortsightedness. Those business that have a Caledonian CV on their desk, pick it up and give them an interview, you will not regret it!

    Many Cale staff miss working together, we kept many business here on their toes, we were an innovative, exceptional group of people, I think that scared the socks off of many.

    To all of the ex-Caledonian Team… Their time for judgement will come, but your opportunity for positive change is now. Sometimes we need a little push to be a better version of ourselves…stay awesome.

    • Anonymous says:

      I am also a former Caledonian member. It was an amazing place to work, it was like a family.

      Shame on so many people who judged the staff, their families, even the children of Caledonian members.

      A devastating event happened to 60 employees and their families. Instead of the people of Cayman understanding the truth and supporting one of their own businesses (with deep Caymanian roots), people turned their backs. People talked badly about the staff and their families without having any understanding of the situation.

      Cindy Scotland and your team at CIMA, you owe Caledonian and all the innocent depositors an apology. You failed them all.

      To the business community of Cayman, show your support and support the Caledonian staff. Give them a chance, hire them. They will do great things.

      To all the people who gossiped about the staff and their families, say sorry.

      The Caledonian staff will continue to hold their heads up high and be proud of Caledonian.

  5. Anonymous says:

    Cima staff are generally uni school leavers with no experience and training. Seniors and Chiefs are suck ups that receive moderate to low levels of training for select few staff that have brown nosed well. There is no comprehensive training for all staff. There is no higher level training required for senior staff. The staff learn on the job when they go on an inspection. Cima requires licensed entities to have proper training. Why not them?

    • Anonymous says:

      How, as a business community, can we help Caledonian? How can we demand a change at CIMA?

      If CIMA isn’t going to protect the business community and their clients, we need to rally together.
      Come on Cayman, everyone has sat back and watched this unfold, we need to demand and create change!

  6. Anonymous says:

    Raise your hand if you think the penny stock trades investigated by the SEC were the only OTC pump and dump deals that Caledonian was involved with.

    If you have your hand up I have oceanfront property in Nebraska for sale…

    That being said if a U.S. broker had been doing this there would not have been a freeze or certainly not of that size. Usually it is a non-fault agreement and a fine for this sort of thing.

    The SEC action only points out how big the target on offshore firms is at the moment. Anyone that is not squeaky clean is in danger.

    • Anonymous says:

      Trading in the OTC market is not a crime. Not all OTC stocks are bogus. There are many large, well know companies that started as penny stocks. But, there are of course many penny stocks that fail. And of course some penny stocks are bogus. This just means that it is a high risk market. Everyone who trades in OTC should know that it’s risky. But remember that it is a regulated market in the US.

      In this case, the US regulators failed to regulate their own market and then punished a foreign company for trading in that market.

      The fact that Caledonian traded in OTC is not a secret and is absolutely not the issue. The issue is whether or not the SEC overreacted in their attack against Caledonian. How about people raise their hands if they think that the SEC gave Caledonian the benefit of “due process under the law”? – or if you think that Caledonian was “presumed innocent”? – or if you think that the total destruction of Caledonian within days of a mere investigation was a “justified” or “proportional” result in this case?

      The fact is that there were many possible ways to handle this. But the SEC, with the complacency or even assistance of CIMA, shot first and asked their questions later. The SEC’s actions show their total lack of respect for the sovereignty of Cayman as a jurisdiction. This also shows the total lack of leadership on the part of CIMA, which failed to realize that their obligation to regulate requires that they not cede their powers to a foreign regulator.

      If this could happen to Caledonian, then who else can this happen to? What stops the US government from alleging that anyone in financial service in Cayman (lawyer, accountant, investment manager…) is “counselling Americans on how to evade taxes”? They arrest you when you fly through Miami, put out a press release and then your business and reputation are destroyed because of the mere allegation. Then it turns out that maybe they didn’t have their facts straight. Where does that leave you?

      • Anonymous says:

        Why would you dematerialize stock to the tune of 100’s of millions of dollars when the underlying companies were shells with no real business. Why didn’t one professional look at the stock chart after the deal and realize that the deals being brought by these clients would race up to a $1.50 then plummet back down to worthless. Rinse and repeat… Is that real business. The writing is on the wall for this end of the OTC market and that is a good thing.

    • Anonymous says:

      I am not certain what it is that you are trying to say here. Are you implying that the SEC and CIMA were correct in their approach in this instance because Caledonian must be guilty of some other crime?! Its really disgusting. the only point to be made here is that if this can happen to them it can happen to any other business dealing with the US and that we cannot rely on CIMA to demonstrate good judgement. Don’t think any of us in the business community has the stomach for this unsubstantiated mudslinging in the wake of what has happened.

  7. In reading the full list of comments thus far, it’s obvious there are former employees of Caledonian on here (who aren’t seeing eye-to-eye) along with some people who, for whatever reason, are choosing use the moment to say hateful things about the company.
    If everyone can take a step back please;
    1. An accusation was made about a company.
    2. Before the company could respond, it was taken over and subsequently shut down.
    3. In weeks and months following the shut down, ‘facts’ about the ‘process’ were learned–and it doesn’t make anyone feel good.

    If all it takes to shut a 4-decade business and lose 50 jobs is an ACCUSATION, then we, as a jurisdiction, have serious issues. I sure hope that those swiping never get accused of something without a fair ‘trial”. It isn’t fair to the families impacted for people to slam the company and say ‘what horrible things Caledonian did’. If you’re doing that, then you’re supporting the view that CIMA had their eye off the ball all around.

    This should be a time to rally and repair to ensure something like this never happens again. Don’t forget about the end-all of this. MANY families lost work and have been in a terrible position since this started, I guess, around a year ago.

    I didn’t know a lot of people there, but the ones I did were great to me. What I remember more is their philanthropy. They were active and incredibly generous. This doesn’t mean they were perfect, but it certainly doesn’t sound like a bad group of people.

    It’s easy to be an online bully. Try to learn the full facts before slandering. Think of the families/children hurt by this.

    Peace to all—especially those hurting from this.

  8. Crab Claw says:

    Perhaps the SEC and CIMA should be forced to put all the back right, recapitalize and give the Owners and management a chance for the bank to be reopened, along with a public apology of the blunders both made on their parts.

  9. Anonymous says:

    CIMA should be suing SEC and the laid off staff should be suing them too, or suing CIMA. I suspect that the Judge would overrule sovereign immunity in this case. CIMA..no comment..but damn..head in sand stuff and where it should be encouraging business to come into a well regulated domicile, it continually puts them off. And that despite many offers to some top class people for the insurance role that they all refuse to come when they met the top dog, or cat, as you prefer.

  10. Anonymous says:

    Damned if you do, damned if you don’t.

    Imagine if CIMA / Cindy Scotland stoop up to the SEC at the time?
    Cayman would have been smeared all over the global industry and news as uncooperative, corrupt, unprofessional, and “enemy of the (USA) state, along with all the other typical accusations.

    Whereas I feel very bad for those that lost their jobs due to this debacle – to now place the majority of the blame on our local authorities is a severe case of Monday morning quarterbacking.

    • Anonymous says:

      Nonsense.

      CIMA made much of the fact, when they shut Caledonian down, that they had been working ‘with’ the SEC for 18 months on this issue. Yet the SEC raised court proceedings and froze bank accounts based on their belief that a) the funds in the bank accounts belonged solely to Caledonian and b) Caledonian traded stocks on their own account. They were wrong on both counts, and it would have been very easy for CIMA, at any time during that 18 month period, to correct the SEC. For whatever reason they failed to do so.

      CIMA had ample opportunity to discuss this issue with the SEC behind closed doors, explain to the SEC that Caledonian was a bank, with real depositors, and a broker/dealer trading for clients. That might have prevented the SEC from taking the action that they took.

      These discussions would not have been ‘smeared all over the global industry’.

      However, CIMA chose to allow the SEC to run roughshod over Caledonian. Then, when the SEC raised court proceedings, CIMA seem to have decided to act as if they were a big, strong, decisive regulator, and shut Caledonian down. Perhaps they figured that the SEC simply couldn’t be wrong, and wanted to impress the US authorities by taking decisive action? Who knows? Whatever the reason, CIMA should now be very embarrassed since the US court has made it clear that the SEC screwed up on two issues where CIMA obviously failed to explain matters accurately to the SEC.

      The SEC blundered, but CIMA are just as much to blame. They were out of their depth on the Caledonian case, and the financial services industry in this country needs and deserves to have a better regulator – one that understands the financial services provided in this jurisdiction and that is willing and able to fight to protect regulated entities and their clients.

      • Anonymous says:

        Well said. But I think the situation with respect to CIMA is actually even worse than this. If you check the affidavit of Cindy Scotland filed on October 11, you will see that she gives a detailed account of all of the communications that CIMA had on the Caledonian matter over that fateful weekend. Her affidavit refers to communications between CIMA and Caledonian and within CIMA itself. At no time does Cindy Scotland mention any discussions that CIMA had with the SEC during that weekend while Caledonian was being attacked. It’s as though there were no communications between CIMA and the SEC at all. But this is in fact not the case.

        Fast forward to June, just after Judge Pauley lambastes the SEC for the first time. The SEC files amended pleadings, including an affidavit by Gerald Hodgkins, another SEC attorney. In this SEC affidavit, they make specific mention of their conversations with CIMA that occurred on the morning of Tuesday, February 10 – the day that CIMA shut Caledonian down. This SEC affidavit says that one of the reasons that the SEC refused Caledonian’s settlement offer that Caledonian had made the night before, was because the SEC believed that, based on their conversations with CIMA, even if the SEC accepted the settlement offer, it was likely that CIMA was going to shut down Caledonian anyways.

        All of this begs two important questions:

        1) Why did Cindy Scotland omit a very important discussion with the SEC from her otherwise very detailed affidavit? The conversation happened (according to the SEC). Was Ms. Scotland afraid that the Caymanian public would demand to know what (if anything) CIMA did to intervene to help Caledonian?

        2) Did CIMA actually contribute to Caledonian’s demise by leaving the SEC with the impression that CIMA was intent on shutting Caledonian no matter what happened?

        I think a public enquiry into CIMA’s actions (or inactions) is necessary.

    • Anonymous says:

      Many Tom Bradys in the room today.

  11. Anonymous. says:

    I wonder what happened to the “testicular fortitude” as one of Caledonia’s past Executives like to refer to. I worked in banking all of my working years and always found and questioned why when anything came up higher management was more than ready to roll over and play dead. I could’nt understand why they would’nt even muster enough courage to fight for their staff.

    • Former Management says:

      Check your facts. Senior management did fight for the staff. Every single staff member, including those in support roles of Caledonian companies that were not under liquidation, were paid 100% of their redundancy costs up front. This was because senior management literally begged the liquidators to do this.

  12. Anon says:

    I note the judge still gave the order though. He’s just mad that the SEC embarrassed him.

  13. Fred the Piemaker says:

    Think you will find the Controllership was a consequence of the run on the bank occasioned by the SEC freeze, and not the underlying allegations. Bit difficult to see how the bank could have kept the doors open given it did not have the liquidity to deal with its depositors asking for their money bank (no bank ever does, hence the dangers of a “run”)and in the absence of any form of deposit insurance in Cayman the results are inevitable.

  14. Anonymous says:

    It’s indeed heart wrenching. As a past employee who has suffered and continues to suffer, due to lack of employment and the ill’s that follow when one doesn’t have a job in this society. I wonder who is going to compensate us (the staff) with respect to a package, as we did not receive anything. No one from Government contacted any of us or assisted in anyway. We are now numbered among the 1,500 unemployables (even though many of us have degrees)

    I am certain that the “powers that be” are all too ashamed to comment. They are all hoping that this too will past.

  15. Time for CIMA change says:

    CIMA and Cindy Scotland need to held accountable for their actions or lack of action in this matter to be more specific. I think it time that Ms Scotland steps down, her lack of action on bring financial legislation up to current competitive standards is crippling Cayman. We are watching the demise of the financial sector in Cayman slowly wither and soon to die.

    But its alright we can all go work for the retail sector at the new cruise berths that should pay the mortgage.

    • Anon says:

      Banks are closing (HSBC, RBC, Scotia closing branches…). The fund administration business in Cayman is a skeleton of what it once was with so many of the jobs now in Ireland and Canada. Custody has also moved away to other jurisdictions. Frankly, none of these things are the actual problem. All of these things are merely SYMPTOMS of the real problem. That problem is a lack of effective leadership at CIMA.

      Time for a change.

      • Anonymous says:

        That’s not the problem. Lack of effective leadership is what draws ppl here.

      • Anonymous says:

        Actually the problem is FACTA and not CIMA it is becoming harder for tax jurisdiction countries to hold account outside of their respective countries without having to pay taxes on those amounts.

  16. Anonymous says:

    And CIMA just went along with no questioning of the facts or the potential impact on the local institution.

    As a principal in a local financial service group regulated by CIMA this sends chills down my spine.

  17. Anonymous says:

    Caledonian agreed to an order that doomed it to failure. The Cayman focus must be on how that happened.

    • Tipping off says:

      ‘Caledonian agreed to an order’ ? what does that mean – the SEC had the freeze imposed and then informed Caledonian.

      Since being placed in controllership, the Tuesday following the allegation made on the preceding Friday, EY, the controllers now liquidators, have been responsible for resolving this with SECs, which is why it’s been so gutless.

      EY are now in a difficult position too, the hand that feeds them (CIMA) is largely culpable in this too, so should EY take action against CIMA to return maximum value to creditors? Aren’t they obliged to?

      hmmmm

    • Anonymous says:

      pretty hard to “agree” to an order granted ex parte. Caledonian were only notified after the fact (that’s the point of an ex parte order and why the SEC wanted it). ex parte orders should only be used in rare circumstances, for good reason. see what can happen when they are used incorrectly?

  18. Anonymous says:

    ‘incredible Government overreach’ said judge. What about CIMA’s role it played in this debacle?! with all the statements from CIMA saying they had been working with the SEC for months leading up to final demise of the Bank, it makes you wonder what role CIMA really does play in Cayman and how effective it really is. If they can assist in taking down a good bank, what else are they capable of doing? Did they test the veracity of any of the SEC’s statements or its position before putting the final nail in the coffin. And I have to wonder, how is that they moved that quickly and decisively against Caledonian and yet seem to have so much patience with all of the other links to the FIFA scandal and the baking industry and within CIMA itself! It would be nice to know what measures have been taken other than Cindy ‘declaring’ her conflict and that’s it. We are major players in the financial industry. Time for our government bodies to put the right people in place at the helm so we can finally be properly and fully regulated. The remittance issue is a major problem and CIMA should be a part of the solution with persons who can think outside the box to take Cayman forward and aren’t afraid of making tough decisions.

  19. Anonymous says:

    This is a travesty. I don’t know the full story on Caledonian, but clearly this could have been prevented by good oversight. The bank was shut/sentenced before their story could be heard. This is a complete injustice to all the families impacted and a negative for the jurisdiction. The focus needs to be on the regulators. Shame on them and their reckless behavior. My thoughts are with the families impacted by this. They didn’t deserve this.

    • Anonymous says:

      This is partly CIMA’s fault. They could not be bothered to stand by one of their regulated entities “at the end of a business week and over the weekend and on USA time zone” this came down to local hours and minutes for assistance and CIMA should hang it’s head in shame as well. By Monday morning the poop hit the fan and the SEC train (going the wrong way) had left the station.

  20. I'm unemployed now! says:

    There is another side to this story as although the SEC did overreach this is mainly an issue of incompetence on Caledonian’s part. If you have read the actual court documents, the bank was involved in dubious penny stock transactions in the first place without proper due diligence.

    In addition Caledonian management presumably based on the “quality” legal advice of their in-house counsel and external legal team agreed to the freeze because they “were not negotiating from a position of strength”. Interestingly Verdmont Capital in Panama is just fine and continuing to operate presumably because they had competent legal advisors and also knew what they were doing in the market and was able to demonstrate that they were doing proper due diligence on the transactions.

    We’ve come a long way from Calloween parties and a million dollar solar car park, unfortunately the new high flying brain trust at Caledonian destroyed a longstanding Cayman institution causing the loss of many good jobs. Shame on them all!!!

    • Tipping off says:

      How do you negotiate from a position of strength when all the banks (client) assets based in the US were frozen and as a result there was a run on the bank?

      Verdmont was allowed to continue to negotiate and fight the SEC allegations as their regulator didn’t throw them to the wolves, if perhaps the Caledonian brains trust had been given that freedom to do that as well this might have played out very differently

      And don’t be so naive to believe everything written in black and white

    • Anonymous says:

      The loss of jobs in Cayman is also a tragedy that many people are not speaking about. But your anger is misplaced. Caledonian was not involved in any more “dubious” business than several other Cayman banks who were working with the same clients at the exact same time. Moreover in trading what you call “dubious penny stocks”, Caledonian would trade through the Royal Bank of Canada and the Bank of New York, as is clear from the public documents. I would hazard to say that this is pretty “respectable” company to be in.

      The fact that Verdemont capital managed to stay alive has nothing to do with the quality of their legal advice. It is simply a reflection of the fact that the regulator in Panama did not work against Verdemont capital. In Caledonian’s case, CIMA took their action to shut down Caledonian almost as soon as the SEC started their action. That too is one of the real travesties here.

      As for Calloween and solar car parks, you point to some excellent examples. Not examples of any wrongdoing on the part of Caledonian. But instead you point to some of the great things that Caledonian acieved. Whether you like it or not, over the past few years Caledonian changed things in the business community in the Cayman Islands. They challenged the status quo and forced their competitors to change their business models. In every single event that Caledonian (for which they are now ironically being criticized] Caledonian raised money for local children’s charities.

      The loss of your employment is tragic of course, but the Cayman Islands lost so much more because of this. So I think that you should probably direct your anger to the real perpetrators. Caledonian and its people (including its management] simply tried to build the best business that they could. But they were cut short as a result of the actions of a foreign government and the inactions of the local government.

      • I'm unemployed now! says:

        Realistically with the garbage stock that went through Caledonian there are only three arguments to be made:

        1. Caledonian management and staff were incompetent
        2. They knowingly took criminal/fraudulent action
        3. Some combination of the two

        Caledonian’s involvement as the point of entry into the financial system for fraudulent stocks is documented in the courts and was known to some as far back as 2013:

        http://www.thedeal.com/content/regulatory/with-law-enforcement-regulators-in-pursuit-awesome-penny-stocks-calls-it-quits.php

        The fact that RBC & BONY may also have been at fault for dealing with Caledonian does not exonerate Caledonian.

        • Former Management says:

          The fact that RBC and BONY traded the stock means that the real “bad guys” ran a sophisticated scam. It was sophisticated enough to get through the compliance departments of some of the biggest banks in the world (RBC and BONY). So the fact that they also got through Caledonian’s compliance is not an indication of wrongdoing on the part of Caledonian any more than it is an indication of wrongdoing on the part of RBC or BONY.

          You should know a couple of other things.

          1) Caledonian WAS NOT the “point of entry” of these stocks. The entry point was Legacy Global Markets and Clearwater Securities. These two brokerage firms were in turn, clients of Caledonian in the way that Caledonian was a client of RBC and BONY.

          2) Shortly after that article was posted on the website “thedeal.com” was published, Caledonian terminated its relationships with Legacy and Clearwater. That’s right. These parties were terminated as clients of Caledonian nearly ONE YEAR PRIOR to the SEC action.

          Now that Caledonian has been destroyed, people like you are jumping on the opportunity to kick the dead body. Maybe you should simply thank them for the employment that you had rather than criticising the hand that was feeding you. If you felt that way, maybe you should have resigned back in 2013 when you say all of this became “well documented”.

          • I laughed, I cried it was better than Cats! says:

            LOL, everyone in the OTC market was running paper through Caledonian. Taking in OTC paper from a bucket shop in Belize and then yelling Ole as the “paperwork” was put in a file.

            RBC & BONY were placing some misguided reliance on Caledonian as a regulated broker dealer in a reputable offshore jurisdiction.

            Legacy and Clearwater not so much… given that Belize is not on CIMA’s Schedule 3, Caledonian probably should have tried a bit harder.

            No one was asking if these were legit companies or why a transaction wasn’t being done onshore directly through a real broker dealer…

            Wash your hands if you want due to the “sophistication” of the bad guys but everyone else wouldn’t touch this stuff with a barge pole!

            • Anonymous says:

              Except that the exact same paper was running through other institutions on island for years. Patently untrue that others on island wouldn’t touch it.

            • The Truth says:

              It’s easy to launch your criticisms now, 9 months after the fact. Kind of like criticizing the quarterback while watching the highlight real the next day. I’m sure you knew better…

              The fact is that there are many other parties in this story. Caledonian’s auditors were a big 4 audit firm and their internal auditors were another big 4 firm. They had at least 2 external compliance consultants over the years. They had legal advice from large US law firms and the “paperwork” you mock now came from US lawyers and regulated companies in the US. Also, if you read the indictment of the perpetrators of all this, you will see that there was at least one other well known Cayman bank that worked with these same clients at the exact same time as Caledonian. I don’t want to mention them here and risk causing them harm, but they are literally named in the indictment. Yet nothing happened to any of these other players including the other Cayman bank that worked with these perpetrators.

              The fact is that the OTC market is not for widows and orphans. It is a high risk industry. But it is a high risk industry regulated by the US government. It sounds to me like the real failure here is the failure of the US government to regulate its own OTC market.

              Either way, there’s no way that Caledonian (and Caledonian alone) deserved what it got.

              • Anonymous says:

                It is fine for OTC microcaps to be high risk investments but the risk should be that the company actually does something that does not work out.

                Not that three guys in cubicles somewhere hatch a plan to defraud investors in a pump and dump.

                No financial professional should allow themselves to be involved in this sort of affair.

                • Anonymous says:

                  Yeah, makes sense. I guess we should suddenly attack, give no chance to respond and then close down the other 5 banks (2 here in Cayman that were NOT Caledonian), 2 audit firms, 3 international law firms and 2 compliance advisory firms that advised Caledonian on this business…

              • The truth hurts! says:

                Actually I did know better. So did quite a few others. It is harsh to say but if some people had been looking for some substance over legal/checklist form, they might have passed on these deals. If your client keeps passing you garbage to sell then maybe you need a new client.

                • Anonymous says:

                  Short of working at Caledonian yourself, or having these exact clients, you do not have the knowledge to judge what Caledonian should or shouldn’t have known based on the information provided by their clients. Regardless, and more importantly, Caledonian terminated their relationship with all of these clients a full a year before the SEC freeze was put in place. Further, CIMA was made aware of this in March 2014, again, a year before the freeze. Clearly they either weren’t paying attention or didn’t bother to step up and defend Caledonian with the SEC. Either one is inexcusable.

            • Anonymous says:

              You think that RBC and BONY were relying on Caledonian? You’ve got it backwards. The compliance resources of those banks are about as big as anyone’s in the world. Caledonian was relying on them as a backstop. Their (huge) compliance teams and transaction monitoring would have been a back-up for Caledonian. If those banks were willing to trade the stocks, then why not Caledonian. Or better yet, if the SEC went after Caledonian, then why not RBC and BONY?

              The SEC attacked a “Cayman bank”. Thanks again John Grisham… I wonder which of us is next.

  21. Anonymous says:

    Funny how silent the comment post section is on this. A few months back, the whole blog and talk show community formed a lynch mob carrying torches and pitch forks right to the door of Caledonian House.

    All of the competing financial service providers raced in like vultures to meet with Caledonian clients and pick away at the the scraps of business they could find.

    The vultures and the lynch mob led the chorus to publicly demonize the Caledonian organization and declare how the evil Caledonian group had disgraced the already sensitive reputation of the island.

    To the vultures and lynch mob; if you have any shred of decency or character left, then speak up now. Now that the SEC has (in a court of law) admitted they purposely collapsed one of only home grown Cayman Islands banks to further their own interests.

    Where is our Regulator? Where is our government? Where is our Premier? Why are we not beating down the door of the SEC demanding answers or some type of remedy, apology or some type of assurance that this US-led atrocity in Cayman could never happen again.

    Why is this not front page news?

    To anyone else out there who is seeing this and recognizing that the SEC just led a bunch deaf and dumb Cayman bulls over a cliff, please, find the energy to investigate this further and, for the love of your country, speak up.

  22. Anonymous says:

    If the US agencies ask for anything the best policy is to say “sorry, this is not America, please address your concerns with the local authorities.”

  23. Anonymous says:

    It was so obvious from such an early stage that this was (just like overlooking the Madoff fraud) a HUGE blunder by the SEC. I wonder whether there is any legal recource for Caledonian? If there is, they certainly should be suing the SEC – particularly given the admission to the judge by the SEC lawyer – SEC can hardly deny culpability for this now can they?

  24. Tipping off says:

    I thought CIMA had been working with the SEC for the last 18 months prior to February 2015

    Does that mean CIMA blundered too by rushing to put the Caledonian entities into Controllership with 2 days or these erroneous allegations surfacing?

    All a bit too late, it’s the depositors and members of staff at Caledonian that have suffered, the very people CIMA is meant to protect?

    • Anonymous says:

      Perhaps CIMA could be asked to comment? Surely they’ll be able to explain why they allowed the SEC to take the action they did, and why the SEC were apparently unaware of the actual circumstances? What exactly were CIMA doing for that 18 month period? Clearly not protecting the depositors of Caledonian, or the reputation of the jurisdiction.

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