Caledonian makes ‘no fine’ secret deal with SEC

| 19/12/2015 | 25 Comments
Cayman News Service

Caledonian House, George Town

(CNS Business): A confidential circular sent to the creditors of the Caledonian Bank Limited (CBL), which was brought down following an investigation by the US Securities and Exchange Commission (SEC), has revealed that despite the probe bringing the Cayman-based bank to its knees, there will be no fines levied against the institution over the alleged penny stock scam and regulatory infractions committed by CBL or Caledonian Securities Limited (CSL).

The confidential settlement agreement will bring the SEC proceedings to an end and the official joint liquidators from Ernst & Young have filed an application in the Cayman Islands court to enter into the settlement, which will be heard on 26 January. According to the letter sent to the creditors, the settlement stipulates that no payment is required by the SEC from Caledonian and the enforcement agency won’t pursue any claim in the liquidation of the bank caused by the SEC probe.

Although still subject to the approval of the US court, the deal, which is expected to be approved, paves the way for the liquidators to declare a third interim dividend in the liquidation, the details of which EY said would be provided later.

The lack of fines underscores the concerns that have been echoed by the US courts in connection with this case and that the bankruptcy was not necessary.

US Judge William Pauley described the actions of Securities Exchange Commission’s (SEC) as “incredible government overreach”. Financial experts say the bank was let down, pointing the finger at  CIMA as well as the bank’s own management team for not standing up to the SEC.

As well as bringing down one of Cayman’s oldest banks, local jobs were lost as a result of the excessive action. Ian Huskisson, a partner at Travers Thorp Alberga told CNS Business last month that there were a lot of people to blame, including CIMA.

“It is their role to look after the financial services industry here and in particular the people that deposit money in banks and if they sit back and allow this to happen, or worse, encourage it, that is highly regrettable,” he said, adding that CIMA should have stood up for the industry. “You have to put this episode down as a major mistake by both sets of regulators and not one to be repeated but I don’t think it is really a sign of major institutional problems,” he said.

A CIMA spokesperson, however, denied that CIMA acted inappropriately and said it was “within its legislative mandate, in all the circumstances”.

See JOL correspondence: CBL (in OL) – Update to all depositors and creditors – 17 December 2015

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Category: Featured, Financial Services, Local Business

Comments (25)

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  1. Peter Grey says:

    So how much will creditors get back ? I had a offer of 90% on my claim

  2. Judicial Review NOW.... says:

    This comment from a previous story on the ‘Caledonian affairs’ is even more telling now…

    There should be a judicial review on CIMA shortcomings

    “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.

  3. Anonymous says:

    I think it’s shocking that CIMA are hiding behind such a bland, cop-out statement. Two lawyers at the SEC had to leave because they screwed up so badly, yet CIMA, who ‘worked with the SEC for 18 months’ on this, get to say nothing. Nobody loses their job, nobody is held accountable. That’s just not good enough.

    I work in financial services, and I’ve had the dubious pleasure of dealing with CIMA. They are, quite frankly, ill-equipped to perform the role they have. Everyone in the industry knows this, and everyone has to just keep quiet and do whatever they have to do to keep CIMA happy, regardless of how stupid CIMA’s requirements are. And everyone does this in the hope that CIMA will not do anything really stupid. Well, now they have, and since they appear to be showing no remorse, or accepting that they messed up, everyone in the financial services industry ought to be worried.

  4. Anonymous says:

    Why is it called a “no monetary-fine, secret deal”? What’s exactly is the “secret deal” that one or both parties – that is, SEC v. Caledonian Bank [aka Co-Defendant] – made in exchange for zero monetary settlement? I’m having trouble with the blurring ambiguity; but, [I] will leave it here.

    There are still many on-going sanctions happening elsewhere, with this matter, despite the SEC’s botched (Cayman Islands) legal battle to prove allegations of Caledonian Bank’s direct or indirect involvement, via its Broker-Dealer relationship, with respect to fraud and securities violations – and tax evasion!

    • Anonymous says:

      Another baseless allegation that nobody’s heard of by someone with an axe to grind who isn’t willing to put his name to his post.

    • Anonymous says:

      If there were any actual or even threatened claims out there in the world, the liquidators would not be able to make additional distributions as they would have to reconsider how the assets of the estate might be affected by these new claims.

      Basically, the above post is nonsense from either a former employee or competitor.

    • Anonymous says:

      I think the only people calling it a ‘secret deal’ are CNS. I think the Liquidators are calling it a confidential settlement, which is just less of a catchy headline. You seem to be getting a little excited over nothing.

    • Anonymous says:

      read the document – it says “no monetary payment is required to be made to the SEC by either CBL or CSL and that the SEC will not pursue any claim in the liquidations of CBL or CSL with respect to the SEC Proceeding”

      There are no further claims….

      read the story on Cayman National is you want to read about tax evasion and criminal wrongdoing – CNC is still in the process of taking remedial action….

  5. Anonymous says:

    If this is what CIMA considers “regulating” the financial services market of Cayman, we are all doomed. Time for a public inquiry.

  6. Anonymous says:

    Rather than addressing their own laws to address issues in their own economy, the USA govt has decided to wage an “economic war” against places like Cayman. First victim: Caledonian Bank.

    Wake up people.

  7. Anonymous says:

    “The SEC’s fraud lawsuit against Cayman Islands-based Caledonian Bank has gone from bad to worse for the U. S. regulator, with two of the agency’s main attorneys on the case leaving following criticism from a federal judge and an agreed settlement between the parties requiring the bank to make “no monetary payment”.”

    Clearly shows the SEC was negligent – what about CIMA?

    • Anonymous says:

      SEC: Negligent? Or, Misguided?

      Either way, it was a hefty price paid for all involved.

  8. Anonymous says:

    cima messed up big time the sec relied on information given by the cima I wonder if the failed bank can go after and bankrupt the cima and by the way is anyone at the cima qualified to render opinions or assistance or are they just gimmie positions for friends and family

  9. Anonymous says:

    What happened with Caledonian is the same old trick they do in every place the true owner invests.

  10. Anonymous says:

    Offshore Alert is reporting that 2 of the 3 SEC attorneys that started this action are “no longer work at the SEC” following criticism by Judge Pauley. Put this together with the $0 settlement and you have your answer about what happened.

  11. Anonymous says:

    CIMA actions can only be consider as being “within its legislative mandate, in all the circumstances.” if they can be justified

    given the outcome with the SEC it is hard to see how that can be the case

    CIMA boasted that they had been working with the SEC ‘over the last 18 months’ before the allegation broke

    the question has to be asked what were they doing, because the SEC clearly got it wrong….

  12. Anonymous says:

    Two comments

    Firstly, “Caledonian makes ‘no fine’ secret deal with SEC” this should read Liquidators not Caledonian – they have been running Caledonian since put in place by CIMA on 10 February

    Secondly, “the banks own management team” had from Friday 6th Feb at 3:30pm, when they first learning of the SEC’s allegation, until the afternoon of Tuesday 10th Feb when CIMA placed EY in controllership.

    Not quite sure what you expect them to have been able to achieve in less than 2 business days, but in that short period of time they did manage to have the total assets freeze reduced, and were well on their way to negotiating a deal with the SEC, until torpedoed by CIMA…

    Waiting for the armchair experts with no knowledge of the actual events to wade in here….

    • Anonymous says:

      I get the feeling that CIMA led the SEC astray for 18 months.

      Now that every article reads like a case of sabotage, I would like to know the legal implications for “High-Profile” Owner, and Chicago Native, of Caledonian Bank? Also, the SEC and/or IRS hasn’t publicized their actions against the UBO.

      While “the Bank” was not found guilty of any wrong-doing, there were a number of advisory and securities violations relating to unlicensed activities, by subsidiaries, directed toward U.S. Citizens, U.K Citizens and, now, Canadian Citizens.

      The Lawyers involved in the ‘Companies structuring process’ obviously had the profit generating logistics all figured out, although the SEC [and IRS] failed to successful prosecute the Caledonian matter without shutting the Bank.

      • Gabriel Bush says:

        What are you talking about? Sounds like you have an axe to grind. You’re just making unsubstantiated accusations. If you’re so sure about your statements, then put your name to your comments. Otherwise, CNS should take your post down.

      • Anonymous says:

        These comments are foolish. Do you work for the SEC? Or are you one of the fired SEC lawyers?

      • Anonymous says:

        So, basically, everything the Judge Pauley said on two separate occasions, the resulting “no payment” settlement and what seems to be the firing of 2 of 3 SEC attorneys that caused this… All of that stuff is irrelevant. But your baseless accusations are what everyone should believe. Does that about sum things up?

      • Anonymous says:

        There we have it…

        “The SEC had to amend its initial claim against a co-defendant in the case, pulling back on its initial accusations, but the securities regulator said it could not confirm whether Caledonian was involved in the scheme or had simply acted as a broker in the case, because the bank had not provided any customer information due to Cayman’s bank secrecy laws”.

        “Judge Pauley said in an order in November that the settlement with the SEC should identify who actually benefited from the alleged fraudulent sale of unregistered securities”.

      • Anonymous says:

        and the moon is made of cheese you say?

      • Anonymous says:

        Think you’re mixing this up with the Cayman National story on tax evasion and criminal wrong doing?

        But perhaps you work for CIMA, they’re clueless too…

    • Sonia says:

      Finally a sensible comment on this site which is full of arm chair experts who don’t have a clue or care to know the facts. Their claim to fame is critize critize and zzzzzzzz.

      I’m sure some one in the civil service will be blamed soon. Of course the arm chair experts don’t know that CIMA is not part of the civil service. Zzzzzzzzzzzzz

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