Editorial | SSL payment sensible

The public outcry over the Government paying to keep Stocks and Securities Limited (SSL) on life support is not completely surprising.

But that reaction misses the bigger picture, including the public interest value of the move, as well as the clear obligation of the Government, through its servant, the Financial Services Commission (FSC), once the FSC decided to assume temporary management of the allegedly fraud-riddled and insolvent company.

Essentially, critics are conflating the Government taking up the tab for the 20 retained employees with rewarding a cabal that ran the SSL into the ground. There is no evidence for that assumption. In any event, the temporary manager would have appropriately screened the workers.

SSL, however, needs to continue to track and manage the off-balance sheet assets of its investors to give them the best shot at recouping as much of their money as possible when the operation is wound up. Additionally, Nigel Clarke, the finance minister, is taken at his word that the efforts of the retained staff are helping the temporary manager, Ken Tomlinson, and financial fraud investigators of the Financial Investigation Division (FID) to trace assets and unearth wrongdoings beyond what was previously claimed.

Indeed, the FID has promised more arrests, other than Jean-Ann Panton, who, since she confessed in January to stealing approximately J$250 million from the accounts of over 40 SSL clients, has been the public face of the scam, the real cost of which is not yet known. It has been put as high as J$3 billion.

Ms Paton has since suggested that she was not the only culprit at SSL, and said in court papers that she was induced to make the confession.

BETTER LATE THAN NEVER

Last week, FID reported that over 70 SSL clients were now identified as having suffered from “the misappropriation and/or loss…funds, amounting to over US$10 million (J$1.5 billion)”.

Before the SSL board disclosed Ms Panton’s confession, the company had for over a decade enjoyed a seemingly privileged life with the regulator. Multiple times it breached prudential and missed corrective obligation, but escaped severe penalties, only to fall afoul of the rules again.

Even when SSL skirted with insolvency and its auditors qualified its accounts, there appears to be no real evidence that promised capital injections actually materialised.

Indeed, FID last week arrived at a conclusion to which many people had long inferred of SSL from the many reports about, and letters to, the company from the regulator on which this newspaper reported. For more than a decade, SSL existed in an “entrenched culture of gross mismanagement”.

The crisis at SSL, therefore, is substantially a failure of regulation. For inexplicable reasons, the FSC handled it with soft hands.

But as the saying goes, it is better late than never. If, indeed, people stole money, it is in the public’s interest that they be brought to justice. The greatest responsibility belongs to the State. That obligation rests heavily on the Government for two reasons, both having to do with variables of trust.

Over seven in 10 Jamaicans believe the country is corrupt, and people do not trust the institutions of the State. Ordinary folk believe that these institutions are stacked against them and in favour of people with power and wealth. They feel that white-collar criminals are apt to escape justice.

Should the SSL issue wither away, it will reinforce those perceptions and further erode trust.

Second, while SSL was a relatively small player in the investment market, the financial sector thrives as much on trust as the equity of companies and the size of their assets. That trust is best underpinned by strong and responsible regulatory systems.

OPPORTUNITY TO PROVE ITSELF

The FSC has an opportunity, despite its past foibles, to prove that it can be such a regulator. Which is why it needs, for now, to ensure that its temporary manager has the support to fulfil his fiduciary obligation to SSL’s clients.

Part C (4) (c) of the fourth schedule of the Financial Services Act allows the temporary manager “to employ any necessary officers or other employees” to help in carrying out his functions. The staff members now being paid by the Government clearly fall in this category.

The temporary manager is an agent/servant of the FSC. The manager would be expected to fall back on the commission if the intervened entity is without income or cash flow, as has happened with SSL, to meet ongoing expenses.

The FSC is partly financed by monies voted by Parliament. Fundamentally, the mechanisms by which those funds reach the FSC or its contractors are mere details.

Given the SSL insolvency, its creditors are likely to get back pennies on the dollar. The FSC/Government will probably be among those creditors, since “all expenses of, and incidental to, the temporary management of an institution shall be paid for by the institution”.

The important thing is that this phase of the exercise must not be prolonged.