Trustee rips FSC’s expert report on SSL

Trustee Caydion Campbell has ripped into an expert report obtained by the Financial Services Commission (FSC) alleging insolvency at Stocks and Securities Limited (SSL).

According to him, the expert did not include an “important qualification” in the report which was requested by the FSC on the financial status of SSL as at January 16, 2023.

That was the date SSL directors appointed Campbell trustee to pursue a voluntary winding up and reorganisation of the company.

“Hindsight nor retrospective information should be considered in the making of any assessment as to solvency of SSL if it would not have been within the knowledge or contemplation of the directors at that time,” Campbell told a Supreme Court trial on Wednesday.

He said that missing qualification meant that the expert “would have drawn the wrong conclusion and his report therefore ineffective”.

The expert told the court last week that he used SSL's financial information as at January 31, 2023 to arrive at his conclusion that the company was insolvent and therefore could not pay its bills as at January 16, 2023.

SSL is at the centre of a $5-billion fraud whose victims include sports legend Usain Bolt. Investigators say the alleged fraud stretched back over a decade. SSL was flagged by the FSC for a “culture of non-compliance and mismanagement of client funds” in 2017 but was never shut down.

Campbell's claims came on the eighth day of the hearing of a lawsuit that the regulator has brought against him and SSL, the first defendant.

The case is essentially about who has control of SSL - whether it is the FSC which took temporary management on January 17, 2023 or Campbell, who SSL directors appointed the day before to lead a winding up and reorganisation of the firm.

The FSC claims Campbell's appointment breached directives it gave SSL on January 12, 2023 and further that the company was wrong to declare solvency as based on the expert's report, the company's liabilities exceeded its assets.

That report for the FSC was done by Brian Hackett, a Trinidad-based senior partner for international consultants and advisory services firm PwC.

Hackett claims that SSL directors did not give sufficient consideration to SSL's longstanding financial problems, its declining liquidity position and the allegations of fraud that it reported to the FSC on January 10, 2023.

“SSL was insolvent as of 16th January (2023) if appropriate adjustments which were within the knowledge of the directors were made and where those adjustments would have resulted in a material deficit of SSL's assets,” noted a section of the report read out at the trial last week.

Hackett said the directors did not await a thorough investigation that could have given them a better appreciation of the amounts of money linked to the alleged fraud.

But Campbell, who has over 30 years' experience in the profession, is strongly challenging the findings. He argued that Hackett focused heavily on SSL's financial history up to June 2022 without sufficient acknowledgement of efforts to improve in the six months up to January 2023.

“I did not see the same focus for the period June 2022 to January 2023 as was devoted to the longer historical period,” he said, acknowledging SSL's last audited financial statement that raised concerns about SSL's viability in June 2022.

Campbell said: “For instance, there's a material adjustment during this period and the expert was not provided with sufficient information to properly analyse the circumstances surrounding this adjustment.”

He was referring to an October 2022 share subscription agreement in which private investment company Spectrum Capital Partners agreed to pump US$4 million into SSL in tranches up to March 1, 2023.

Campbell said the Spectrum deal was not shared with the expert “to the extent that he (Hackett) referred to a “purported” capital injection when this was in fact funds remitted to SSL pursuant to a duly executed share subscription agreement”.

The expert admitted under cross-examination that he was not aware of the Spectrum agreement. It came out in court that Spectrum paid out approximately US$2 million to SSL up to when the directors declared solvency.

Later on, FSC-appointed Temporary Manager Kenneth Tomlinson told the court that he reversed a portion of the Spectrum investment because the agreement was not “consummated”.

Campbell argued that the expert accepted the January 31, 2023 SSL account figures as a “proxy” for the figures at January 16, 2023, when asked by his attorney King's Counsel Caroline Hay what Hackett's admission meant.

“If you're going to make such an assumption, it would be incumbent on you to thoroughly verify these figures, notwithstanding that the source or sources may have been the Temporary Manager and the FSC, professional scepticism dictates that we 'trust but verify',” he said.

Hackett told the court that he got information from the temporary manager and the FSC but did not do any verification of what was provided to him.

Campbell said without seeing the Spectrum agreement, Hackett “could not verify and wouldn't have known with any certainty what was the total consideration on this agreement and also the timeline for any future payments”.

Campbell irked the Government's lawyers after asserting that the non-provision of the Spectrum agreements to the expert was “a material non-disclosure” by the FSC and the temporary manager.

Lisa White, a senior attorney from the Attorney General's Chambers who is leading the FSC's case, objected, arguing, among other things that the claim was “absolutely new” and was not an issue before the court.

Justice David Batts, who is presiding over the trial, warned Campbell that lawyers are sensitive to the use of such terms.

The expert had agreed with Hay that “inaccurate or incomplete information” from the temporary manager “would materially impact” his assessment and conclusions on the solvency of SSL as at January 16, 2023.

Last December, Spectrum filed a lawsuit against SSL alleging a contractual breach by not granting it rights it acquired under the deal.

Spectrum, a member of the UCC Group, said it received US$900,000 in February 2023 that was held in escrow and is “entitled” to a further J$173 million plus interest and legal costs, pushing the total amount to $186.5 million.

SSL has argued that the Spectrum investment was among a series of actions that were being contemplated between June 2022 and January 16, 2023 to improve the financial strength of the company, attorney Marc Ramsay told the court on Tuesday.

Ramsay said his firm represented SSL during the Spectrum negotiations as well as recommended the appointment of the trustee to lead the reorganisation of the company as well as manage the situation involving the fraud.

He also indicated that prior to the discovery of the fraud, SSL was taking steps to deal with debts owed to it including by its parent company SSL Growth Equity. This, he said, came amid “regular and extensive reports” to the FSC on the company's financial position, including negotiation with potential investors.

SSL was under “enhanced supervision” by the FSC since 2019 because of its failure to meet certain benchmarks, the regulator's Senior Director for Securities Karene Blair confirmed during her cross-examination last week.

Ramsay said SSL and its parent company entered an agreement on December 30, 2022 for the transfer of assets to SSL as well as shareholdings in three operating companies – SSL Cayman Limited, which owned franchise rights for the distribution of Papa Johns Pizza in the Cayman Islands.

Shares were also to be transferred from SSL Asset Management (Cayman) Limited and Lifespan Company Limited, an entity incorporated in Jamaica.

“This would also make SSL more attractive to an investor and produce additional revenue for the entity,” Ramsay said in his witness statement dated January 23, 2024.

- Jovan Johnson

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