On Tuesday, January 10, 2023, Stocks and Securities Limited notified the Financial Services Commission of the discovery of apparent fraud and of the immediate steps being taken. The letter specifically stated:

“This serves to advise the Financial Services Commission that Stocks and Securities Limited (SSL) is currently investigating allegations of alleged fraud committed by an employee serving in the role of Client Relationship Manager. The exposure is unknown, and SSL is currently undertaking investigations with the support of our attorneys, Guardsman Elite, and external auditors. The employee was interviewed by our attorneys on January 6 and 7, 2023 in the presence of her attorney and has admitted to wrongdoing. Other interviews are scheduled for the week of January 9, 2023, with known associates.”

Nature of the suspected fraudulent activity by employee

At this time, it appears that the employee amended and generated fraudulent client documents including encashment requests and statements to circumvent the internal protocols.

Steps taken and next steps

The matter has been reported to the Board of Directors and communication to clients has commenced. The Company estimates that within seven (7) to fourteen (14) days there will be a reasonable estimate of the exposure, however, this is unknown at this time. SSL has confirmed that its insurance policy includes coverage for employee dishonesty and forgery with coverage up to US$1 million.

Efforts are also being made to have the employee commit to restitution. The very next day, January 11, 2023, a representative of Dr the Hon Usain St Leo Bolt visited the offices of Stocks and Securities Limited and indicated that the said employee had turned up at their offices to confess that she had falsified statements provided to them, had stolen money from them and other SSL clients, and was requesting help from Dr. the Hon Usain St Leo Bolt’s management team to repay the clients whose funds she had stolen.

It is believed that the reasons that she did not initially confess to defrauding this particular client are (1) she was aware of the tremendous spotlight which the Bolt name would bring to bear on her activities, and (2) amazingly, she, for whatever reason, and despite having admitted to the Bolt management team that Dr, the Hon Usain Bolt was among her victims, apparently still believed that she could borrow the money from the Bolt management group to repay the other SSL clients.

The very first point at which the company became aware that the fraud affected this client was when the member of the Bolt management team visited SSL’s office, the former employee having omitted any mention of this client in her initial confession. Work had started to review all transactions related to those clients whom she had initially listed and to carry out the notifications to the FSC, JSE, affected clients, insurance, etc when the representative of Dr the Hon Usain St Leo Bolt visited the offices of Stocks and Securities Limited.

The shock experienced by all was and remains palpable. While the company believed that the impact on the first identified 39 clients could be addressed with the cooperation of regulators, it was immediately apparent that the national and indeed, global stature of the last client impacted would likely make a measured and systematic approach to investigation very challenging indeed.

Why has SSL not commented publicly before today?

On Tuesday, January 10, 2023, SSL notified the FSC and on January 11, 2023, SSL issued a press release notifying the public that alleged fraud had been identified. At the time of the FSC notice, SSL was unaware of any alleged fraud related to Dr the Hon Usain St Leo Bolt’s holding company. SSL appointed a trustee on January 16, 2023, and the Financial Services Committee appointed a Special Investigator and Temporary Manager on January 17, 2023. Practically, the FSC through their Temporary Manager has had control over the entity so SSL has not been in a position to respond publicly or clarify allegations.

Did the Directors and Shareholders of SSL attempt to wind up the entity in contravention of FSC instructions? Emphatically No. The appointment of the Trustee was notified to the FSC on January 12, 2023, and discussions were ongoing. SSL appointed Mr. Caydion Campbell of Phoenix Restructuring, Advisory and Insolvency Services Enterprise (PRAISE) as Trustee under the Companies Act of Jamaica effective Monday, January 16, 2023. SSL’s directors and shareholders met that day to confirm the appointment, in keeping with the work plan submitted to the FSC by management. It was the intention of the directors that their powers and authority be vested in the Trustee and that the affairs of SSL would be under his control. The further intention was that the Trustee and his team would conduct an Independent Business Review (“IBR”) and other investigations into SSL’s operations to determine, among other things, its financial state of affairs as of the date 16 January 2023.

The purpose of the appointment was not, we repeat, not to wind up the company. Among Mr. Campbell’s key objectives were intended to be to ensure that all necessary conservatory measures were in place over the assets of SSL, as well as to ensure compliance with the enhanced governance protocols as directed by the FSC.

It was intended that he would also use the results of the IBR to explore the restructuring and reorganization options that were available to preserve and enhance the value of the business, operations, and undertakings of SSL for the benefit of all its stakeholders.

Once agreed with the FSC, a resolution plan would have been developed and implemented. Mr. Campbell is a Trustee licensed under the Insolvency Act by the Supervisor of Insolvency. He has 30 years’ experience in Corporate Recoveries, Turnaround Management, Proposals, Receiverships and Bankruptcies. He also has extensive experience in providing professional services in the areas of financial analysis, due diligence, independent business review, business reorganisation and dispute analysis investigations.

Did SSL know about fraudulent activities by the former employee since September 2022?

The answer is again, No. Disciplinary proceedings which ultimately ended with her termination were commenced in September 2022. The hearings were delayed for a number of reasons, primarily related to her medical issues. Specifically, it was discovered that she had produced a false statement to a client of SSL. After investigations and meetings with the client and his attorney, it was confirmed that there was no fraudulent activity by the employee (ie. no evidence of cash being stolen) in relation to that client, although the employee’s actions may well have been preparatory to committing fraud in respect of the client. The disciplinary panel ultimately recommended that the employee be dismissed for her negligence and gross incompetence.

Why did SSL not discover the alleged fraud committed against WellJen Limited (Dr the Hon Usain St Leo Bolt’s holding company)?

On December 20, 2022, a client presented a statement that he said was generated by the former employee and when compared with the portfolio statement was found to be inaccurate. SSL immediately engaged a team to commence investigations into the employee’s activities. During the holiday period, discussions with her attorney commenced simultaneously and by the first week of January 2023, it was agreed that she would provide a confession. By January 6 and 7, 2023 SSL had obtained a statement from the former employee, provided in the presence of her attorney, and sworn before a Justice of the Peace.

Her confession revealed that 39 clients had been defrauded (not including WellJen Limited), and investigations commenced to determine the precise sum that had been stolen.

The matter was reported to the Board of Directors on the first business day after the confession – January 9, 2023. On January 10, 2023, the FSC was notified. And on January 11, 2023 SSL was notified of the confession she made directly to the team of Dr the Hon Usain St Leo Bolt at his office. No current board members or managers were aware that Dr the Hon Usain St Leo Bolt had an account given:

The account was not held in his name; and

The account did not from 2018, have balances which would have flagged it as a high-value account.

What is the nature of the investments that were subject to fraud?

As a licensed securities dealer, SSL facilitates clients’ investments in securities – including local and international stocks and bonds. SSL has had an enviable reputation over the years for the management of client portfolios, particularly in international instruments, and therefore it has been one of the institutions of choice for high-net-worth individuals, families, and companies. The former employee was well respected in the industry and was trusted completely by her clients. She abused this trust in various ways for her own personal enrichment.

She confessed to modifying and fabricating requests to sell securities, and to using various techniques to steal the proceeds of the liquidation of the securities.

Why was the alleged fraud not detected before?

Investigations and a review of all processes will be required to determine the complete answer to this question. SSL has an online system that all clients can use to track their portfolio performance. In fact, this system is considered one of the best in the world and accurately shows clients’ portfolio holdings. Unfortunately, it is common to the affected clients that they did not use the online system, but rather, relied on statements generated by the former employee, which undoubtedly was the likely reason they were targeted. In her confession, the employee indicated that she conducted transactions for clients outside of SSL’s systems, She continued to make payments to those clients from the pool of funds which she herself had personally accumulated. This meant that the clients would not have been aware of the condition of the actual account at SSL because they were being paid according to their requests. Being trusted by clients, she was given a great deal of latitude by them. It is now known that some clients even provided pre-signed undated encashment letters.

Did SSL use the funds defrauded from clients in their operations?

No. SSL Board and Management does not know how or where the funds stolen from clients of SSL were used. Client funds and Proprietary Funds (Funds for SSL’s operations) are entirely separate, with separate departments and controls to ensure they are not mixed. There are clients that have also invested in, or participated in debt offerings by SSL or its related entities (ie. They provided loans). These are normal activities. The FSC conducted an audit between February and June 2019 and no such irregularities were detected.

Did SSL have previous breaches and did SSL do anything about them?

Not all breaches relate to fraud or fraudulent activity. There was no indication of any fraud or use of client funds by SSL in any audits, whether by independent auditors or by the FSC. It is not uncommon for financial entities to have breaches of some nature or another. This usually results in Directives from the regulator, primarily relating to timeframes for addressing these issues. SSL recognized the consequences of non-compliance with directives and took the requisite steps to address them.

Is SSL a failed entity?

There has been no ‘run’ to date on investments made through SSL. The vast majority of clients have not been affected by fraud. Nevertheless, trust in the entity has been deeply damaged. The rumour mill continues to generate unfounded claims, while the confessed perpetrator remains at home.

How would SSL have resolved this matter?

SSL self-reported to the FSC and the public when the fraud was discovered. Between the first meeting with the FSC on January 12, 2023, and the appointment of the Temporary Manager by the FSC on January 16, 2023 there was one business day. The plan, as outlined, was to appoint a Trustee to manage the entity, independently support the FSC’s investigation, and work with all stakeholders to see how the entity could be restructured. SSL contacted its insurers on January 11, 2023, and Shareholders and Investors were also willing to examine arrangements to provide restitution to affected clients. Other financial entities that have been hit by financial problems of one type or other have had the opportunity to execute their work plans, however, the incorrect impression appears to be that SSL has taken no steps and had no plan.

Conclusion

The events that have unfolded have had tremendous adverse consequences for the affected clients, and for the hard-working staff at SSL. The former employee’s dishonesty has led to the most widely publicized news event from Jamaica in recent years. The Board and Management had 5 business days between the confession and the FSC taking over the entity. During that time steps were taken to engage auditors, report the matter to the authorities, and hold meetings with stakeholders and the FSC. The fire has been fueled by sensational speculation, which tends to affect adversely the essential tracing of ill-gotten assets and indeed, the overall investigation, activities that the Board and Management were and are prepared to support.

The Management of SSL continues to go to work every single day to support the FSC, FID, and Fraud Squad in their work. These staff members are mindful of the attacks and assertions which have been made on them from various quarters, while the former employee who confessed remains at home. This is extremely demoralizing for those who continue to work hard to try to ensure justice is done.

Jamaica has a highly reputable financial market, with a sound regulatory framework operating at international standards. This remains so despite the recent spate of cases of fraud at various financial institutions. A few bad apples, who do what fraudsters do – find ways to beat the system – should not cast doubt and suspicion on the many thousands who toil daily to preserve the integrity of the sector. Justice should be the objective for all affected clients, famous or unknown. That is our aim and we will continue to support that objective in every way possible.

1. How could this article be used for investment decision making?

2. How has this article contributed to your understanding of the concepts of investment banking?