Smith... Olint Corp fighting a court case against NCB

The alternative investment scheme Olint Corp headed by David Smith now finds itself at a crossroads, with its next move determining the very existence of the popular foreign currency trading outfit.

For the better part of this year it has been unable to honour all its payout commitments, with many of its members exhibiting steadfast forbearance while the club's founder attempts to put things right.

At the same time Olint is fighting a court case against NCB, reports are that in the United States, banking house Wachovia is conducting a protracted due diligence report, thus making it impossible for Olint to provide timely payments to its members. To compound matters further, the Financial Services Commission (FSC) continues to call for Olint to register and publish audited financial statements.

On Wednesday night at a Mayberry Investor Seminar, tax specialist and secretary of the Institute of Chartered Accountants of Jamaica (ICAJ), Ethlyn Norton-Coke, said that when Olint's premises at the New Kingston Shopping Centre were raided some years ago, its files were handed over to the tax fraud department.

While all these circumstances keep Olint embattled, many of the unregulated schemes seem to be unravelling, with Cash Plus leaving many of its investors embracing nothing more than the audacity of hope.

The word out of Olint is that Wachovia has placed it under a due diligence exercise which has taken longer than expected. But why would the reputable US banking house do such a thing and why would it take so long?
A former Wachovia banking executive, speaking under condition of anonymity, sought to shed some light on the situation.
"It has been said that Wachovia has been conducting a due diligence report on Olint for the better part of five years, but as far as I am aware that's not the way Wachovia goes about it," said the banking exec. "I know of no banking rules that allow a commercial bank to freeze customer accounts without the authority of a Government agency or court. Also, to inform a client of the existence of an investigation would be illegal.
"Due diligence is required prior to the opening of an account. A bank can certainly refuse to allow any further activity and request that a client take their business elsewhere; however, if the reason for that request is based upon suspicious activity it would potentially run the risk of being accused of "tipping off" the client," he added.

"I think it would be instructive for you to have a look at the requirements on page 19 'Identifying the Customer'. These are typical due diligence questions that clients must address prior to funding an account. Occasionally banks will allow accounts to be opened without complete due diligence and require it to be completed shortly thereafter. I have never heard of a bank freezing an account (of the size you would be talking about) for non-completion of basic due diligence. I would think that the fact that a foreign bank has refused to maintain an account for the client would be a huge issue for a US bank," the banker said.

The Wachovia issue has been cited as a reason why Olint has been unable to make payments, but the company has not made it unequivocally clear exactly what the position is vis-à-vis its broker's relationship with the United States bank and what implications that has for the investment club. Perhaps it needs to issue a release clarifying its position regarding Wachovia.

Indeed, Olint did refer to a due diligence exercise in a statement issued earlier this month, but that, too, was rather opaque.

The statement read:
"Dear Club Member,

As you may be aware, your customer service provider Olint Corp experienced many challenges since March 2006. This has affected the operations of the club, but we remain committed to the goal of change, and helping to position club members to positively contribute to the development of their families and their societies. We intend to continue these efforts even as we face the recent challenges of the due diligence exercise which started late last year. We are confident that it will all work out for the good of our club and that we will be rewarded in due course.

"We wish to take this opportunity to once again state how much we regret the long wait that you are experiencing in getting your encashments. As we have communicated to you before, we are committed to resolving this situation beginning at the end of May 2008, and will be meeting with the brokers and with their bankers, in a little over a week to this end."

Attempts to contact David Smith for comment were unsuccessful at the time of going to print.
A Wachovia spokesperson speaking with Caribbean Business Report said that the banking house does not freeze or conduct extensive investigations or due diligence exercises on existing accounts unless so instructed by the US Treasury Department, more specifically the Financial Crimes Enforcement Network, which comes under the Treasury Department. He also said that it is mandatory, where necessary, to meet Suspicious Activity Reporting Requirements (SARs).

"We are not at liberty to discuss individual accounts with members of the press," he said. "A due diligence exercise will generally take between six days and a month where a request is made to form an account. We do not open accounts for entities that say, trade FX but refuse to submit audited financial statements and other required information. You should take a look at the SAR requirement.

"An effective Banking Secrecy Act compliance programme includes controls and measures to identify and report suspicious transactions in a timely manner.

"In the United States, a financial institution must apply due diligence to be able to make an informed decision about the suspicious nature of a particular transaction and whether to file a Suspicious Activity Report. SARs can be filed on any transaction occurring in any bank department."

In February 1996, The US Treasury Department and the other federal bank regulators enacted suspicious activity reporting regulations. The Treasury implemented 31 CFR 103.18 and the OCC, 12 CFR 21.11. As of April 1, 1996, banks must file a SAR WITHIN PRESCRIBED TIME FRAMES FOLLOWING THE DISCOVERY OF: . The reluctance of a business that is establishing a new account to provide complete information about the purpose of business, its prior banking relationships, names of its officers and directors, and information about the location of the business;

. A customer's refusal to provide the usual information necessary to qualify for credit or other banking services;

. A spike in the customer's activity with little or no explanation;

. The customer's background is at variance with his or her business activities;

. Absence of conformity with recognised systems and controls, particularly in private banking;

. Lavish lifestyle;

. Increase in large amounts of cash without a corresponding increase in the filing of mandatory currency transaction reports;

. Inability to track the true account holder of correspondent or concentration account transactions;

. A customer is reluctant to provide the information needed to file the mandatory report, to have the report filed, or to proceed with a transaction after being informed that the report must be filed;

. Wire transfer activity to/from financial secrecy haven countries without an apparent business reason;

. Periodic wire transfers from a personal account(s) to bank secrecy haven countries;

. Frequent or large volume of wire transfers to and from offshore banking centres;

. Transfers routed through multiple foreign or domestic banks;

. Unexplained repetitive or unusual patterns of activity;

. Instructions to a financial institution to wire-transfer funds abroad and to expect an incoming wire transfer of funds from other sources; and

. Regular deposits or withdrawals of large amounts of cash, using wire transfers to, from, or through countries that either are known sources of narcotics or whose laws are ineffective in controlling the laundering of money.

Olint has not made payments for several weeks, but last month some members reported interest payments as high as 20 per cent per month. The organisation seems to be afflicted by many of its members all seeking encashments at the same time, thereby putting pressure on the foreign currency trading outfit. It is not entirely clear at this point whether this is a contagion of the Cash Plus debacle, club members getting the jitters as a result of unsubstantiated information, or just as a result of a downturn in the economy and escalating inflation.

"Olint has never said how much money it has under management, and its operations are shrouded in the dark," said a reputable local financial analyst who asked for anonymity. "Therein lies the problem, because both local and US regulatory bodies view Olint warily. Smith would do himself a big favour if he were more forthcoming.

"Recently we have heard that two club members encashed substantial funds but that shouldn't make Olint wobble if, as I have heard, it has close to US$1billion under management. The problem is, no one really knows what is going on, and club members are seeking solace in their faith in David," added the analyst.

A club member declared: "Olint has faced a run before and it paid out everybody and it will do so again. People have to be patient and remember when times were good. The banks have ripped off Jamaicans for years and Smith has found a way to provide better returns. I think the banks are acting in collusion to bring down Olint. What it will find difficult to contend with is that the entire professional and middle-class of this country has some connection to Olint."

An executive at Bear Sterns who resides in Manhattan said: "With the fall of Cash Plus, Smith has to be very careful. People are anxiously awaiting the end of this month and they expect him to be true to his word. If the goal post starts shifting, club members will voice their disgruntlement.

"Olint is far too embattled. It is in the courts with NCB, it is unregistered and has not submitted financial statements, which means both the central bank and the Financial Services Commission view it as a non-compliant organisation that should be dealt with accordingly. It is not making payments to its club members on a timely basis. Does Olint need all these dramas taking place at the same time? It is bound to take its toll."

A common criticism aimed at Olint is that its back office could be better organised. What started as a club has, for all intents and purposes, transmogrified into the biggest private fund in the Caribbean. Smith has indicated that Olint may well reduce its membership and this may well go some way in alleviating the stresses placed upon the club. It would make the organisation more manageable and its management corps could be proactive rather than reactive.

If Olint were to register and become a legitimate player it could attract the best professionals in the business, thus freeing up Smith to concentrate solely on trading. It must be incredibly arduous to focus upon running the company's operation, albeit with the help of his brother, Wayne Smith, and trade currencies. Olint has the potential to be one of the best hedge funds in the Caribbean and that may be the way to go, provided its activities are not shrouded in ambiguity.

"David (Smith) is a hero to many people although he is an outlaw figure to the established financial institutions in this country. Why? Because through foreign currency trading he makes them handsome returns," said Anthony Minvielle of Barclays Capital Markets. "He has never guaranteed returns of above 10 per cent a month but consistently produces above average returns. He has not promised - rather he has delivered - and that is rare in corporate Jamaica. This explains the faith reposed in him and that is where he needs to reside.

He must not go the way of Cash Plus and the other unregulated financial organisations that appear to be coming apart at the seams."

Added Minvielle: "With FX trading, your inventory is cash. It's not like you have to liquidate assets to make payments. It is the one area where available assets can readily match your liabilities. That's why I find Olint's inability to make payments at this time disturbing. He has to make it irrefutably clear that unlike Martin Tremblay his organisation is not just some unscrupulous ruse or a Ponzi scheme, for that matter. It's time that question be put to bed or it will forever dog Olint."
A former club member who has decided to pull funds said: "It has weighed heavy on my conscience for some time that Olint refuses, after all this time, to provide necessary audited statements. There should be nothing to hide, particularly as Olint will at some point have to interface with both the local and international financial institutions that require salient information as a mandatory requirement. The running of Olint as a going concern leaves a lot to be desired."

Added the former Olint member: "Club members should be provided with a slip showing how trades were made resulting in returns gained. To provide a statement indicating you made a set gain in US dollars is, quite frankly, not acceptable. Now I have heard the argument that Olint is simply an investment club, but with the number of members it has and the funds under management supposedly on its books, it must be deemed as more than just a club. It is in fact a rival to many of the country's leading financial houses and should conduct its business accordingly.

"If David (Smith) does pay out everybody what he should rightfully pay them, then there will be a huge sigh of relief right across Jamaica. He would be regarded as a hero and his reputation will be enhanced both professionally and personally. If he does not, he will be stigmatised as a charlatan and rendered a pariah. His fate lies in his own hands. His word, dare I say it, has to be his bond."

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