THE Financial Services Commission (FSC) has issued a cease and desist order on securities dealer, Intertrade Finance Corporation (IFC) and Intertrade Investments Limited (IIL), citing that the firm has misrepresented its business and held back clients funds.

According to the FSC, IFC has been “misrepresenting to clients the nature of the securities in which their funds were invested” and has failed to pay over sums to some clients as per the clients’ instructions. The FSC further stated that documents submitted by IFC “may have misrepresented to the FSC the total funds under management, as well as the corresponding liabilities as per section 6 (4) (b) of the Financial Services Commission Act.”

There were also concerns for IFC’s liquidity position, cash flow, capital and the safety and soundness of its operations and financial conditions as well as the protection of its clients. The FSC stipulates a minimum benchmark of 6 per cent of capital to total asset ratio, and 10 per cent of capital to risk weighted assets ratio.

“The Cease and Desist order issued by the FSC demands that Intertrade Finance Corporation Licensed Securities Dealer and Joan Powell, Christopher Malcolm, Gavin Chen, Herbert Phillips immediately restrict the operations of Intertrade Finance Corporation Limited as a licensed securities dealer, particularly as it relates to new business,” the FSC said in a statement last Friday.

Intertrade Investments Limited (IIL), for which Joan Powell one of the four principals of IFC, was also a director, was also ordered to cease and desist engaging in securities business without being licensed to do so by the FSC. According to the FSC, directors Powell, Leroy Paul and Courtney Haughton have made representations to clients that funds may be invested in Government of Jamaica (GOJ) bonds and promissory notes activities that should only be carried out by a licensed securities dealer. IIL is only registered to deal in World DigiBeat bonds, debt securities of a New York merchant.

“The Cease and Desist order issued by the FSC demands that Intertrade Investments Limited, Joan Powell, Leroy Paul and Courtney Haughton stop conducting securities business in contravention of the Securities Act,” the FSC stated in a release. Under the law, failure to comply with the order can upon conviction before a Resident Magistrate, attract a fine of up to $2 million or imprisonment for a term up to two years or both.

The order was issued on Friday, May 20, 2011, almost a year after a similar order was served on Lorreston Bailey (LB), another securities dealer licensed by the regulatory authority.

Of the over 40 licensed securities dealers listed by the FSC, IFC/IIC will make the third company that has had its licensed suspended within a 17 month period by the FSC after Lorreston Bailey and UGI Finance and Investments Limited. LB has been placed under receivership and most recently a bankruptcy order was taken out against the company. UGI was placed into voluntary liquidation last December.

This once again brings into focus to role of the regulator in preventing the failure of institutions to comply with regulations.

Rohan Barnett, Executive Director, FSC, told investors at the FSC’s 10th anniversary investor briefing in March this year that regulation alone cannot prevent market failure or the failure of institutions that are not properly managed. He said regulators and regulation can only limit the effects of failure on the customers and the market.

“The notion that any financial regulator can totally prevent the failure of a financial organisation is false,” said Barnett. “The FSC would also like to make it clear that no system of regulation can ever eliminate the possibility of corporate reporting or governance failures; in short, I would submit that it is impossible to achieve zero failure and any attempt to do so would destroy wealth rather than facilitate its creation as the regulatory measures that would be employed would artificially constrict market activity.”

“Regulation can, however, influence the actions of those responsible for corporate reporting and governance. In the event of a financial failure of an intermediary, regulation is expected to reduce the impact on investors’ wealth, other financial institutions, and the national economy.” According to Barnett, the extent to which institutions remain viable is not driven by regulation, but by the decisions and conduct of the principals of those institutions.

Barnett also added that the role of the investor in ensuring the protection of his funds cannot be overstated. He said investors should always request written information about the company and its products, ask if the firm and product are registered by the regulator, check out the company or organisation carefully, ask what recourse he/she would have should they make a purchase and are not satisfied and ask for balance sheets and income statements of the issuer.

“By far the best way for the customers of financial institutions and investors in financial markets to protect their monies is to do research, ask questions and play an active role in monitoring their investments,” Barnett said.