A clearer indication of the mess that existed at Stocks and Securities Ltd (SSL) for the past 13 years emerged on Sunday when Finance Minister Dr Nigel Clarke released a letter sent to the investment firm by the Financial Services Commission (FSC) in October 2019 pointing to a number of operational breaches and instructing the company to take corrective action or face “heightened enforcement action”.

The FSC had issued directives on SSL, which is now at the centre of a multi-billion-dollar fraud after a June 2019 review of the company in which the regulator found that the securities dealer had $1.1 billion of clients’ money that it had not invested; had failed to ensure that proper liquidity management procedures were in place; and did not maintain proper records for both on- and off-balance sheet funds under management, all in contravention of the Securities Act.

The 2019 review came two years after a similar exercise resulted in the FSC flagging SSL as a “problem institution” with “a culture of non-compliance in mismanagement of clients’ funds”.

In the June 2019 review, the FSC said that the financial reports it received from SSL for the months March to May that year showed significant shortfalls between the liquid funds held in bank accounts and the clients’ funds held in cash by the firm that had not yet been invested.

“This would suggest that clients’ funds held in cash by SSL were used to fund its daily operations, which resulted in the shortfall,” the FSC stated.

The FSC, in its October 2019 letter, directed SSL to:

i) Commission and execute an independent audit of the off-balance sheet portfolio and on-balance sheet client interests at September 30, 2019 within three months;

ii) Notify the FSC of the completion of the audit and deliver it to the regulator within 24 hours of receipt;

iii) Take the necessary steps to eliminate the $1.1 billion of client funds that are not invested in securities, within two months, and provide the FSC with a board-approved policy relating to the treatment of client funds not yet placed;

iv) Refrain from accepting any new funds in relation to portfolio management services until terms (i), (ii), and (iii) are satisfactorily addressed and verified by the FSC;

(v) Develop an SSL board-approved risk management policy with appropriate risk limits and safeguards, inclusive of related party limits and liquidity management, within three months; and

(vi) Implement proper records management procedures to ensure that processes and procedures are transparent enough to ensure ethical and regulatory obligations are met within six month of the date of the directions.

Dr Clarke, in a Twitter post on Sunday, notes that the FSC had, in October 2019, placed SSL under directions that included and went beyond the recommendations of the June 2019 report.

He also said that by the time the June 2019 report was sent to his office on April 3, 2020 and received on April 15, 2020, the recommendations were already implemented.

“By April 25, 2020, internal FSC updates reported that SSL was compliant or largely compliant with five of the six directions,” Dr Clarke wrote.

When the Jamaica Observer asked him which of the six directions was not met, he said number four as there were some people with salary deductions and the company could not easily stop those funds coming in.

Dr Clarke also said that by that time a sworn affidavit in the public domain reflected that “the theft and fraud at SSL were in play for at least a decade”.

Added Dr Clarke: “Over this long period of time SSL was able to obtain 10 audited financial statements. Its off-balance sheet book was also separately audited at the request of the FSC. To the best of my knowledge, the fraud nevertheless remained undetected for 13 years.”