FINANCE Minister Nigel Clarke said the Financial Services Commission (FSC) is contemplating filing an appeal after it lost the case involving who should have jurisdiction over fraud-hit Stocks and Securities Limited (SSL) while it is being wound up.

The court, in its ruling, said that right belonged to the shareholders of SSL and the trustee appointed by them, and not the FSC-appointed temporary manager who had been overseeing the company since the regulators moved in to operate it 18 months ago.

Clarke, who was addressing the House of Representatives on Tuesday on the matter of regulation of the financial sector, was asked about his comments on the SSL judgment since it was handed down in the Supreme Court on May 31, 2024, and while he said it was an issue he would address “at another time” he went on to indicate that the regulator is poring over documents with an intention to take the matter to the Court of Appeal.

“I won’t comment on the FSC’s opinion on the merit of the judgment, or whether or not they will pursue an appeal, that’s under active consideration, and lawyers will advise, and the FSC will act accordingly,” Clarke said about the thoughts behind the scene since the judgment was handed down.

He said that the case surrounded the issue of the property rights of the shareholders of an insolvent institution vis-a-vis the right of the society to have a secure financial system. However, he appeared displeased by the ruling, arguing that at some point the rights of shareholders of any financial institution that has failed or is about to fail must be subordinate to the society’s right for a secure and stable financial system.

He also said the ruling exposed a gap in the country’s regulatory system that will be addressed in legislation to be tabled before the end of June.

Clarke said the court is “continuing to recognise the property rights of shareholders of a failed institution that is beset by fraud… people have stolen money, stolen $3 billion and the judgment is that the property rights of the shareholders trumps the society’s need for financial sector stability.

“And therefore, as legislators, our responsibility is to make sure that we plug that gap in legislation and regulation to ensure that it is very clear that you have property rights when you are functioning properly and you’re not posing a risk to the financial system. But the moment it becomes apparent that you can pose a broader risk to the stability of the financial system, your property rights have to be subordinated to the rights of the Jamaican people to a stable financial system,” he said.

The minister, who was responding to questions posed by Opposition member Julian Robinson
following his statement to update the House on the Government’s move to adopt a “twin peaks” regulatory model for the financial sector, said the legislation that is coming is dense.

“We’re going to depend on the support of the entire House to get through that legislation, and to get through it in as quick a period as possible, so that we can avert… any problems in the future. It’s legislation that will deal with the issue, once and for all of ensuring that taxpayers are not called to account to pay for failed financial institutions,” he said.

The Supreme Court had confirmed the insolvency of SSL and mandated a court-supervised winding up of the entity, ordering SSL-appointed trustee Caydion Campbell to take control of the firm which cannot be tried for criminal proceedings without the court’s approval.

This ruling saw the FSC
— which has the mandate to supervise and regulate the securities, insurance and private pensions industries
— losing control of SSL.

The FSC had taken temporary management of SSL on January 17, 2023 but lost a bid to amend a lawsuit against the securities dealer in March. At that time, the FSC had attempted to include a claim that two former directors signed a declaration of solvency after their resignations in January 2023.

In a subsequent release in response to the ruling, the FSC said it would comply with the court’s ruling, stating that it “will remain actively involved in this process ensuring that the winding-up process is conducted transparently and in the best interests of all stakeholders”.

Executive director of the FSC, Lieutenant Colonel Keron Burrell, in that release, stated that: “The FSC respects the court’s decision; however, the commission is currently reviewing the judgment and assessing the available options, including potential further applications to the court in furtherance of its mandate as regulator.

Clarke, however, pointed out that had the FSC not gone in when it did with the appointment of a temporary manager, the full extent of the fraud would never have been known.

“It was the FSC’s involvement and allowing FID (Financial Investigations Division) to go in along with the multinational team of forensic experts to allow the FID to conclude that the fraud was much larger than initially anticipated and many more persons were affected than initially disclosed. So it’s a good thing that the FSC got involved,” he said.

Robinson also quizzed the minister on the issue of being able to stay criminal proceedings, noting that this “is something that I believe requires, from a policy perspective, if there are loopholes in regulations or legislation that must be addressed. I mean, it’s one thing to deal with civil, but to stay criminal [proceedings].”

Dr Clarke explained that the judgment said that proceedings against SSL
— the legal company
— ought to be stayed. But that stay is limited to the legal company SSL. There is no stay on any prosecution of any individual connected with SSL.

“So, as far as the investigation into SSL is concerned, the position of the Government is leave no stone unturned, get international help and follow the evidence wherever it leads. That was a policy position. FID operated according to that policy and turned over to the Director of Public Prosecutions (DPP) a huge file, which the DPP is reviewing and needs to rule on. None of that is interrupted by the court’s decision. I want to be very clear on that as it regards individuals,” Clarke said.

“And the DPP, in our constitution, there’s nobody who can take away the DPP’s right to prosecute… that is not a consequence of this judgment. If there are to be prosecutions individually, that’s not going to be interrupted by this judgment,” he said.

According to the FSC, the staying of all proceedings against SSL provides a period of stability for the reorganisation efforts.

A follow-up court date is scheduled for September 26, 2024 when the trustee will present a detailed report and any additional applications will be considered.