Frustrated clients of fraud-stricken Stocks and Securities Limited (SSL) have struck back at the Financial Services Commission (FSC), voting to push the regulator’s temporary management fees — a hefty $123.27 million — to the bottom of the bankruptcy payout list, a move that all but guarantees the fees go unpaid.

This decision was made on Friday at the first meeting of creditors at The Summit (formerly Knutsford Court Hotel) in New Kingston, St Andrew, where clients voiced their displeasure with the FSC’s handling of the broker’s affairs for nearly 18 months. The FSC managed SSL under temporary management between January 2023 to May 2024 under powers conferred by the FSC Act. However, they lost control of the firm when Justice David Batts agreed to restore Caydion Campbell of Praise Trustee Limited as trustee of the firm. SSL was subsequently confirmed as bankrupt and is currently under court-supervised winding up.

As a result of the firm being declared bankrupt in June, the company’s assets have to be realised or sold with the proceeds to be used to settle the various liabilities. The priority of payments is guided by Section 202 of the Insolvency Act, which sets out the framework for whose liabilities or expenses should be settled first.

Under Campbell’s initial scheme of distribution, the FSC’s temporary manager’s fees were put in the category one creditors section or the highest-ranking section to be paid first. This is due to Part C (1) (6) of the FSC Act which stipulates that all expenses of temporary management for any prescribed financial institution should be paid by that same firm. SSL directly paid $48.1 million for the temporary manager, Business Recovery Services Limited. Also, the FSC submitted a proof of claim form to Campbell for their temporary manager expenses that were incurred during the period.

However, Campbell put the decision to the SSL clients and creditors to vote on keeping the FSC’s expenses in category one or category four, which is the lowest rank of the distribution ranking. Apart from this fourth category containing various unsecured claims, it also contains the victims of the alleged fraud that took place at SSL.

This proposal sparked a furore amongst the clients present with one gentleman asking Campbell if there was any way to ensure that the regulator’s fees not be paid at all. Campbell mentioned that a possibility existed for creditors to propose a resolution to vote no or create a new category/ranking for the FSC’s temporary management fees. A proxyholder proposed a resolution which stated, “The FSC’s temporary manager expenses of $123,266,865 be put into a separate fifth category in the ranking of creditors and that this category be the last item to be considered or paid in any resolution or payment.”

“Why is there not a category [that] asks whether they should be paid or not, considering that the FSC is part of the problem? The FSC bumbled their responsibilities. Why is there not a no possibility in that [vote]? In other words, they made a mistake and are charging us a bill on top of every other circumstance and consequence of their bad judgement,” the client expressed in anger at the voting item.

From the preliminary votes cast, three were for category one, nine for category four and 31 for category five. While this proposed category change still has to be ratified by Justice Batts at the December 6, it sends a strong signal that SSL’s clients are not likely to tolerate any action which leaves them with fewer recourse opportunities.

Three of the other voting items were overwhelmingly approved which included the confirmation of Campbell as the trustee of SSL, a discounted fee of US$300,000 be paid to Praise Trustee for June 1 to October 31 and for Praise Trustee to charge a discounted composite rate of US$150 per hour from November 1 with fees payable capped at US$60,000 per month. Campbell explained that his fees should gradually decrease to US$45,000 per month and US$30,000 per month as the estate continues to be resolved.

The only vote where there was a split was with respect to approving the quasi-management fee of 7.5 per cent on client’s cash balances as at May 31 or letting the court decide this matter. There were 23 votes in favour of the fee, 18 votes to let the court decide and four persons who didn’t give a response through the online voting option with Iteneri. This narrow vote also closely reflected the sentiment on the ground amongst SSL’s young and elderly clients present at the meeting.

That 7.5 per cent management fee should bring in $345 million in cash to not only run the estate, but also help establish a SSL’s victim compensation fund of $153.5 million. This fund should allow for victims who were allegedly defrauded by Jean-Ann Panton and have proven contingent claims of fraud to receive between 7.5 – 10 per cent of the $1.5 billion accounted for with respect to the fraud.

Thus, category one creditors will involve the trustees’ fees, category two creditors include government bodies like Tax Administration Jamaica, category four creditors will include promissory noteholders and other contingent liabilities with the FSC’s temporary manager expenses in the lowest category. Some SSL clients asked Campbell to request the Government bodies to forego their sums to leave more money for clients in the distribution of funds.

Bolt to have say in SSL wind-up

As part of the wind-up exercise, a committee of inspection was established to oversee the process with respect to their various liabilities. WellJen Limited, a holding company associated with Usain Bolt, was confirmed as one of the committee members. Jean Elizabeth Forde, a victim of the alleged SSL fraud, was also confirmed along with Tim Prudhoe, Joan Willoughby and Patrick Toppin.

Apart from Justice Batts’ court order barring the beginning or continuation of any court cases against SSL, Campbell explained that bankruptcy automatically halts court proceedings as the estate tries to settle its affairs. Thus, WellJen and Forde’s lawsuit against SSL and its former principals is effectively frozen in place. This also applies to all other cases that had been initiated against SSL.

“I represent a group of religious sisters whose funds dedicated to the maintenance of their elderly, representatives and members and the poor have been completely decimated by this event. They trusted an individual and organisation and they find themselves now in poverty. I’m sure it applies to everybody or many,” said former education minister and attorney-at-law Ronald Thwaites who spent an extended time asking questions.

Numerous persons asked a variety of questions on the events that took place under the temporary manager, the temporary manager’s report and the Kroll report. However, Campbell noted that the investigative bodies and FSC have not obliged to providing these reports for him to review. This left many clients disappointed with Symone Mayhew, KC, the FSC’s attorney, having to step in and clarify some comments persons had on the use of SSL’s US$1-million insurance proceeds.

“The circumstances of missing information here, if I can use that term loosely, are created by what we call a very unusual set of circumstances because it is unusual and we found, unprecedented for a regulator to sue the entity it regulates. The report that you have is a revised report. The first report that was filed, there is no bar mentioning it, has answers to a lot of the questions you ask today,” said Caroline Hay, KC, Campbell’s attorney on the limitations of his published report which only contains information from Section 233 of the Companies Act and nothing from regulation 39 of the Insolvency Act.

The FSC had proposed to suspend SSL at the end of 2016, but didn’t do so after SSL’s appeal hearing. The FSC had written numerous reports going back to 2009 about the issues it observed with SSL’s operations.

SSL’s financial state had drastically deteriorated in the last four years prior to the events in January 2023.

SSL operating revenue 2019: $310.20m, 2020: $229.20m, 2021: $241.81m, 2022: $251.40m.

SSL operating loss 2019: $90.96m, 2020: $547.73m, 2021: $334.18m, 2022: $492.11m.

SSL net loss 2019: $88.31m, 2020: $559.19m, 2021: $388.24m, 2022: $539.33m.