IMF eyes growth of unregulated investment schemes in Jamaica

IMF eyes growth of unregulated investment schemes in Jamaica

Published by  Jamaica Observer Friday, May 23, 2008

The International Monetary Fund (IMF) has expressed concern about the growth of unregulated investmentschemes in Jamaica and has urged both national and regional responses to the situation.

At the recent conclusion of its Article IV consultation with the island, the executive board noted that while there were some positive indicators of “banking sector soundness”, the increase in the particular investment schemes has been a worrisome financial development with potentially adverse macroeconomic consequences.

The IMF stressed that “continued vigilance over the financial sector is warranted, in particular with respect to the risks posed by the unregulated investment schemes promising implausibly high rates of return”.

“Directors were encouraged by the authorities’ intention to prevent unregulated investment schemes that are not in the public interest, while ensuring that legitimate investments can proceed. They supported the authorities’ request for technical assistance in this regard,” an IMF release said.

“Given the cross-border risks posed by such schemes, directors also encouraged enhanced regional cooperation among supervisors. They called on the authorities to broaden the collection of information on the formal financial system to allow for a more comprehensive assessment of systemic risks, including from changes in the global and domestic economic environments.”

In its overall assessment of Jamaica, the IMF noted that the country’s economic challenges have been compounded by a more difficult environment, with natural disasters, the global economic slowdown, and increases in global oil and food prices contributing to slower economic growth, rising inflation and a widening current account deficit.

“Strains in international financial markets have put further pressure on an economy reliant on external financing,” it said, adding that the key imperatives now would be to address the economy’s vulnerabilities, improve Jamaica’s lacklustre growth performance, and strengthen its medium-term public debt dynamics.

“Against this background, directors welcomed the authorities’ efforts at setting out an ambitious medium-term macroeconomic strategy that places high priority on the maintenance of macroeconomic stability, fiscal consolidation, and structural reforms. They encouraged the authorities to work expeditiously toward the implementation of their strategy and to build a broad domestic consensus in support of their reform initiatives,” the release added.

The authorities’ medium-term programme of fiscal adjustment, aimed at balancing the budget by the 2010/2011 financial year and at establishing a virtuous cycle of lower debt and higher growth, was also welcomed.

Eva-Maria Hanfstaengl speaking with Caribbean Business Report, said: ” If unchecked, unregulated schemes in Jamaica such as Cash Plus and Olint can severely damage Jamaica’s reputation and lead the country into a calimitous situation. The rate of returns promised by these schemes is implausible and Jamaicans need to know this.

“These schemes must be made to comply with both local and international standards by registering their activities with the appropriate regulatory bodies and should issue timely audited financial statements in accordance with international practices.”

More worries for Cash Plus boss

More worries for Cash Plus boss
Another lawyer files $117 million suit against Hill
Published by Jamaica Observer
PAUL HENRY, Observer staff reporter editorial@jamaicaobserver.com
Friday, May 23, 2008

United States-based law professor David P Rowe has sued the failed investment scheme Cash Plus Limited and its embattled head Carlos Hill to recover a whopping J$117 million, making his the largest suit filed so far by a disgruntled lender to the scheme.

News of Rowe’s suit emerged yesterday at about the same time that Justice Donald McIntosh ordered that Hill be imprisoned for six weeks if he does not, by June 19, disclose his assets as directed by the court last month when it ordered the freezing of his assets based on an application brought by businessman Alexander Haber.

Haber is suing Hill to recover close to $30 million he said he had invested in the ill-fated Cash Plus in October and November last year.

Rowe, a Jamaican who resides in the state of Florida, joins a long list of irate lenders who have taken legal action to recover millions of dollars loaned to Cash Plus before its recent demise.

The second highest suit filed against Cash Plus and Hill to date is a J$108 million action brought by another US lawyer, Sandra Robinson, from Houston Texas.

Rowe said in papers filed with the Supreme Court last month that he had loaned monies to Cash Plus with the agreement that he would receive a monthly interest rate of 10 per cent. During November 2006 and January 2007, Rowe said, he was provided with written loan agreements with respect to the loans.

The professor, who is the son of the late High Court judge Ira Rowe, further stated in court documents that he had, subsequent to January 2007, loaned “further sums” to the defendant but that he received no written loan agreement.
According to Rowe’s affidavit, subsequent to January 2007 the monies on the account were converted to US dollars, creating a US dollar loan arrangement and a new interest rate of 13 per cent per month added to the outstanding balance.

Rowe is charging Cash Plus with breach of contract, claiming that he had not, since January 1 this year, received any interest payment of his principal, “despite repeated requests and demands” by him and his lawyers.

According to Rowe, he is owed a balance of US$1,663,537.15 as at March 31, inclusive of principal and interest.

Rowe said that he has suffered loss and damages and incurred expenses due to the non-payment on which he is seeking 13 per cent interest per month from January 1 until payment.

The matter comes up for hearing on July 17.
Kevin Bandoian, the recent court approved receiver/manager of Cash Plus has been named as third defendant.
Yesterday’s court ultimatum to Hill was issued after lawyers from the firm Hart Muirhead and Fatta made the application for Hill to be committed to prison on behalf of Haber.

Haber, who claimed in court documents last month that Hill “induced” him to invest in Cash Plus, said he pumped both US and local currencies into the scheme with the understanding that the monies would be invested in “safe, solid and secure investment”, and that he would receive a 10 per cent monthly return on his principal. This never materialised, Haber said in court documents.

Should Hill be incarcerated in June, it would not be his first stint behind bars.

The 60-year-old Hill had, before coming to Jamaica in 2002, spent a decade in US prison for mail and loan fraud.
Hill has also spent approximately three weeks locked up at the Horizon Adult Remand Centre following his arrest on April 10 for fraud, regarding Cash Plus investors’ money. His brother, Bertram Hill, and Cash Plus’ chief financial officer Peter Wilson were also arrested and charged with fraud.

Following the arrests, the police told reporters that documents seized at Carlos Hill’s Norbrook, St Andrew residence linked a number of companies and accounts around the world to him and Cash Plus. All three are on bail.

Dual citizenship, Jamaican democracy and avoidance of consequence

Dual citizenship, Jamaican democracy and avoidance of consequence
Published by Jamaica Observer: Friday | May 23, 2008

Wilberne Persaud, Financial Gleaner Columnist

My lawyer friend says: “If we can leave cheap parochial politics out of major decision making processes, we might come up with a worthwhile result.

When the American constitution came into being, the excesses of George III were very much in mind, and a good effort at redressing wrong yielded a pretty impressive result.

In the case of Jamaica, there has been dereliction of duty in designing a constitution suitably tailored for Jamaica’s circumstances.”

We can solve the problem with the following changes:

At time of being nominated a candidate must file an affidavit revealing all countries of which the intended nominee is a citizen.

A specific indication could be made so that the intended nominee swears whether before the date of election he will renounce foreign citizenship.

A paragraph in the affidavit should read: ‘I the undersigned accept that any false declaration in this affidavit makes me liable to a fine in the amount of $250,000 and/or criminal proceedings can be instituted against me which could lead to my imprisonment for a period of 30 days and upon such conviction I would be ineligible to hold elected office for a period of seven years.’

The electorate would be entitled by law to see this disclosure affidavit.

LAWS TO LIVE BY

In this way the electorate itself can decide whether it wants to elect a ‘dual’ or ‘multiple’ citizenship holder.

Seems all well and good but there are other matters. First it appears unreasonable, perhaps morally unacceptable that someone making and implementing laws that others must live by can by mere purchase of an airline ticket avoid all consequences of such legislation.

But dual citizenship allows that.

Some might argue too that because such a possibility exists, makes it less imperative that the member of parliament takes the required care in deliberation and judgement in the process of creating legislation.

Even more difficult to deal with is allegiance and perception of the governed.

Suppose a Parliamentarian negotiates with representatives of a foreign power, the very one whose citizenship he or she holds.

If the fact of dual citizenship was a secret coming out after the results of any agreement has been reached, there will always be the possibility of nagging questions raised.

But here’s another thing: why are Commonwealth citizens treated differently by our constitution?

MIGRATING FROM POVERTY

As letter of the day writer to The Gleaner, Peter Redway, points out: “Jamaicans migrate to better themselves, escape poverty, and for educational and economic opportunities which the island could not provide.”

He views denial of representational rights to dual citizens as ‘idiotic’ and a waste of talent. There are powerful arguments on both sides of this issue.

Usually, migrants reflect much that is positive about people be they Mexicans or Indians from the subcontinent in the United States, Vietnamese in Australia, or Jamaicans in Panama, Cuba, 1950s United Kingdom or today Canada and the USA. Regardless of views to the contrary, receiving countries benefit immensely from the talents and activities of migrants.

Migration has been a way of life for Jamaicans for a very long time. Marcus Garvey obviously held that his world view and talent could only be effectively pursued from the US.

But some never truly understood and accepted that until long after his death and our achievement of independence.

Commitment of Jamaicans abroad to their homeland is demonstrated in no small way by the level of remittances rivalling earnings from tourism.

Difficult one

This is undoubtedly a difficult one. Optimally, it should not be played out against the backdrop of partisan politics.

That it is going to be difficult to remove ‘parochial politics’ from our discussion is not in question but for Jamaica’s good it needs to be. Currently our minister of finance must be an elected member of parliament.

Could it be that we consider allowing dual citizenship but reserve certain positions for Jamaican citizens only? In a democracy who decides? Should it not be the people? Can we trust the people?

A big question seems to have had resolution a week ago. The ‘people’ were against regulation of Cash Plus. Reports suggested they held more trust in that institution than government itself. Yet today the evidence is in: Cash Plus operated almost in the classic Ponzi scheme mode.

False confidence

New investor money paid returns to the old. Investments of funds garnered seemed to have been entered into more for publicity, to instil false confidence than for their intrinsic value.

Indeed many of them were never concluded. But solving this kind of problem is for another column. In the meantime perhaps the dual citizenship issue should be put to the people by means of spirited and informed debate. Gullibility, greed and ’street smarts’ – reliance on timing of entry and exit – should not have the same influence in this case.

West Portland MP Daryl Vaz. – File

wilbe65@yahoo.com

A pyramid of woes – Cashless Cash Plus and its 45,000 investors trapped

A pyramid of woes – Cashless Cash Plus and its 45,000 investors trapped
Published by Jamaica Gleaner : Wednesday | May 21, 2008

Cash Plus chief executive officer, Carlos Hill, is escorted from his home in Norbrook, St Andrew, by the police on April 10. Hill is facing the courts on fraud charges. – Ricardo Makyn/Staff Photographer

The following is a Summary of Findings from the Second Interim Report to the Supreme Court of Judicature of Jamaica by the co-Interim Receiver/Managers (published with the Court’s approval).

The co-Interim Receiver/ Managers submitted the Second Interim Report to the Supreme Court on May 13. This report, which was mandated by the Court, and is over 200 pages in length, addressed the specific findings of the Receivership Team.

THE OPERATING ENVIRONMENT

The Receivership Team has found that, overall, Cash Plus was not operating as a growing, financially viable and diversified conglomerate. The Receivership Team was unable to find any documentation to support Cash Plus’ management philosophy, methodology or financial plans.

Overall, the Cash Plus operating environment consisted of:

Only three viable entities out of

more than 200 identified by the

Receivership Team to date (total

still to be determined)

Poorly maintained

accounting records

Inadequate internal controls

Inadequate financial planning

Payments made through

third parties

Unsustainable business

model including

minimal revenue-generating

activities

Severe asset-liability mismatch

In several instances, Cash Plus entered into transactions to acquire companies, real estate and other tangible assets. The majority of these transactions were never completed and often stalled after preliminary discussions and tendering of initial deposits. In addition, several companies, land and other assets were bought above their reasonable market price, presumably because of a lack of proper due diligence and independent valuation.

CASH PLUS’ SUMMARY OF ASSETS AND LIABILITIES AS AT MARCH 31 (UNAUDITED AND SUBJECT TO VERIFICATION)

Based on the information gathered thus far, the table on page B8 reflects the reconstructed Summary of Assets and Liabilities of Cash Plus and affiliates as of March 31. Assets, which amount to $4 billion, consist mainly of land and buildings and refunds of deposits on failed transactions.

These assets are not easily converted and the final amounts realised may be different from what is shown, as they are subject to prevailing market conditions and the Receivership Team’s ability to negotiate with the vendors of these failed transactions. Cash and other liquid assets amounted to less than $3 million as at March 31.

Liabilities consist primarily of amounts due to lenders. The findings to date have revealed major discrepancies in the accounting for lenders’ transactions.

Limitations

The Receivership Team does not express an opinion on the financial information presented in the summary. These amounts are subject to verification and wide fluctuations given the existing state of the companies’ accounts. Further, the Receivership Team has not had access to all the records and persons we would have liked, given the relatively short period of time to investigate the numerous companies in the group and report to the Court.

CASH PLUS INTAKES 2004-2007

Cash Plus Limited (CPL), one of the companies in the group,was incorporated on May 5, 2003, according to information at the Registrar of Companies. During 2004-2007, CPL received lenders’

funds totalling approximately J$22 billion.

CPL acted as the financing arm for the Cash Plus entities, by “borrowing” funds from the public (lenders) and lending these funds to other members of the group, mainly Cash Plus Group Limited (CPG) and Cash Plus Development Limited (CPD) for the purpose of financing those entities’ investment activities, such as real estate and other acquisitions. Based on the Receivership Team’s analysis to date, which is preliminary and subject to change, CPL used approximately 70 per cent of its intake, on an overall basis, to repay lenders.

Repayments

The number of lenders is currently estimated to be between 35,000 and 45,000.

The monies used for repayment appear mainly to have come directly from the funds received from lenders, as Cash Plus did not appear to have had sufficient income-generating activities to support the interest payments on these deposits and to pay staff and other operating costs.

NEXT STEP

Bearing in mind that there is no liquidity in the group, the repayment to lenders and other creditors can only commence after Cash Plus has realised a substantial portion of the real estate and deposits on failed transactions as shown in the above Summary of Assets and Liabilities. During the next few weeks, the Court will decide on the next appropriate course of action.

Cash Plus investors protesting outside the Half-Way Tree Courthouse. They were in support of Cash Plus boss, Carlos Hill, who is facing the court on fraud charges. – Norman Grindley/Deputy Chief Photographer

Cash Plus Limited and Affiliates – Summary of Assets and Liabilities

Assets Total Assets (J$B) Total Liabilities (J$B)

Refund of deposits on

failed transactions 1.17

Land and buildings 1.49

Other non-liquid assets 1.38

Liabilities

Loans Received 20.62

Other Liabilities 4.28

4.04 24.90