The Cayman Islands Monetary Authority said Segoes Securities Ltd. obstructed its efforts to determine whether it was continuing to carry out securities business here after it withdrew its Securities Investment Business Law licence application last October.
In a statement concerning its role in the Segoes matter, CIMA responded to comments made by Justice Pryia Levers during the company’s liquidation hearing on 20 May.
‘Where was CIMA in all this,’ Justice Levers asked.
Justice Levers granted the official liquidation petition after learning that Segoes assets could cover as estimated $14.5 million of liabilities, much of which were investments placed with the company.
‘I think CIMA should be given more teeth,’ Justice Levers said. ‘If this happens here even once, it’s too many, but it’s happening frequently.’
CIMA explained in its statement that under the Securities Investment Business Law, which was introduced 29 July, 2003, companies conducting securities business prior to that were allowed up to six months to apply for a licence under the SIBL, or, if applicable, file a declaration as an Excluded Person under the law.
These companies were allowed to continue conducting securities business here during the allotted six-month period without specific authorization, CIMA stated.
Segoes used nearly every bit of the six months.
‘Segoes, just within the six-month period, submitted an application for a SIBL licence to the Cayman Islands Monetary Authority,’ CIMA stated. ‘The application process was not completed due to a failure on the part of Segoes to provide adequate information.’
When asked to supply additional information, Segoes withdrew its application and announced that effective 21 October, 2004, it had been acquired by an investment group in Uruguay named Laxberg SA.
The Segoes joint liquidators have said recently that Laxberg was not an investment group, but a shelf company with the same beneficial owner as Segoes Securities in Cayman.
Around the same time as the supposed sale to Laxberg, CIMA issued a public notice saying Segoes was no longer authorised to carry on securities business in or from the Cayman Islands.
Segoes then ceased doing business as Segoes Securities Ltd. here and began doing business as Segoes Services Ltd. for the purpose, it said, of conducting administrative and customer service functions.
From that point forward, CIMA’s role was to determine if Segoes was still conducting securities business here without proper authorisation, the regulatory body said.
‘The Authority’s efforts to make this determination were obstructed by (Segoes) and its directors’ failure to provide the information requested,’ CIMA’s statement said.
CIMA then obtained an order from the Grand Court against Segoes and its directors instructing them to provide the requested information.
‘The directors of Segoes have failed to comply with the order of the Grand Court, and in the case of the company, the answers provided were inadequate and inconsistent with the terms of the Court Order,’ CIMA said.
CIMA noted there is always the potential for fraud or other financial wrongdoing to occur in any financial centre.
‘If and when this happens, the authorities can only take action based on available information,’ CIMA stated. ‘Even with sufficient powers, it may not always be possible to prevent those who are intent on committing fraud from doing so.’
CIMA said it was incumbent on the relevant authorities as well as the public to be vigilant against acts of fraud.
‘In the case of sophisticated investors, it is extremely important that they research the entities in which they are placing significant amounts of investment,’ CIMA stated. ‘Their doing so complements the roles of regulators and law enforcement authorities.’
No amount of regulation can totally prevent fraud, CIMA said.
‘The Authority is of the opinion that the right balance of oversight can help to mitigate the risk of such activities,’ CIMA stated. ‘In respect of securities business, the SIBL helps to achieve this. The Authority will, however, continue to carry out periodic review of the regulatory laws including SIBL, and following consultation with the industry, will make appropriate recommendations where necessary.’