Caveat Emptor. It’s a Latin phrase for ‘let the buyer beware’.
Today that phrase has a certain Cayman lilt to it because, in a nutshell, that’s what the Cayman Islands Monetary Authority suggested to investors in its response to comments made by Justice Priya Levers with regard to Segoes Securities Ltd. matter.
Justice Levers wanted to know what CIMA was doing as Segoes unravelled, eventually ending up in liquidation with investors out potentially millions of dollars.
CIMA responded by saying it was doing pretty much everything it was empowered to do by law.
Justice Levers said CIMA needed more teeth.
The government, for its part, has tried to find the right balance of regulatory legislation for CIMA.
On one hand, it wants to protect the public and make sure it conforms to international regulatory standards.
On the other hand, it wants regulations loose enough not to strangle the private sector companies that want to do business here.
Stuck in the middle of those opposing forces is CIMA, which probably would agree its teeth are at the very least a little dull.
With the passing of the Securities Investment Business Law in 2003, CIMA was given some more weapons with which to mitigate financial crimes.
Segoes was ultimately stopped from doing business here by CIMA under provisions of the SIBL.
However, CIMA has acknowledged that it cannot totally prevent fraud or other financial crimes.
Cayman is not unique in this regard.
Financial crime happens everywhere, including in the most sophisticated and well regulated countries of the world.
CIMA has therefore suggested investors do their own research into the entities with which they are placing investments.
It’s a practical suggestion that makes perfect sense.
It is important for people to remember that due diligence is largely a documentation process, which can be manipulated, and is not infallible.
People need to use common sense while investing as well.
If something sounds too good to be true, it probably isn’t true.
If an investor’s gut feeling is saying something is wrong, it’s better to listen to those rumblings rather than believe a bureaucratic process has chased all the fraudsters away.
Caveat Emptor is just as relevant today as it was in ancient Rome.