The Cayman Islands Monetary Authority has placed Caledonian Securities and Caledonian Bank into controllership just days after the U.S. Securities and Exchange Commission filed a lawsuit against the bank and its brokerage on Feb. 6.
The SEC alleges that Caledonian and its co-defendants Clear Water Securities Inc. and Legacy Global Markets SA in Belize and Verdmont Capital SA in Panama offered and sold stocks to investors in the U.S. without the registration required for the shares to be publicly tradable.
The sham offerings of penny stocks in four shell companies – Swingplane Ventures, Goff Corp., Nostra Energy and Xuamnii Inc. – were followed by aggressive pump and dump schemes involving the virtually worthless companies and netting the perpetrators of the fraud US$75 million, according to the writ.
CIMA issued a public notice Tuesday advising that the authority has appointed Keiran Hutchison and Claire Loebell of Ernst & Young to assume control of the affairs of both Caledonian bank and its securities trading affiliate.
The controllers have assumed immediate control of Caledonian and “have all the powers necessary, to the exclusion of any operator, to administer the affairs” of the entities in the best interest of its depositors, investors, clients and creditors, CIMA said.
The controllers will also be responsible for assessing the financial position of the bank and brokerage and reporting back to CIMA.
The authority, which regulates the financial services industry in Cayman, had said on Monday that it was aware of an investigation and filing by the SEC of its regulated entities and warned that it would take whatever action available to them. The authority said it had “been working with Caledonian to address matters of concern, some of which are outlined in SEC filings.”
CIMA also confirmed it had been in contact with the SEC for the past 18 months.
Wayne Panton, minister of financial services, released a statement earlier this week that he was aware of the SEC lawsuit against Caledonian and that it is a regulatory matter that is dealt with by CIMA. He confirmed that CIMA had been in discussion with Caledonian over the weekend, and said he has “every confidence that CIMA will seek the best possible resolution and take the necessary action available to it, in the best interests of depositors and investors.”