Insider attempted to wire money out of the bank
The Grand Court has ordered a winding up of the Caledonian entities that are subject to a Securities and Exchange Commission lawsuit for alleged U.S. securities laws violations.
Chief Justice Anthony Smellie granted a petition by the Cayman Islands Monetary Authority to wind up Caledonian Bank and Caledonian Securities and appoint the controllers of the companies, Keiran Hutchison and Claire Loebell of Ernst & Young, as joint official liquidators.
The winding-up order gives the official liquidators the power to commence winding up bankruptcy or recognition proceedings in the U.K., Australia, Switzerland and any other jurisdiction where the companies has assets.
CIMA’s board of directors adopted a resolution on Feb. 16 to revoke the licenses of the two Caledonian entities after the board received a report from the controllers stating that the companies are likely to become insolvent.
The authority petitioned the court to wind up the Caledonian entities on Feb. 17.
According to the filing, CIMA had discussions with the SEC as early as July 2013. As a result of these regulator-to-regulator talks, CIMA conducted a follow-up onsite inspection of Caledonian Bank and Caledonian Securities, made recommendations and imposed certain requirements, not specified in the court documents.
“Accordingly, since 2013, [Caledonian Bank] fell under close scrutiny by CIMA in order to maintain a review of its regulatory concerns regarding compliance with regulatory laws and regulations,” the filing states.
The court documents outline the timeline that triggered the authority’s decision to apply for the companies to be liquidated.
CIMA held meetings with Caledonian’s management team one day after the SEC filed a lawsuit on Feb. 5 alleging that the companies sold restricted, unregistered penny stocks, which were part of a pump-and-dump scheme, in the U.S.
Cayman’s financial regulator was informed by the bank on Feb. 8 that to cope with the growing requests for withdrawals, Caledonian had begun to sell $30 million of liquid fixed investments in the “held for sale pool,” $83 million liquid fixed income securities, and all of its pound sterling and euro bonds. On Feb. 9, Caledonian informed the authority that it had suspended the operation of all services.
CIMA said from some of the documentation it had received from the directors of Caledonian Bank, it had observed that between Feb. 6, the day after the filing of the SEC lawsuit, and Feb. 9 “a number of attempts were made by at least one entity known to be owned and operated by one of the directors of [Caledonian Bank] to wire significant sums [of] money out of Caledonian Bank to another local bank.”
CIMA said it concluded that Caledonian Bank was likely to become unable to meet its obligations, given that $76 million of the bank’s U.S. assets were subject to a freeze order, withdrawal requests totaled $67 million within a few days, the bank had suspended operations, and the bank’s management’s own action plan was set to place the bank into liquidation.
In an interim report, the controllers of the companies, who were appointed by CIMA on Feb. 10, noted that with a balance sheet of US$585 million in assets and US$559 million in liabilities, “there was a grave risk of actions against the majority of the assets which are located in the U.S.”
The controllers subsequently obtained bankruptcy protection in the U.S. court which prevents Caledonian’s creditors and depositors from bringing legal action in the U.S. to recover any of the bank’s assets there. A similar order was granted by the Australian Federal Court.
In their review of Caledonian Securities, the controllers noted that the brokerage depended on Caledonian Bank for funding. They concluded that although the most recent management accounts showed US$1.4 million in assets and US$370,000 in liabilities for Caledonian Securities, the SEC $76 million claim significantly overwhelms the balance sheet of the broker and “even a settlement at a greatly reduced level still renders Caledonian Securities insolvent.”
The management of Caledonian Global Financial Services did not object to the winding-up petition, the filing said.