SEC proposes $0 Caledonian settlement

The liquidators of Caledonian have informed creditors that the U.S. Securities and Exchange Commission has internally approved a settlement that involves no payment by Caledonian Bank and Caledonian Securities.

The agreement still needs to be approved by the Cayman Islands Grand Court and the U.S. District Court for the Southern District of New York. The agreement would settle charges against the bank and its brokerage arm which alleged their participation in a penny stock pump-and-dump scheme involving the sale of unregistered securities.

The Cayman court has scheduled a hearing of the matter for Jan. 26.

If approved, the lack of a settlement payment will add to the return that the bank’s depositors and creditors can expect to receive. In September, the Caledonian liquidators estimated a return of between 89.5 cents and 94 cents on the dollar if the claim against the bank was resolved and no new unaccounted claims were made. This estimate was already based on the assumption that no payment to the SEC would have to be made.

“The confidential settlement agreement deals with various matters but importantly it stipulates that no monetary payment is required to be made to the SEC by either [Caledonian Bank] or [Caledonian Securities] and that the SEC will not pursue any claim in the liquidations of [Caledonian Bank] or [Caledonian Securities] with respect to the SEC proceeding,” the liquidators’ note to creditors said.

Once the courts have sanctioned the settlement agreement, the liquidators will be able to declare a third interim dividend in the liquidation of the bank.

Details of the size and timing of the payment will be provided at a later date, the note said.

The SEC has been under fire by the U.S. judge in the case.

District Judge William Pauley III called the freezing order against Caledonian, which led to a run on the bank and its subsequent demise, “a pre-emptive strike” and “incredible government overreach.”

The SEC had to amend its initial claim against a co-defendant in the case, pulling back on its initial accusations, but the securities regulator said it could not confirm whether Caledonian was involved in the scheme or had simply acted as a broker in the case, because the bank had not provided any customer information due to Cayman’s bank secrecy laws.

Judge Pauley said in an order in November that the settlement with the SEC should identify who actually benefited from the alleged fraudulent sale of unregistered securities.

The settlement “should address any discussions between Caledonian and the SEC about the beneficial ownership of the shares Caledonian sold,” he wrote.



  1. "The SEC’s fraud lawsuit against Cayman Islands-based Caledonian Bank has gone from bad to worse for the U. S. regulator, with two of the agency’s main attorneys on the case leaving following criticism from a federal judge and an agreed settlement between the parties requiring the bank to make "no monetary payment"."

    Clearly shows the SEC was negligent – what about CIMA?

  2. Michael Davis on 12/21/2015 11:18:32 AM – too true Michael, and although the liquidators are under a duty under a duty to act in the best interests of all creditors, I doubt they have the stomach for this and have, in all probability, given up this right in the confidential settlement

    The liquidators could however go after CIMA, if they could prove they haven’t acted in good faith, which is looking increasingly the case, although as CIMA appointed them, I doubt they’ll bite the hand that feeds them


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