Wednesday, March 26, 2014

Feature: Overlapping directorships can lead to insider trading

When Transparency International (TI) released its 2009 report of world rankings, it put Trinidad and Tobago at number 72 among 180 countries surveyed for the report and overlapping private-public directorships was one issue that it highlighted, citing the case of André Monteil, a former treasurer of the People's National Movement (PNM).

"When not properly regulated, overlapping directorships leave state resources and private shareholder equity vulnerable to allegations of manipulation and insider dealings," the report stated.

It pointed to the March 2007 case of Stone Street Capital, which paid TT$110 million (US$17.8 million) for over 40 per cent of the shares of Home Mortgage Bank (HMB), a company owned by the state.
At the time of the purchase, Stone Street Capital co-owner André Monteil was chairman of both HMB and the privately owned Colonial Life Insurance Company (CLICO) Investment Bank, which sold the HMB shares to Stone Street Capital.
That became a national scandal when the matter was raised in Parliament in April 2007 by a member of the opposition who pointed out that Monteil’s leadership positions with all three companies created a conflict of interest or led to insider trading.

In that year Monteil earned more than TT$53M in salary, bonus and retirement proceeds from CL Financial.

That figure was confirmed in correspondence dated June 15, 2008 from then CL executive director Lawrence Duprey to Joan Bharath, of Taxation Services in Newtown, Port of Spain. The breakdown, according to Duprey, was as follows:

  • Salary: US$500,000.00
  • Bonus: TT$18,250,000.00
  • Retirement proceeds: US$ 5,125,000.00
Six months later, the Manning government approved a multi-billion dollar bailout for CL.

And there was another issue, which was raised in media reports in Trinidad, but not mentioned in the TI report.

In June 2009, the Sunday Express published a report stating that while CL was experiencing financial problems it was also bankrolling the PNM's 2007 general election campaign.

The paper published a copy of a cheque for TT$5 million from CL to the PNM signed by Duprey and other CL officials and cited sources as saying that the PNM received TT$20 million from CL for the campaign.

With respect to the $5 million cheque, the paper reported that it was drawn
from an account held at Republic Bank, Independence Square in Port of Spain and was endorsed less than a month before the November 5, 2007 election by Rose Janierre, assistant party secretary, and Linus Rogers, PNM elections officer.The newspaper report stated: "The $5 million Clico payout to the PNM's war chest was made at a time when the country's No 1 insurance company had already been red-flagged with solvency issues, a statutory fund deficit of close to a billion dollars and what financial observers warned were dangerously excessive levels of inter-party transactions within the group."

It added, "If the Manning government had any concerns about the holding company using the country's largest insurer as a lucrative little money machine, it not only kept its own counsel but it lined up at the feeding trough.

"In the middle of this interplay of politics and business stood Andre Monteil, the then group financial director of Duprey's $100 billion business behemoth, his No 1 lieutenant, party treasurer of the incumbent PNM government and the PNM face of the corporate animal known as CL Financial."

The TI report mentioned the issue of Monteil’s role as treasurer of the PNM, noting that it raised ethical issues about the purchase.

The case was further complicated by suggestions that financing for the private purchase of HMB shares was supported by public funds.

"In 2007 a member of the opposition alleged that, in
February of that year, CLICO Investment Bank accepted a deposit of TT$100 million (US$16.5 million) from the Housing Development Corporation (HDC)," the report said.

"Monteil was chairman of both institutions and because the deposit occurred a matter of weeks before CLICO sold HMB shares to Monteil’s Stone Street Capital, some speculated that the HDC deposit to CLICO Investment Bank gave the bank sufficient liquidity to be able to lend Monteil’s Stone Street Capital the money to pay for the HMB shares," the report stated.

It said a review conducted by The Ministry of Finance "discovered no evidence of wrongdoing in the sale of the HMB shares...Additionally, the central bank concluded that the trade met the conditions established by the revised Home Mortgage Bank Act."
It said, "The prime minister brushed off suggestions of impropriety surrounding the HDC deposit to CLICO Investment Bank, stating that it was a short-term deposit of TT$60 million (US$9.8 million) made only to earn interest."
Transparency International noted that in June 2008 police confirmed that the case remained under investigation by the Anti-corruption Investigations Bureau, "though no findings have been forthcoming".

It said, "Such treatment gives credibility to the suggestions of one parliamentarian that Monteil’s ranking among the ruling party effectively exempted him from government scrutiny."

The organization said, "The government’s failure to address the implications of highly overlapping directorships undermines public trust and threatens the integrity of
the state."

It added, "If overlapping directorships continue to be a facet of Trinidad and Tobago’s public and private enterprises, the door remains open for conflicts of interest to tempt those in positions of power to abuse their status for personal gain."
It acknowledged that closing that door to overlapping directorships could put to rest some public suspicions of executive misconduct, but at the same time admited that such a move may not be possible in the small Trinidad and Tobago market.

"What is possible, however, is for the regulatory framework to be reformed to require enterprises with overlapping directorships to exercise much higher standards of transparency and accountability," it concluded.

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Jai & Sero

Jai & Sero

Our family at home in Toronto 2008

Our family at home in Toronto 2008
Amit, Heather, Fuzz, Aj, Jiv, Shiva, Rampa, Sero, Jai