Caledonian Securities & Caledonian Bank Seized by Cayman Officials
Posted by Brenda Hamilton, Securities and Going Public Lawyer
Following an action by the Securities and Exchange Commission (SEC) last week and an asset freeze order, the Cayman Islands Monetary Authority has taken control of Caledonian Bank and Caledonian Securities. According to charges by the SEC on February 7, 2014, Caledonian, Clear Water Securities, Legacy Global Markets S.A., and Verdmont Capital S.A. functioned as affiliates, unregistered brokers, dealers, and underwriters, in connection with four penny stock issuers: Swingplane Ventures (SWVI), Goff Corp. (GOFF), Nostra Energy (NORX) and Xumanii Inc. (now Imerjn Inc., IMJN).
About the Defendants
Caledonian Bank Ltd. is a foreign bank that provides banking, custody, fiduciary, trade execution and trust services. Caledonian Securities is a foreign broker-dealer that provides trade execution and custodial services. Both Caledonian Bank and Caledonian Securities are headquartered in the Cayman Islands.
Clear Water Securities and Legacy Global Markets purport to be foreign broker-dealers operating in Belize. Verdmont Capital S.A. is a foreign broker dealer and investment management and advisory firm headquartered in Panama.
The SEC’s complaint does not identify the controlling persons of the named defendants.
According to the SEC allegations, the four penny stock issuers formed shell companies that filed registration statements on Forms S-1 with the SEC. The registration statements contained bogus business plans and other incorrect or misleading information. In each case, nominees in foreign jurisdictions such as Serbia, Mexico, Ireland, Norway, Panama and Jamaica were named as selling shareholders, but the stock they had supposedly purchased was never sent to them. Upon effectiveness of the registration statements, shares were issued as “free trading” and transferred to the defendants, not the selling shareholders. Each issuer was the subject of aggressive and illegal promotional activity. During the course of the promotions, the defendants received proceeds of more than $75 million from the sale of their shares. As the dump followed the pump, the stock prices of each issuer plummeted, but the defendants had already taken their profits.
The U.S. Freeze Order
On February 6, the SEC obtained a Temporary Restraining Order (“TRO”) that froze certain brokerage and financial institution accounts held in the name of the defendants. Among other things, the freeze order provided that:
Any financial or brokerage institution or other person or entity holding any assets or funds in the name, for the benefit or under the control of Defendants Caledonian Bank Ltd., Caledonian Securities Ltd., Clear Water Securities, Inc., Legacy Global Markets S.A. and Verdmont Capital, S.A., directly or indirectly, individually or jointly, and located in the United States of America, and which receives actual notice of this Order by personal service or otherwise, shall:
1. Hold and retain within its control and prohibit Defendants Caledonian Bank Ltd., Caledonian Securities Ltd., Clear Water Securities, Inc., Legacy Global Markets S.A. and Verdmont Capital, S.A. and all other persons from assigning, converting, disbursing, dissipating, encumbering, pledging, removing, selling, transferring, withdrawing, or otherwise disposing of any account or asset.
2. Deny Defendants Caledonian Bank Ltd., Caledonian Securities Ltd., Clear Water Securities, Inc., Legacy Global Markets S.A. and Verdmont Capital, S.A., and all other persons access to any safe deposit box that is titled in the name of the Defendants, individually or jointly, or otherwise subject to access by the Defendants.
3. Within five calendar days after receipt of this Order, serve on counsel for the Commission a statement of the name and identification number of each and every account or asset titled in the name, individually or jointly, of, or held on behalf of, or for the benefit of, any of the Defendants. With respect to each such account and asset, the statement shall include the balance in the account or description of the asset as of the close of business on the date of receipt of this Order and, if the account or asset has been closed or removed, the date closed or removed, the total funds removed in order to close the account, and the name of the person or entity to whom such account or asset was remitted. The statement shall include the identification of any safe deposit box that is either titled in the name, individually or jointly, of any of the Defendants or is otherwise subject to access by the Defendants.
The February 8, 2015 Amended Freeze Order
The SEC and the Caledonian Defendants requested modification of the terms of the original TRO and such modifications were approved by the Court on February 8. Among other things, the Order approving the modifications provides that:
A total minimum balance in the aggregate amount of $76,677,852.00 shall be maintained by Caledonian Bank in the following manner:
- A minimum balance in the amount of $10,000,000.00 shall be maintained in a segregated account in the name of Caledonian Bank, at The Northern Trust International Banking Corporation in Jersey City, New Jersey. This segregated account shall be separate from account number xxxxxx-x0230, in the name of Caledonian Bank, at The Northern Trust International Banking Corporation in Jersey City, New Jersey; and a minimum balance in the amount of $66,677,852.00 shall be maintained in securities held in account number xxx-xxxxxx-8771, in the name of Caledonian Bank, at Morgan Stanley Smith Barney LLC in New York.
- Caledonian Bank shall provide a daily statement to the SEC showing the total positions (cash and securities) in account number xxx-xxxxxx-8771, in the name of Caledonian Bank, at Morgan Stanley Smith Barney LLC in New York.
- The Caledonian Defendants shall deny any requests seeking to withdraw or transfer any monies or assets from such clients and customers who have accounts with the Caledonian Defendants in the United States and who have traded, in accounts with the Caledonian Defendants, the securities of Swingplane Ventures, Inc., Goff Corp., Norstra Energy Inc., and Xumanii, Inc. at any time since January 1.
As a result of the Cayman Islands Monetary Authority’s actions, two trustees were appointed to manage the affairs and operations of Caledonian Securities & Caledonian Bank. No doubt the SEC’s freeze order and appointment of trustees will impact certain penny stock dilution funders associated with the global director of Caledonian Securities. The aggressive and swift actions of both the U.S. and Cayman authorities leave little doubt that indictments will likely follow the SEC action.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, or [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Going Public Attorney
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