(Trinidad Express) Even as public hearings into the collapse of financial giant CL Financial continue to reveal a disturbing picture of corporate greed, reckless dealings, dishonesty and misconduct at the highest level of the country’s largest conglomerate, questions remain about the role of the state regulators and auditors on record, PriceWaterhouseCoopers (PWC).
Questions have been raised about what the state regulators at Central Bank knew, when they knew it and what, if anything, they did about it.
The chief regulator and Central Bank Governor Ewart Williams is on public record that he had concerns about the country’s number one insurance company, CLICO since 2004 but claimed impotence in the face of inadequate legislation.
In his January 30, 2009 containment effort to rescue the floundering conglomerate, Governor Williams complained that the Central Bank had been “stymied” by inadequate legislation from going after the rogue insurance company.
He said in the intervening years prior to the CL Financial crash the Central Bank was forced to watch helplessly from the sidelines as the country’s number one insurer sailed perilously closer to the edge.
He cited several areas of concern including excessive related- party transactions, mismatch between short-term liabilities and long-term assets, lack of fiscal discipline and fudges on filings.
In subsequent post mortem reports and court filings, Governor Williams and his Inspector of Financial Institutions Carl Hiralal painted a picture of a conglomerate run amok under the direction of reckless top executives bent on using investors’ money to enrich themselves.
Hiralal, in a civil action lawsuit against Andre Monteil, former group financial director and Richard Trotman, former president and chief executive officer of CLICO Investment Bank (CIB—currently under a court-approved liquidation), went further, accusing the two of a series of wrongful actions in connection with the sale of a CLICO-owned block of shares in the Home Mortgage Bank (HMB) to Monteil.
The lawsuit was sharply critical of the entire CIB board of directors, accusing them of failing to implement proper controls and breach of directors’ fiduciary duties.
But documents and other information obtained by the Sunday Express show that Hiralal and other government regulators took no steps to question or challenge transactions or balance sheet statements at CIB prior to the January 2009 collapse.
In fact, two on-site inspections in 2007 and 2008 failed to raise any alarms about how business was being conducted at the investment bank.
A subsequent Ernst & Young audit, however, found plenty of red flags.
The post-mortem audit, commissioned by the government regulator found evidence of loose management and board oversight, vague paper trails on many inter-group and related-party transactions, material inaccuracies in the management accounts, lapses in reporting and record keeping, poor audit trails, improperly reconciled suspense accounts, non-compliance of monthly financial statements with generally accepted accounting principles and a loan portfolio that comprised a significant percentage of high risk real estate projects, among other things.
Three days before Central Bank dropped the gavel on CIB, an apparently clueless chief financial inspector wrote to the then executive chairman, Mervyn Assam, to report on a 2007 examination which focused on the risk management practices associated with the bank’s loan portfolio and compliance with anti-money laundering and terrorist financing guidelines.
The January 27, 2009 Hiralal letter states in part: “Pursuant to Section 31 of the Financial Institutions Act, 1993, a risk focused examination of the operations of CIB was carried out by the Office of the Inspector of Financial Institutions.
“We have attached for your information our Examination report, Enclosed is a declaration form, which must be signed by the directors and returned to the Inspector of Financial Institutions as stipulated in the form. We also wish to extend our thanks to your staff for their cooperation and assistance during the examination.”
The findings and recommendations of the report were discussed with senior management of CIB on January 15, 2009, according to the report, which flagged late filing of audited financial statements and breaches related to a grant of unsecured credit facilities in excess of the stipulated limit and lack of controls in credit administration.
And just as the government regulators failed to stop CLICO’s sale of the much criticised executive flexible premium annunities, the 2007 inspector’s report delivered to CIB in January 2009 also failed to question the portfolio of investment products sold by CIB, financial products it would later challenge in court.
As the Commission of Enquiry gets set for another round of high court drama and financial misdeeds, questions persist about the group’s Enron-style accounting and whether PWC gave CL Financial a free pass because of the size of the accounting brief which insiders say was worth some $20 million a year.
There are plenty of questions as well as to why state regulators failed to intervene before January 2009 when they knew that CL Financial was routinely breaking the rules in the course of doing business.
