(Trinidad Express) – Clico, the country’s largest insurer, and its parent, CL Financial, perpetrated an elaborate “Ponzi scheme” on thousands of unsuspecting investors and the people responsible for it should be jailed, Government Senator Patrick Watson has said.
At the same time, he acknowledged that more than 10,000 Clico investors will not get back 100 per cent of the principal amounts of money they invested in financial instruments offered by the collapsed insurance giant. Instead, they may receive about 65 per cent of their original investments back over a period of 20 years.
Watson was speaking on Monday at a post-budget breakfast seminar hosted by Port of Spain financial services company, CMMB, at the Hyatt Regency Trinidad in Port of Spain.
“If I had my own way, they would be in jail,” Watson said of those involved in the CL Financial and Clico meltdowns.
“I think some people should go to jail. It was an elaborate Ponzi scheme that was inflicted on an unsuspecting population.”
Watson said he had heard complaints from people who said the government should not have encouraged this kind of activity, but he said a “lot of empathy” had to be shown to people affected by Clico and CL Financial.
“It is going to cost us money. It has already cost you $7 billion and the debt is $12 billion over 20 years,” he said of the measures to bring relief to Clico investors.
An initial $1.3 billion has already been allocated for investors who will receive $75,000 each, and another $1.8 billion will be put in place for the amortisation payments over 20 years as stated in the 2010/2011 national budget, he said. He said Finance Minister Winston Dookeran’s budget last Wednesday exceeded all expectations, but admitted that “not everyone will be totally happy” with its fiscal measures.
“They are going to see some losses,” Watson said of Clico investors.
The good news is that 225,000 insurance policyholders are in the clear because they will be covered, he said. Of the 25,000 investors who bought into financial instruments offered by Clico that were not typical of instruments from an insurance company, Watson said 40 per cent of them (many of them credit unions) were covered entirely by the $75,000 payment proposed in the budget.
However, 14,000 others, most of whom are individual depositors, will lose some of their principal investments over the 20-year period, he said. They are the ones who will receive one-twentieth of their principal (with no interest) in government IOUs every year for the next two decades.
Government will, however, not cash these in and they will have to go to secondary market players like wealth management companies or banks who will make them an offer on their IOUs.
Watson said this debt was negotiable and was banking on the “reasonableness” of secondary market players to give people a good redemption when they came in.
An investor who has $100,000 and gets $5,000 a year over 20 years will not get $5,000, but between 60 per cent to 65 per cent of that from these companies, Watson suggested.
Last week, Finance Minister Dookeran described the CL and Clico fiasco as one that was “handled badly from the start” and a “colossal, inexcusable multi-billion mistake” caused by reckless corporate governance.
