Cayman Islands-based Caledonian Bank has been fined $25m and banned from selling penny stocks by the US Securities and Exchange Commission (SEC), according to Cayman media reports.
The Cayman Compass said on Tuesday that the bank, headquartered in Caledonian House (pictured), had reached a settlement a year after the SEC initiated action against it for “offering and selling unregistered penny stocks into the public markets”.
The SEC’s action, which included freezing the bank’s assets, caused it to go bankrupt.
As part of the case, the SEC also sued Belize-based Clear Water Securities and Legacy Global Markets S.A., as well as Panama-based Verdmont Capital S.A.
The SEC said that the penny stocks sold by these organisations via shell companies in the US were worthless, and the sales were a “sham” because they remained in the possession of the companies that “sold” them.
“In the sham offerings, the issuers pretended to sell securities to investors residing in such places as Serbia, Mexico, Ireland, Norway, Panama, and Jamaica, while the issuers or their affiliates maintained control and possession of the stock certificates…” the SEC said in February 2015.
The Cayman Compass reported on Tuesday that, as part of its agreement with the SEC, Caledonian Bank did not admit fault. The report also stated that in the terms of the settlement, which is yet to be approved by a US judge, the SEC will forego enforcing the fine so that Caledonian Bank can pay its creditors.
In November, the SEC’s decision to freeze the bank’s assets, which sent it into bankruptcy and liquidation, was criticised by the judge overseeing the case, William H. Pauley III.
“That freeze order, enforced against certain of Defendants’ accounts, precipitated significant collateral damage, including the collapse of a Cayman Islands financial institution,” he said. “In hindsight, that denouement may have been avoided. But bureaucratic siloing and missed opportunities made it inevitable.”
He said the case offered “fertile ground for agency self-examination”.