No pressure on Harry to diversify HCU
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There was no evidence that former Hindu Credit Union president Harry Harnarine was pressured by “rich Indians” to diversify the credit union into a financial empire comprising a slew of businesses as he said he was, the Sir Anthony Colman Commission of Enquiry report into the HCU has found.
From 2000 and onwards, Harnarine and his board incorporated a number of companies, including firms involved in travel, healthcare, financial services and media.
Portions of Section F of the July 16 HCU Report below detail how Harnarine grew the HCU membership and share capital, how he divested the credit union’s business and how the commission could not find that he was pressured by certain HCU depositors to diversify the failed credit union:
In 1998, when Harry Harnarine became president, there were 3,618 members of HCU with a share capital of $4.5 million. At the end of February 2011 there were approximately 117,000 members with deposits of $500 or less, 26,000 with deposits of $501 to $74,000 and 1,487 with deposits holding at least $75,000.
From the very outset of his presidency, Mr Harnarine worked flat out to increase the membership. For example, the membership rose from about 6,216 in 1999/2000 to 15,519 in 2000/2001.
At this time, (1999/2000) HCU also increased its range of products. It introduced share deposit accounts, fixed deposit share accounts and a commercial loan portfolio. Interest rates paid to share depositors were higher than the rest of the market paid.
The process of diversified investment through subsidiaries began soon after Mr Harnarine became president.
Thus HCU incorporated the following subsidiaries in 2000:
Masala Radio Ltd;
HCU Security Services Ltd;
HCU Home Furnishings Ltd;
HCU Financial Ltd;
HCU World Travel Ltd;
HCU Auto Care Services Ltd.
HCU invested $250,000 in each and in the year to September 2001 it invested further sums totalling $1,783,971 in subsidiaries. The above six companies were formed without the prior approval of the CCD.
Although in the course of his evidence Mr Harnarine said that the formation of these subsidiaries was consistent with the Bye-Laws which empowered HCU to provide services for its members, those subsidiaries being the vehicle for the provision of such services, this Commission is not persuaded that that was the main purpose. The more likely explanation is that this was the beginning of a concerted policy of investment in service industries in the hope that they would eventually increase the overall profits of the HCU Group.
Mr Harnarine’s evidence was that he was under pressure from rich Indians who had made large deposits to diversify by means of such investments.
There is no independent evidence of such pressure. He said that he believed that, once these subsidiaries were operating profitability, they might be sold to some of those rich investors. That would not qualify the duty of the president and members of the BOD and of other officers to act in the best interests of the whole of the existing membership and with due regard to the protection of the members’ deposits and shares as distinct from any private investor interest.
There is no evidence that any due diligence was exercised in relation to any one of these subsidiaries or that any member of the HCU management team or the HCU BOD had any prior experience of managing any of the businesses sought to be established.
At a BOD meeting on April 3, 2000 attended by Messrs Harnarine, Ramnath and Lalchan, it was agreed that there should be formed a company to be called HCU Financial, to look at investments and businesses which HCU could not go into.