Friday, December 15, 2017

Shifting shares, shifting blame

Keith Subero logo41

Mark Fraser

Way back in 1977 Dr Eric Williams warned us about situations like the current First Citizens IPO scandal.

Opening the first National Insurance (NIB) branch in Tunapuna, Dr Williams noted the call from the Chamber of Industry and Commerce at the time for free trading on the Stock Exchange.

An unchecked free trading system, Dr Williams warned, would allow large investors to manipulate the market, as is now being alleged in the Philip Rahaman transaction.

Also, Dr Williams said, it would open the way for large investors “to encourage, command, or order” persons to purchase shares and sign blank transfer forms, which would be switched later to the large investors’ accounts.

He gave several examples (even at that time) of large investors manipulating shares of Barclays Bank (now Republic Bank), Royal and Scotia banks, and West Indian Tobacco Company Ltd.

That afternoon, Dr Williams’ tone became strident as he outlined the market manipulations which frustrated his government’s primary objective – a local financial sector in which “the small investor must have his application satisfied in full, before allocations can be made to larger applications”.

Last week, I recalled the Williams vision, or what he called “The People’s Sector—an avenue for the small man to realise his potential”.

Later, I thought of how the Rahaman transaction may have scuttled the Williams dream of small investors enjoying opportunities in the large financial market. Then came the telephone call from my friend Bukka Rennie suggesting that I research that speech.

I chuckled as I replied to Bukka that, as the Express political reporter, I covered Dr Williams’ address that afternoon in Tunapuna.

Last week too, Finance Minister Larry Howai became the bit player in the First Citizens IPO scandal as the Attorney General assumed centre stage, announcing that he had referred the matter to the Director of Public Prosecutions, the Commissioner of Police and the Securities & Exchange Commission.

Taking away the matter from the Finance Minister is a matter I anticipated two weeks ago, and I warned that the investigations, placed in the hands of the AG, would assume an ugly, political dimension.

I maintain that to restore public confidence in First Citizens and the financial sector the Finance Minister – not the AG – must be seen to be in control. Already, the decisions the AG announced are being dismissed, in parts of the financial sector, as “suspect”, and “a whitewash”.

For instance, the AG admitted that statements of the bank’s chairman, Nyree Alfonso, were “clearly injudicious, premature…somewhat prejudicial”. Such a description, particularly in the financial sector, should mean that Ms Alfonso should not continue as First Citizens chairman.

Yet the AG made an immediate flip-flop; he cleared the chairman and the board, claiming that the Divestment Secretariat (Ministry of Finance), and the bank’s executive management were responsible for the operations of the IPO.

But the AG’s defence is not supported by the IPO prospectus which states clearly that the directors, after “all reasonable enquiries”, had signed and accepted “collectively and individually full responsibility” for the issue.

So the questions continue: Was there a dereliction of duty? Did the First Citizens board meet its fiduciary responsibility? This was the bank’s first IPO. Were the chairman and CEO monitoring the transactions daily? Why has responsibility suddenly shifted to the Divestment Secretariat and executive management?

The prospectus stated that First Citizens Brokerage & Advisory Services, the subsidiary chaired by Ms Alfonso, was responsible for the issue. Was that a misprint?

Mr Rahaman, it is reported, placed his order on the last day of the offer. Was such an unusual order spotted by the brokerage and reported to the executive floor?

First Citizens had two opportunities to stop the transaction – when Mr Rahaman purchased the shares and when he sold them. The prospectus clearly says that the bank had the “unconditional right to reject any application”. Why wasn’t that done in this instance?

Are we to believe that such a significant application did not raise a red flag? Finally, did the board formally approve an allocation/transfer list?

The AG cleared the chairman and the board but First Citizens sources say a senior executive is being targeted to take the fall.

Already one former bank executive has come to her defence: “I know the story, but I had the privilege of working with her. She is loyal to the institution and its reputation, and goes out of her way, to the point of nagging, to ensure that matters under her jurisdiction are handled without fault.

“I believe that the person has not lost that characteristic. She must have brought the matter to the CEO. In fact she would have gone directly to the chairman.”

Questions, questions as the First Citizens scandal continues.

—Keith Subero, a former Express news editor, has since followed a career in communication and management.