June 18, 2021

What control does a Cayman controller have?

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thumb_CIMAFrom Solomon Harris
A Cayman Islands Monetary Authority appointed Controller under Securities Investment Business Law (2011 Revision) and Banks and Trust Companies Law (2013 Revision) such as that appointed for Caledonian Securities Limited and Caledonian Bank Limited has the following powers:
· The estate of Controlled Entity is to be administered for the benefit of creditors
· To take possession of Controlled Entity’s property
· To recover debts
· To examine Controlled Entity’s books
· To sell all or any part of the property of the Controlled Entity by public auction or tender or private contract, and accept as the consideration to be paid or secured to be paid at such time and in such manner as he thinks fit.
· To carry on the trade of the Controlled Entity as necessary to achieve beneficial winding up or sale of the same
· To bring, institute or defend any action or other legal proceedings
· To prove, rank, claim and draw dividend, in respect of any debt due
· To Settle any and all claims by and against the Controlled Entity
· To execute documents and deeds for and on behalf of the Controlled Entity
· Must account to the Court, and shall be under the control and subject to the directions of the Court from which Controller can seek directions and when acting under such directions the Controller is deemed to have preformed his duty as Controller
· Must keep proper books and records in regard to the administration by him of the Controlled Entity and allow any creditor to inspect them.
· Must pay all sums of money from time to time received by him into a designated account for the Controllership
· To disclaim onerous property but not so as to affect the rights of any third person, who may apply to Court for an order if adversely affected by such disclaimer. Any person injured by a disclaimer becomes a creditor. Property cannot be disclaimed where a notice has been sent demanding an election for disclaimer by the Controller and they have not so elected within 28 days.
· To void settlements and recover preferences and transactions at an undervalue
· To ask the Court to make Orders for the investigation of the Controlled Entity’s affairs.
The position of creditors of the Controlled Entity is:
· Unsecured creditors may prove for debts plus interest and the Controller shall adjudicate such claims and may apply set off for mutual dealings
· A secured creditor may give up his security and prove for his whole debt, or he may prove for any balance due to him after realising or giving credit for the value of his security
· The Controlled Entity, any of the creditors or any other persons, if aggrieved by any act or decision or estimate of the Controller, may apply to the Court of Appeal, and the Court of Appeal may confirm, reverse or vary the act complained of, and may make such order in the matter as it thinks just, and may direct any question of fact or assessment of value or damage to be tried by a jury.
· Dividends payable by the Controller must be noticed and advertised. There is no absolute bard date but a creditor who proves after a dividend has been paid cannot disturb the prior dividend payment.
SOURCE: http://www.solomonharris.com/news-updates/what-control-does-a-cayman-controller-have

Related story:

Litigation Release No. 23195 / February 11, 2015
Securities and Exchange Commission v. Caledonian Bank Ltd., et al., Civil Action No. 15-CV-00894

The Securities and Exchange Commission has charged five offshore entities with offering and selling unregistered penny stocks into the public markets.

According to the SEC’s complaint filed on February 6, 2015, Cayman Islands-based, Caledonian Bank Ltd. and Caledonian Securities Ltd., Belize-based, Clear Water Securities, Inc. and Legacy Global Markets S.A., and Panama-based, Verdmont Capital S.A. (collectively, the “Defendants”) conducted unregistered sales of securities, reaping over $75 million in illegal sales proceeds. Simultaneous with filing its complaint, the SEC obtained an emergency court order freezing assets of the Defendants located in the United States.

The SEC alleges that the Defendants sold penny stocks in unregistered distributions from their U.S. brokerage accounts of four shell company issuers, namely, Swingplane Ventures, Inc., Goff Corp., Norstra Energy Inc. and Xumanii, Inc. Each of the unregistered distributions took place through virtually the same scheme. The issuers first filed with the Commission bogus Forms S-1 that purported to register sales of securities to public investors when, in fact, no bona fide sales occurred because the securities purportedly sold remained in the control of the issuers and their affiliates. 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 in a scheme where: (1) restricted stock was passed off as “free trading” unrestricted stock; (2) the share certificates issued were subsequently transferred, without restrictive legends, to the Defendants; and (3) the Defendants deposited the shares into their U.S. brokerage accounts and sold the shares to the public.

The complaint further alleges that the issuers or their affiliates directed the transfers of restricted securities to the Defendants, often through various offshore nominee entities intended to conceal beneficial ownership of the securities. Once the shares, which were controlled throughout by the issuers or its affiliates, were held in names of the Defendants, the shell company issuers announced a reverse-merger or business combination with a purportedly operating enterprise. The Defendants then offered and sold into the public markets hundreds of millions of shares of the four issuers in unregistered distributions simultaneously with aggressive and extensive promotion campaigns. Each of the four stocks lost virtually all of their market value within months of the unregistered sales. In doing so, the complaint alleges that the Defendants operated as affiliates, dealers, sales outlets and underwriters by offering and selling the penny stocks from brokerage accounts in the United States.

The SEC’s complaint, which was filed in the U.S. District Court for the Southern District of New York, seeks, among other things, to permanently enjoin the Defendants from violating Section 5(a) and 5(c) of the Securities Act of 1933, prohibiting the Defendants from participating in an offering of penny stock, the disgorgement of all proceeds obtained in the unregistered distributions, and civil penalties.

Following the SEC’s complaint, the Cayman Islands Monetary Authority issued a public notice on February 10, 2015 advising that it appointed two Controllers to assume control of the affairs of Caledonian Securities Limited and Caledonian Bank Limited. That same day, Caledonian Bank’s shareholders voted to place the bank into voluntary liquidation.

The SEC’s investigation, which is continuing, is being conducted by Ernesto Amparo and supervised by Anita B. Bandy. The SEC’s litigation will be led by Richard E. Simpson and A. David Williams. The SEC appreciates the assistance of Financial Industry Regulatory Authority, the Cayman Islands Monetary Authority, the Quebec Autorité de Marchés Financiers, and the Republic of Serbia Securities Commission.


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