The Central Bank is claiming that there were two Ponzi schemes being operated in Clico, which contributed to the collapse of the insurance company in January 2009. In its statement of case filed in the High Court on Tuesday against former executives of CL Financial, associated companies and the conglomerate itself, the Central Bank identified an external Ponzi scheme in which the insurance company took in new money from policyholders and mutual fund investors "without sufficient or proper regard to what was required to fund future liabilities to them."
The Central Bank also alleges that CL Financial was operating an internal Ponzi scheme in which money was diverted or misappropriated away from Clico in order to fund Clico Investment Bank, CL Financial or other group entities "often in return for worthless or wholly inadequate purported consideration and/or security." The case that the Central Bank is seeking to build is that this was done in circumstances in which it was known "that there was little or no prospect of return." The Central Bank will also attempt to prove that it was known or ought to have been known that "CL Financial and Clico Investment Bank were each highly dependent upon Clico not seeking repayment of principal and accumulated interest on existing indebtedness from them...as well as unable to pay its debts to Clico as they fell due." The statement of case refers to Clico as a cash cow and alleges misappropriation and improper dealing with the insurance company's money.
According to the Central Bank's case, Clico's money was used to fund CL Financial, its parent company, in particular in the form of advisory fees" or "management fees." The Central Bank claimed that in 2007, sums totalling $200 million were paid by way of management fees and that MHTL and Republic Bank dividends or equivalent sums were diverted from Clico to CL Financial. Clico was required to provide funds and/or security and/or guarantees to other group entities such as Clico Investment Bank and Angostura Holdings Ltd, according to the statement of case. In the Central Bank's case, it is claimed that over the years, Clico "was caused to loan increasing amounts to Clico Investment Bank," consisting mainly of fixed deposits, which totalled $4.24 billion, according to the insurance company's 2008 accounts, prepared after the Central Bank's intervention in January 2009. Of the total of $4.24 billion in fixed deposits, Clico was forced to make an impairment provision for $2.5 billion.
Clico also lent ever-increasing amounts of money to its parent company, CL Financial, with this reaching a total of $2.4 billion by 2008. Of that amount, $1.22 billion was in the form of unsecured, interest-free, short-term debt. The insurance company was also called upon to provide funding, guarantees or security for other business projects in which Clico either had no interest or in which its interest was insufficient to justify its financial input, such as the Florida property transactions or the Lascelles deMercado acquisition. The statement also alleges that a company called DALCO, in which former CL Financial chairman Lawrence Duprey had a 99 per cent equity stake, is estimated to have received "payments and financial assistance totalling $468.9 million" for the period 1997 to 2008 in the form of commissions and other payments.