Smith: Bank likely to only have payoff
The President and Chief Executive Officer of Bank of Bermuda said yesterday that the bank expects to only have to pay $24.6 million as an out-of-court settlement related to a US investing scam.
The bank's Cayman offices had been named in connection with a bogus investment scheme called Cash 4 Titles which involved 2,500 people who lost $300 million. On July 9 the bank agreed to an out-of-court settlement to pay the investors, not the Securities and Exchange Commission as reported in yesterday's The Royal Gazette, of up to $67.5 million.
Henry Smith said yesterday that the bank strongly denied any liability in the matter, but said that: "This settlement is a very significant and positive step forward and one that is very much in the best interests of our shareholders and staff, since it allows us to limit the destruction, expense and uncertainty that major litigation always involves." He also said that of the maximum potential payment of $67.5 million in relation to the law suit, the bank itself would only have to pay out a net charge of $24.6 million in the bank's second quarter, ending June 30, 2001. The bank's insurance will pay up to $38 million and $4.9 million will "reflect the effects of the settlement on the bank's profit-related compensation".
Mr Smith said: "The net charge of $24.6 million therefore represents the bank's best estimate at this point in time of the final cost to it of this settlement."
Mr. Smith said of the $24.6 million hit in the quarter: "This amount provides for the maximum potential payment under the settlement of $67.5 million as reduced by insurance coverage confirmed to date of $38 million and reduced further by a $4.9 million decrease in profit related compensation to reflect this settlement."
The Bank of Bermuda was named as one of the bankers of the scheme in two separate US Securities and Exchange Commission charges. The two main players and owners of the scheme have pled guilty to securities fraud, wire fraud and money laundering.
The filing also alleged the Bank of Bermuda had a "primary role" in the scheme and that bank employees at the Cayman branch touted the scheme. Three bank employees were subsequently fired from the bank who had "personal financial involvement" or were involved with individuals in the operation. The US complaint stated that senior officers in Bank of Bermuda (Cayman) were also early investors in the scheme and had made handsome returns on their profits.
Earlier this month the bank issued a statement saying it agreed to pay 50 percent of verified net investor claims, attorney's fees and costs up to a maximum of $67.5 million.
The proposed settlement will be considered in a hearing in the class-action lawsuit on October 12, 2001 in Miami, Florida.