JAMAICA: FALL OF OLINT INVESTMENT SCHEME COULD

C O N F I D E N T I A L KINGSTON 000648

SIPDIS

STATE FOR WHA/CAR (ACADIEUX)
WHA/EPSC (VDEPIRRO)
TREASURY FOR ERIN NEPHEW

E.O. 12958: DECL: 07/23/2018
TAGS: ECON EFIN PREL KCOR PINR SOCI XL JM
SUBJECT: JAMAICA: FALL OF OLINT INVESTMENT SCHEME COULD
SEND RIPPLES THROUGH THE ECONOMY

REF: A. KINGSTON 365

B. KINGSTON 328

C. KINGSTON 005

D. 07 KINGSTON 1749

Classified By: Nathan Carter for reasons 1.4 (b) and (d)

Summary
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1. (C) Following in the path of several other alternative
investment schemes (Cash Plus, CAREIF, World Wise, see
reftels),foreign currency trader Olint appears to have
collapsed. Led by CEO David Smith, Olint built a strong
following in Jamaica promising returns of ten percent per
month. Unlike other schemes on the island Olint appealed to
more sophisticated investors. It was subject to a cease and
desist order by the Financial Services Commission (FSC) in
late 2006 which also led to months of court battles with the
National Commercial Bank (NCB) which had sought to close
Olint's accounts. Smith moved his operations to Turks and
Caicos in March 2006 although bank accounts remained with
NCB. Olint's offices and Smith's home were subject to a raid
by police in Turks and Caicos on July 11. Press reports
indicated that Smith's assets were frozen and that he is
under investigation for possible financial crimes, although
no charges have been filed. Many investors have not received
monthly payouts since the beginning of the year. Although
Jamaica has weathered the collapse of previous schemes, the
demise of Olint could cause a negative ripple effect through
the already weakened economy. END SUMMARY

Losses Could Affect Larger Economy
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2. (C) Dennis Cohen, Deputy Group Managing Director at NCB,
expressed concerns about the collapse of Olint, saying it
could hurt the overall economy. (COMMENT: Jamaica is
already reeling from rising food and energy prices which have
hurt growth prospects for the coming year, END COMMENT).
Cohen told Econoff on July 21 that NCB had filed documents
with the court stating that despite public perception that
there is between USD 50 to 200 million in Olint's accounts in
fact there are virtually no funds left. Cohen said the
courts have sealed the documents because it is concerned it
could create a panic if investors were aware that there is no
money in Olint's accounts. Econoff has spoken to many
contacts in the private sector and Government of Jamaica
(GOJ) who had money in Olint. Some investors recognized that
it was a high risk currency trading scheme, but the common
opinion seemed to be that Smith had a legitimate financial
background and a proven system for currency trading. This
perception may have given investors a false sense of
security. The press has reported that a number of
high-ranking politicians from both major political parties
are among Olint's investors.


3. (C) Cohen said he knows of one investor who had more than
USD 4 million in Olint, other business owners had put their
working capital with Olint as a way to boost revenue. He
suggested that the collapse of Olint could severely hurt some
local businesses and would certainly reduce consumer
spending. Cohen said there are a number of Jamaicans who
already have spent the high yield returns they thought they
were getting from Olint. When they are no longer able to
access their funds, it will lead to defaults on car and
mortgage payments. Cohen's concerns have been expressed by
others. Andrew Issa, a realtor who owns the Coldwell Banker
franchise in Jamaica, told Econoff that he expects real
estate prices to fall 10 to 12 percent because of the
collapse of investment schemes on the island. Issa said he
already has seen contracts being rescinded by people who lost
money in the various schemes.


4. (C) The CEO of International Asset Services told Econoff
on July 18 that he has received a significant number of
requests for bridge loans from those who could no longer
access their funds in Olint. Smith has made public promises
that he will make payments to investors within nine months.
There is still no firm figure of how much money was invested
in Olint; estimates range anywhere from USD 200 million to as
much as USD 750 million. As was discovered with other
schemes that already have collapsed, these figures are often
wildly inflated. Olint's amount could be higher than other
schemes, since it appealed to more wealthy and sophisticated
investors.


5. (C) Cohen said members of NCB's staff, including renowned

investment banker and Chairman of NCB, Michael Lee Chin, were
receiving threats from those who blame NCB for Olint's
troubles. The same situation occurred in December 2007, when
NCB was blamed by investors who lost money in the now failed
ponzi scheme Cash Plus. Prime Minister Bruce Golding told
the Ambassador on July 20 that Michael Lee Chin had canceled
an upcoming trip to Jamaica because of threats to shoot down
his helicopter. After several court battles, NCB was ordered
by the Court of Appeals on July 18 to keep Olint's accounts
open. Justice Seymour Paton ruled the bank lacked the power
to close the accounts since "there is no evidence of any
proven illegal transactions in respect of conduct of
operation of accounts."

GOJ Downplays Risks to Economy
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6. (C) The GOJ has warned investors for months of the
inherent risks of putting money in unregulated alternative
investments schemes. The GOJ ordered several investment
schemes to come into compliance by registering with the FSC
in December 2007. Most of the schemes collapsed soon after
including the now infamous Cash Plus (reftels). Olint was
able to continue through legal loopholes, but opted to move
its headquarters to Turks and Caicos. Minister of Finance
Audley Shaw told Ambassador Johnson on July 16 that Olint
failed to come into compliance "which speaks volumes about
the nature of Olint, if a financial company is legitimate why
would they refuse to come into compliance instead of moving
off island? It does not make sense." Shaw said that a Bank
of Jamaica report indicates there is "no threat to the
macro-economic position because of Olint's collapse."


7. (C) Shaw also said the FSC has found a candidate to be the
executive director of the FSC (Bryan Winter stepped down from
the post in December 2007). The unnamed candidate is an
attorney of Jamaican decent who worked in regulatory affairs
at Citibank in New York. Shaw said he wants to act
decisively in strengthening the legal framework of the FSC to
be able to act more quickly when the next Olint type of
scheme emerges.

Is A Perfect Economic Storm Brewing?
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8. (C) Despite Shaw's confidence in the resilience of the
Jamaican economy, Keith Collister, a respected financial
analyst for the Gleaner newspaper, wrote on Sunday July 20:
"the principle short-term threat to the economy...is the
collapse of Jamaica's high interest investment schemes...an
impact that is likely to last several quarters..." Dennis
Chung, an accountant with a column at the Observer newspaper,
wrote on July 18 that Jamaica is preparing for "a perfect
economic storm," blaming years of political mismanagement
and corruption, rising oil and food prices, increasing crime
rates, and the failure of alternative investment schemes
which will have a negative impact on consumer spending
particularly in the motor vehicle and motor vehicle sectors."


COMMENT
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9. (C) The GOJ's strategy for addressing the collapse of
other investment funds has been to draw out the process
slowly, "like letting air out of balloon" said Shaw. The GOJ
does not want to create panic, and will let the investigation
of Olint in Turks and Caicos run its course. NCB's Cohen
said he thinks the investigation in Turks and Caicos will
take at least three months. Meanwhile, legal battles in the
courts regarding Olint's activities are likely to continue.
The collapse of Olint is the latest in a string of negative
waves to hit the Jamaican economy; it is still too early to
tell how serious of an impact Olint's demise will be on
macro-ecoQic and security conditions.
JOHNSON