Most Jamaicans likely recall the period I like to refer to as the “Cash Plus Era”. This era was marked by the rise of a number of alterative investment schemes, the two most popular of which were Cash Plus and Olint. Many Jamaicans placed money in these schemes and at least for a time received returns unmatched by regulated banks or financial institutions. Needless to say, when something seems too good to be true, it often is. The schemes, now considered to be “ponzi schemes”, crashed, leaving behind many disgruntled investors.
The Securities Act and the FSC
The Financial Services Commission (“FSC”) regulates and supervises all licensees under the Securities Act, namely securities dealers and investment advisers. It unfortunately became apparent during the Cash Plus Era that the Securities Act did not contain sufficient provisions to properly enable the FSC to regulate or curtail the activities of alternative investment schemes. In late 2013, an Act to amend the Securities Act was passed. This article highlights a few of the amendments made, a number of which were introduced in order to enhance the FSC’s oversight of investment services and to allow the FSC to better protect the interests of the public. As such, the amendments have varying implications for investors and players within the securities market. Consequently, if you are presently structuring an investment scheme or if you have been invited to participate in an investment scheme, the following points should be of interest to you:
(1) It is now an offence to offer or invite someone to participate in a “prohibited scheme”
The Act defines “prohibited schemes” as including “ponzi schemes” and “pyramid schemes”. A ponzi scheme for instance, refers to a “scheme that provides investors with returns derived substantially from investments made by other investors… rather than from genuine profits…”
A person who establishes, operates or invites persons to participate in a prohibited scheme may face imprisonment for up to 10 years.
(2) You must obtain a licence from the FSC to operate a Collective Investment Scheme
A Collective Investment Scheme, in essence, refers to any scheme, whether in Jamaica or elsewhere, whereby members of the public are invited to invest (a) in a portfolio of assets managed by or on behalf of the scheme; OR (b) on terms where investors hold a participating interest in receiving profits or income and share in the risk and benefits of the scheme.
This is a very broad definition. The intention here is to bring all investment schemes under the purview of the Act and the FSC. Accordingly, unless a scheme falls under a specific exemption, or constitutes a “prohibited scheme”, it ought to be licensed by the FSC.
(3) Investment Clubs do not need to be licensed by the FSC
Investment Clubs, which meet certain criteria, will be exempt from the licensing requirement imposed on Collective Investment Schemes. The criteria include: having a maximum of 20 people; having a requirement for each person to contribute equal sums at agreed intervals; having a maximum annual contribution as specified by the FSC; prohibiting borrowing from the public; and filing returns with the FSC; “Partner” plans/groups which satisfy all the requirements would be exempt from the licensing requirement.