‘It does not make commercial sense’

Claiming that the transaction “does not make commercial sense”, Sagicor Investments Jamaica last year demanded an explantion from Cornerstone for Rita Humphries-Lewin’s sale of 28.2 million shares in Barita, to pay for 1.4 million stocks in Cornerstone.

Sagicor Investments is a minority shareholder in Cornerstone, a private investment firm it sued in Barbados for US$4 million in 2021 in a separate matter.

Its concerns were raised in an April 2022 letter made public in an affidavit filed in the Jamaican Supreme Court by Jason Chambers, the chief investment officer at Cornerstone United Holdings Jamaica (CUHJ) and Cornerstone Financial Holdings Limited (CFHL).

The two Cornerstone companies, along with Chambers, and their founder and CEO Paul Simpson applied to the court in May for a declaration that the 2021 transactions involving Humphries-Lewin were legal.

They sought the court’s intervention following accusations by Humphries-Lewin’s niece, Deborah Mordecai Edwards, that the Cornerstone team used fraud and deceit to get her 87-year-old aunt, whom she said is battling dementia, to sell more than J$2 billion (US$15 million) worth of shares in Barita to pay for the Cornerstone stocks.

Cornerstone, Simpson and Chambers have rejected the allegations and Cornerstone has instead questioned whether a purported request for more than US$20 million by Mordecai Edwards could be viewed as “extortionate”.

Humphries-Lewin sold Barita Investments Limited to Cornerstone in a $3-billion deal in 2018. She maintained a minority stake.

However it is the 2021 deals which are at the centre of Sagicor’s concern.

RAISED STRIKINGLY SIMILAR ALLEGATIONS

Sagicor’s April 2022 letter was a follow-up to one it sent Cornerstone in February that year, questioning the transactions involving Humphries-Lewin. Both were written by its general counsel.

In the first letter, Sagicor said it wanted documentation in relation to three issues, one of which involved the allotment of 1.4 million Cornerstone shares to Humphries-Lewin.

Another issue was an allotment of 1.4 million shares by Cornerstone at the subscription price of US$0.0001 per share dated December 30, 2021. The third matter was about the sale of 28.2 million shares in Barita by Humphries-Lewin to Cornerstone on September 28, 2021 at a settlement price between J$101.30 and J$103.50 per share.

Sagicor said it did not get a response and wrote again in April 2022.

Chambers said the second letter raised “certain allegations strikingly similar” to a March 31, 2022 complaint Mordecai Edwards sent to the Bank of Jamaica in which she demanded an investigation.

The April letter, which was addressed to the Cornerstone board, through Chairman Mark Myers, pointed to a Jamaica Stock Exchange activity report which it said noted that on September 28, 2021, Humphries-Lewin sold 28.2 million shares she had in Barita.

It said Cornerstone Financial Holdings purchased the same number of Barita shares (28.2 million at $102.70 per share), which Sagicor said meant that Cornerstone Financial Holdings was the purchaser of the Barita shares sold by Humphries-Lewin.

US$3.3M UNACCOUNTED FOR, CLAIMS NIECE

According to Sagicor, Humphries-Lewin “seemingly liquidated” 28.2 million Barita shares to acquire 1.4 million shares in Cornerstone.

“This action does not make commercial sense,” the firm said, adding it “understands the mental acuity of Humphries-Lewin to have declined considerably in recent times and well in advance of the APO (additional private offer)”.

Chambers addressed the price surrounding the Barita shares in light of Mordecai Edwards’ claim that the number of Barita shares sold to pay for the Cornerstone stocks exceeded the value of the shares Humphries-Lewin authorised to be sold. She contends that approximately US$3.3 million remains unaccounted for.

Chambers explained that Humphries-Lewin and Barita agreed to a sale price of J$80 per unit for the Barita shares.

But he said at the time that trade was done at the agreed price, “a sum of J$102.70 was represented on the contract note being the price the stock was trading at when the block of shares crossed the floor of the Jamaica Stock Exchange (JSE) having regard to the fact that the trade was done by way of an independent transfer”.

A contract note, according to the JSE, is like a receipt that records the details of the trade executed, including agreed prices and commissions.

A copy of the contract note attached to Chambers’ affidavit states the price as J$102.97 and a principal amount at J$2.9 billion for 28.2 million shares.

It said Barita was the agent and the transaction took place on September 28, 2021 with settlement two days later. The note was addressed to Humphries-Lewin.

Chambers said that the price at which the Barita stock was trading when the shares Humphries-Lewin was selling crossed the floor “is solely relevant for the purposes of determining the fees due to the JSE and the Jamaica Central Securities Depository in relation to the trade”.

“However, the Barita shares were sold at a price of J$80 in accordance with the agreed and contracted price set out in the authorisation letters, which was generally consistent with the price the shares were trading at when the term sheet was executed on May 1, 2021,” Chambers said.

He also indicated that Barita was undertaking an additional public offer of shares around the same time in September 2021 and that the offer was for the same price of J$80.

Chambers said the first time he became aware of any “mental incapacity” surrounding Humphries-Lewin was when Sagicor raised it in their first letter.

Cornerstone acknowledged in its filings that Humphries-Lewin signed undated authorisation letters which were subsequently used to instruct Barita to sell enough of her shares to pay for her acquisition of Cornerstone stocks.

THE BOARD WAS AWARE

Meanwhile, Sagicor, in its April 2022 letter, claimed that the Cornerstone board was aware of its offer on September 12, 2021 to sell 2.3 million shares in Cornerstone “for the total price of US$12.5 million (effectively US$5.50 per share)”.

It also made reference to a December 2021 press release from Cornerstone chairman Myers in which he said “having put nothing down just three years ago, Sagicor is now offering the shares it holds in Cornerstone for US$12.5 million”.

Sagicor also pointed to a statement Myers made to the Bank of Jamaica in which he said “Cornerstone has no interest in purchasing its own shares and has instead indicated to SIJL (Sagicor Investments) that it would be prepared to assist SIJL in identifying a satisfactory buyer for the said shares”.

Another December 2021 statement from Cornerstone was also referenced. In that one, Sagicor highlighted Cornerstone’s comment that:

“In late August 2021, SIJL proposed to Cornerstone that it would stay legal action if Cornerstone bought or guaranteed the sale of SIJL’s Cornerstone shareholding. While Cornerstone is in contact with one or more potential buyers, Cornerstone declined the unusual requests to guarantee the sale of SIJL’s Cornerstone shareholding as it has no interest or need to buy its own shares. In response to this fact, Cornerstone anticipates that SIJL may take legal action against Cornerstone and/or its directors”.

Sagicor filed its claim against Cornerstone in Barbados in December 2021.

Sagicor said it was against the background of the Cornerstone statements that it “requires clarity” regarding the Humphries-Lewin transaction.

It asked 10 questions and among them was whether Cornerstone was represented by attorneys and to identify them; whether the Cornerstone board discussed the “mental acuity” of Humphries-Lewin, and whether the board was aware that Humphries-Lewin was not legally represented in the transactions.

“Was the board given legal advice relating to the appropriateness of Dr Humphries-Lewin being unrepresented in a transaction involving US$15 million?” Sagicor asked.

It queried, too, whether the board recognised that the RHL (Rita Humphries-Lewin) transaction was “extremely unfavourable” to Humphries-Lewin.

“If CFHL desired additional Barita shares, why not just purchase them in the APO?” Sagicor questioned.

Sagicor said it “requires complete transparency on this matter” and gave Cornerstone an April 28 deadline to respond.

There were no responses from Cornerstone included in Chambers’ affidavit.

BREAKDOWN OF BARITA SHAREHOLDERS

Cornerstone and its executives have insisted that the Lewins (Rita and her husband Karl) indicated that they consulted with attorneys throughout the negotiations between April 2021 and September 2021.

“As far as I am aware, Rita signed all the documents after consultations with Karl, and based on representations by Karl, after consulting with their attorney,” Paul Simpson, the Cornerstone boss, said in his affidavit.

His affidavit also included a breakdown of Barita shareholders.

The documents showed that up to July 31, 2021, Humphries-Lewin held 53.6 million shares in Barita, making her the fifth largest shareholder with a 4.93 per cent stake in the company. By September 30, 2021, her position remained but her stake fell to 2.16 per cent with 26.3 million shares.

Humphries-Lewin’s financial advisor and current Barita executive Sonia Owens, who recommended the 2021 Cornerstone investment, said Humphries-Lewin showed no signs of being unwell during the talks.

In a filing in a separate court matter, Karl, 86, claimed that his wife’s memory deteriorated significantly between 2016 and 2019 when she was diagnosed in the US.

Using the Mental Health Act, he has asked the Supreme Court to name him and two relatives to a committee to be responsible for her affairs.

There is no evidence so far to suggest that he revealed the diagnosis during the 2021 Cornerstone-Barita negotiations.

The first hearing of the Cornerstone application is set for October.

In 2021, Rita Humphries Lewin bought 1.4 million shares in Cornerstone at US$10.80 per unit through a private offer that Simpson said he instructed Chambers to pursue. She sold some of her Barita stocks to cover the costs.

Her niece, Mordecai Edwards, who is an attorney and chairman of BPM Financial Limited, a competitor of Barita, claims that her aunt did not have a lawyer and that Cornerstone took advantage of the retired elderly woman because around the same time as the transactions, Cornerstone sold shares at US$1.40.

But Cornerstone has rejected those claims, arguing that the lower price was made to existing shareholders in a separate and unrelated transaction.

Cornerstone and its executives have also said they were not aware that Humphries-Lewin was diagnosed with dementia in 2019 and that she appeared sound throughout the negotiations.

Earlier this month, Jamaica’s financial crimes agency, the Financial Investigations Division (FID), said there may be “some merit” to Mordecai Edwards’ claim, but it was “nowhere near the stage of saying that the allegations are valid and whether anyone will be charged criminally”.

The Financial Services Commission, which regulates investment houses such as Barita, said it is aware of Mordecai Edwards’ complaint.

“Our internal processes to treat with this matter have been engaged and policy dictates that we cannot provide further comment at this time,” the FSC said in an earlier response to questions posed by The Sunday Gleaner.

 

jovan.johnson@gleanerjm.com

Sagicor Investments Jamaica’s 10 questions to Cornerstone in its letter of April 22, 2022

1. Was Cornerstone represented by attorneys in the RHL (Rita Humphries-Lewin) transaction? If so, please advise which firm (or individual) attorney/s acted in the matter.

2. If attorneys were involved in the matter on the company’s behalf, to whom did they correspond in relation to the counterparty to the RHL transaction? If this was Dr Humphries-Lewin, please provide copies of all communications sent to Dr Humphries-Lewin in relation to the RHL transaction.

3. Please provide copies of the governing documentation relating to the RHL transaction (i.e. the “transaction documentation”).

4. Did the board discuss the mental acuity of Dr Humphries-Lewin in assessing and approving the RHL transaction?

5. Was the board aware that Dr Humphries-Lewin was not legally represented in the RHL transaction?

6. Was the board given legal advice relating to the appropriateness of Dr Humphries-Lewin being unrepresented in a transaction valued over US$15 million?

7. Does the board recognize that the RHL transaction was extremely unfavourable to Dr Humphries-Lewin?

8. Recognising that it is the board of a regulated entity, does the board consider it appropriate to enter into a transaction exceeding US$15 million with an unrepresented counterparty?

9. What is the commercial reason for the purchase on September 28, 2021 of 28,231,734 Barita shares by CFHL (Cornerstone Financial Holdings Limited) at J$102.70 per share, when the Barita APO, which closed on September 6, 2021, offered Barita shares at the price of J$80 per share? If CFHL desired additional Barita shares, why not just purchase them in the APO?

10. Was Dr Humphries-Lewin one of the purchasers that the Cornerstone chairman identified as being advised of SIJL’s (Sagicor Investments) offer to sell its Cornerstone shares for US$12.5 million (per aforementioned press releases)?