Big bonuses, internal weaknesses factor in CL Financial collapse

A former senior official at the cash-strapped CL Financial Group has painted a picture of political intrigue, exorbitant bonuses and significant weaknesses in internal controls that led to its financial problems a few years ago.

Testifying at the commission of enquiry into the collapse of CL Financial, the parent of the flagship company Colonial Life Insurance Company (CLICO), former group financial director, Michael Carballo, said "there were some weaknesses in internal controls, significant weaknesses in internal controls at CL Financial.

"There were significant problems in terms of what we call proper segregation of duties, whereby the payee and the person approving the payment voucher under proper standards are supposed to be separate, so you are supposed to have a segregation of duties, so you do not have one paying themselves, and this was highlighted when CL Financial had what it called a corporate oversight team."

He told the one-man commission that people were preparing vouchers and paying themselves and that it was a "hard to control situations like this".

He said, for instance, that the then corporate secretary Gita Sakal controlled "all banking arrangements and paying herself".

Carballo testified that a US$5 million debit was made from CL Financial's US-dollar account at a bank in Trinidad to pay Sakal's consultancy firm, Corporate Consultants Ltd.

Caballo said Sakal signed both the invoice and the bank instructions to have the funds debited.

He said that former CL Financial chairman, Lawrence Duprey was unaware of the payment to Sakal and ordered that the money be "immediately returned".

Sakal was paid a US$35,000 monthly salary and was entitled to a US$2 million annual bonus, Carballo said.

Carballo said his immediate predecessor, André Monteil, also sought a US$2 million consultancy fee and TT$194 million (US$32.2 million) in commissions to help CL Financial out of its financial troubles.

Carballo said the CL Financial board of directors was "outraged" that Monteil would seek such "exorbitant fee on the heels of CL Financial seeking liquidity".

Carballo said Monteil was also selected to help broker the billion-dollar bailout of CL Financial with the then Patrick Manning government because of his "political" affiliation.

The witness said he was told to "take a back seat" by Duprey in favour of Monteil, who was then treasurer of the then ruling People's National Movement .

"Mr Duprey told me that he wanted Mr. Monteil to be involved and that I should take a back seat," Carballo said, adding that he was told by Duprey that the selection of Monteil was a "political intervention".

"I was taken aback. I was out of the loop," Carballo said.

Carballo said that on January 27, 2008, days before a memorandum of understanding (MOU) was signed, Duprey presented Monteil's plan in an emergency meeting of the CL Financial's board.

He said only Duprey voted in favour of Monteil's proposal, while the rest of the board unanimously objected to the offer because Monteil was forced to step down as CL Financial group financial director less than a year earlier.

"The board was in a total uproar," Carballo said.

However, Duprey still let Monteil and his Stone Street Capital company handle the bailout, Carballo said. The MOU was signed on January 30, 2008.

The day after the MOU was signed a special meeting of the CL Financial board was held.

"It was a meeting with a lot of emotions. Board members were very upset. They questioned if Mr. Duprey had the authority to sign the MOU. It was felt that the MOU was meant to destroy the company rather than protect the assets.

"The choice of Stone Street Capital was questioned. It was a very heated meeting and board members were completely outraged," Carballo said.

During his day-long testimony on Tuesday, Carballo also spoke of "strange" commissions being paid during the investment in real estate projects in Florida.

He said a broker named Charles Pratt told him that he was paid US$85 million on the US$300 Green Island Project.

Carballo also questioned the project management of some of the real estate projects in Florida.

"It was only after I moved to CL Financial I realised how these projects were managed, it was via an entity called DYL," Carballo said.

Carballo said DYL is an acronym for the surnames of Lawrence Duprey, John Yanopoulos and Geoffrey Leid.

"And again I wonder what is Geoffrey Leid's involvement in this, especially at a time when Geoffrey Leid is a director and company secretary of an insurance company called CLICO.

"To my knowledge, you cannot be a director and company secretary at CLICO, and sneak in behind the scenes and generate significant fees on projects whereby the exact funding is coming from the same organisation that you are a director of. DYL is being funded by CLICO," he said.