To the Securities and Futures Commission, Convoy, and the Media:
On December 2nd, Convoy made an announcement that insiders, which seem to include CEO Rosetta Fong and Chairman Quincy Wong, have dumped more than half of their shares of Convoy at a discount to the current stock price. Does it mean they have lost faith in their company’s stock? Do they know something that the public doesn’t? Are they trying to transfer potential future losses to outsiders with less knowledge of the risks that the company faces? I believe Convoy should provide public shareholders with an explanation, and the SFC should investigate whether any insider trading laws have been broken.
Several months ago, I predicted that Convoy’s major shareholders would dump their stock, and anyone who has read my blog knows why. In short, Convoy’s primary business of selling ILAS is unethical and vulnerable to regulatory reforms. Plus, the company is a sitting duck just waiting to be blasted with a never-ending stream of lawsuits. Here are three reasons why:
1) Convoy has made almost all of its money from selling ILAS to Hong Kong citizens, yet ILAS is a tax avoidance product designed for expats. Hong Kong citizens have no good reason for owning ILAS because they don’t pay any capital gains taxes. I believe Convoy has failed to perform its fiduciary duty in recommending ILAS to its local clients.
2) According to industry veterans, 99% of 25 year ILAS policies (and 93% of ILAS policies in general) are surrendered before maturity. Convoy knows this, and yet it keeps recommending long-term ILAS contracts to its clients, knowing that it’s bad advice. Convoy doesn’t even offer a warning to clients that the policy completion rate is so low. I believe this is another area in which Convoy has failed to perform its fiduciary duty.
3) Until regulators started requiring it recently, Convoy did not disclose to clients that it would be paid a commission from insurance companies that issue ILAS products that it sells. These commissions create a conflict of interests that corrupt advice, and many (if not most) of Convoy’s clients were unaware. According to the judge that handled Jeremy Hobbins’ unsuccessful lawsuit against Clearwater, brokers have a fiduciary duty to disclose the existence of a commission. I believe this means that anyone unhappy with the advice given by Convoy could successfully sue them for not disclosing the existence of the (large) commission that led to the bad advice.
I have a number of Chinese friends who have been unsuccessfully trying to get their money back from Convoy, but they don’t have the financial means to initiate a lawsuit. If anyone reading this would like to offer them some assistance in doing so, please contact me. I am willing to help organize a class action lawsuit (or the closest equivalent that exists in Hong Kong).
This letter will be posted at TheRapeOfHongKong.com.
P.S. For those that don’t understand the complex ownership structure of Convoy, see this link. The info is a bit old, but I assume that Rosetta Fong and Quincy Wong each still have a 19.7% stake in Convoy Inc, which owns most of CFG (Convoy Financial Group Limited), which just sold a ton of shares of the publicly listed Convoy Financial Services Holdings.