Tag Archives: LM

LM Investment Management

Feeding Readers to Sharks: Thailand’s Big Chilli Magazine Sells Out to Dishonest, Unlicensed “Financial Advisers”

Over the past year, Big Chilli has published several articles about the financial devastation caused by unscrupulous, unlicensed “financial advisers”. The magazine appeared to be committed to alerting the public to the deceptions, ripoffs, and criminality which have plagued the country’s financial services sector. Now, sadly, Big Chilli has become a facilitator.

On pages 18 and 19 of the latest edition of Big Chilli, there is a conspicuous advertorial for an unlicensed, unregulated investment advisory company called South East Asia Capital (SEAC):

Swimming with Dolphins or Drowning with Sharks

Click HERE to go to the advertorial.

The advertorial is loaded with blatantly false, misleading, and hypocritical statements, but that’s only the beginning of the problems.

All of SEAC’s Directors Previously Worked for a Company on the Thai SEC Investor Alert List

According to the Thai SEC’s website, no company named South East Asia Capital (SEAC) is licensed, nor are any of its directors.

A Google search indicates that all of SEAC’s directors—Ian Ferguson, Billy Popham, and Stephan Tierney—previously worked at MBMG International Co., Ltd, a company which is now on the SEC’s Investor Alert List for unlicensed securities and derivatives business.

Section 289 of Thailand’s Securities and Exchange Act states that any person who undertakes securities business without a license “shall be liable to imprisonment for a term of two to five years and a fine from two hundred thousand baht to five hundred thousand baht and a further fine not exceeding ten thousand baht for every day during which the contravention continues.”

Below are photos from the Pattaya Mail, which show the SEAC gang when they apparently worked at MBMG International:

Popham lists MBMG International as a previous employer on his LinkedIn profile:

Tierney previously had an MBMG International email address:

Ferguson was previously listed as MBMG International’s Sales Director:

MBMG International is a part of the MBMG Group. Anyone who follows Andrew Drummond’s website will probably recognize the name. Last year, Drummond exposed the secret history of an MBMG analysist, Stephen Hinch, who in the 1990s “was deported from the United States for stealing client funds.” Hinch was subsequently fired. Drummond also revealed that MBMG employed Alan Hall from 2005-2006 and maintained a business relationship for two more years. After leaving MBMG, Hall began recklessly flogging the notorious LM Managed Performance Fund, a high commission Ponzi scheme which collapsed in March 2013.  Hall subsequently fled Thailand.

Links to Drummond’s articles are here:

A few months ago, Drummond also revealed that MBMG previously had a long business relationship with Cobus Kellermann, one of the key players in the allegedly massive Belvedere Management fraud. According to a statement issued by MBMG, the company cut ties with Kellerman in 2012 before there were any fraud allegations. Drummond says, “The association between [MBMG and Kellerman] seems to have dated back to at least 2004.”

The link to Drummond’s article is here:

[Note: After this blog post was published, MBMG Group Managing Partner, Paul Gambles, contacted the author. Gambles says that MBMG International was placed on the SEC Investor Alert List after a client complained to the SEC. Gambles claims that MBMG International did not break Thai licensing laws, and that the client’s complaint was unsubstantiated. The identity of the alleged complainant is not known and so has not been contacted for comments.

Archived snapshots of the MBMG International website from 2009 and 2010 can be found here:

If one clicks on the “Meet the Team” section of the website, one will find that Popham and Ferguson are listed as “client advisors”. Cobus Kellermann is listed as a fund manager. On the “Services” section of the website, MBMG’s “core business” is stated as “financial planning and investment advice”.

The only company in the MBMG Group that has obtained an SEC license to perform investment advisory services is MBMG Investment Advisory Company Limited. The “Commencement Date” for that license is listed as Jan. 2, 2014. Paul Gambles is the only person who is currently listed as a licensed representative.]

The Great Insurance Wrapper Ripoff

In its advertorial in Big Chilli, SEAC claims:

“We have based our business model on the UK Retail Distribution Review (RDR) that was introduced in 2013…Like the UK, our Preferred Investment Partners pay us a small ongoing fee from their funds under management, taken out of their annual management charge. Of course, if they fail to grow the client’s investments the client can elect to switch out at any time without charge.”

SEAC’s claims are both false and misleading.

Its “preferred investment partners” are discretionary investment managers. In the UK, discretionary investment managers are banned from paying kickbacks to financial advisers or any firm “which makes personal recommendations to retail clients in relation to retail investment products.” (FCA Policy Statement PS14/1)

Thus, SEAC’s business model is not based on RDR, and it is not “like the UK”.

Also, while SEAC emphasizes that the trail commission on the investments is allegedly “small” and that the investor can “switch out at any time without charge”, SEAC fails to mention that it intends to place these investments in high-fee, high-commission insurance wrappers (portfolio bonds and savings plans) with lock-ins of up to 8 years or more. Investors cannot “switch out” unless they pay a hefty exit penalty. The commissions are so high that one insurer, Royal Skandia, was sued for bribery in Hong Kong.

Here’s an excerpt from the SEAC advertorial:

SEAC - Terms of Business with Wrapper Providers

SEAC was dishonest about a number of things in its advertorial, but it told the truth when it said, “Many people still entrust the crucial role of managing their money to people who are not regulated or qualified, financial witchdoctors who gamble with the hapless investor’s assets while charging high commissions.”

Red Flags Surround ALL of SEAC’s “Preferred Investment Partners”

SEAC speaks highly of its three “preferred investment partners”—Apollo Multi Asset Management, Newport Private Wealth, and Siam Knight Fund Management—but a little bit of research uncovers several troubling facts.

The most obvious red flag is that all of these investment companies (as well as the insurance companies) have chosen to distribute their products through SEAC—an unlicensed, unregulated financial advisory firm.

Apollo: Entangled in the Belvedere Management Fraud

Apollo Investment Team

Apollo Multi Asset Management is based in the UK. Less than two months ago, Professional Adviser magazine reported that:

“[Apollo Multi Asset Management] has been forced to freeze redemptions on one of its funds [the Four Elements Apollo fund], after becoming caught up in an investigation by the Mauritian regulator into an alleged Ponzi scheme [operated by Belvedere Management].”

Prudent financial advisers would not risk putting their clients’ money with fund managers who are “caught up” in a fresh Ponzi scheme investigation. The advisers at SEAC don’t seem to mind though, possibly because they, as former employees of MBMG Group, had a prior business relationship with Kellermann of Belvedere Management.

Newport: Sales Executive Previously Promoted the LM Ponzi Scheme

Newport Private Wealth is based in Australia. The company’s head of “business development” in the Far East is Cameron Knox, former CEO of the Financial Partners group and current CEO of Imperium Capital, a company which is part of the Financial Partners “global affiliation”.

Cameron Knox - ImperiumFP Global Affiliation

The Financial Partners “global affiliation” was one of the most aggressive sellers of the LM Managed Performance Fund, a massive Australian Ponzi scheme that has left thousands of victims devastated. Knox was dispatched to Australia immediately after the LM scheme collapsed, for the purpose of doing what might be called “belated due diligence”. A group of victims in Thailand recently filed a complaint against one of his company’s advisers, who was flogging the LM fund without a license.

LM is not the only fraudulent fund that Financial Partners has promoted. Just as scandalous is the Lighthouse Mutual Fund, whose investors have also suffered total losses. Former chairman of the Financial Partners group, Sean Kelleher (now CEO of Mondial), was one of Lighthouse’s directors. Some victims (in contact with the author of this blog) allege that Kelleher’s conflicts of interest were not disclosed when the Lighthouse fund was introduced to them.

In addition to the Lighthouse and LM scandals, Financial Partners was also involved in the Arch Cru investment fraud. FT Adviser reports that Arch incurred “losses of approximately $8.9m on an investment into international IFA firm Financial Partners Group relating to a joint venture to market Arch products in Asia“. The Arch products went up in smoke, along with the $8.9m investment.

Newport Private Wealth’s founder and director, Andrew McKay, has had a business relationship with Knox and the Financial Partners group for more than a decade.

Andrew McKay

The “About Us” section of Newport’s website claims: “We are independent & objective & therefore we are not tied to the products (& commissions) often associated with larger groups.”

However, Newport admits that it invests clients’ money mostly in a set of 8 funds, called Harmony, which are managed by a company in London called Momentum Global Investment Management (MGIM).

Several sources say that MGIM’s South African parent company recently purchased Financial Partners Limited in Hong Kong. This is corroborated by the fact that the home page of Financial Partners’ website currently displays a video produced by MGIM:

MGIM Youtube

Siam Knight: Recently Fined for 6 Separate Regulatory Violations (Including One Offense)

Jeremy King

Jeremy King, CEO of SKFM

Siam Knight Fund Management (SKFM) is based in Thailand. On 10 February 2015, the Thai SEC fined SKFM 650,600 baht for six different regulatory violations. One of those violations was a criminal offense.

According to the SEC, “[SKFM] prepared financial statements for the year 2011 onward by stating inaccurate information making higher equity rather than in actual value.

Jeremy King is the current CEO of SKFM. In the 1990s, King was the managing director of Kerry Securities in Hong Kong. After a two and a half year investigation, the SFC publicly reprimanded Kerry Securities in 1997 for regulatory breaches. King resigned from Kerry Securities in July 1996 under suspicious circumstances. He appears to be one of the individual targeted in the SFC’s investigation.

Excessive Fees and Commissions

A slew of Nobel Prize-winning economists advise investors to avoid high-cost actively managed funds and to instead buy low-cost index funds. The most popular ETF index funds have annual fees of 0.15% or lower.

In contrast, actively managed funds usually have fees that are ten times higher—around 1.5%.

How do the fees of SEAC’s “Preferred Investment Partners” stack up by comparison?

SKFM

SKFM does not disclose any information about its fees on its website, which probably means that the fees are so appallingly high that it is necessary to hide them.

Apollo

Apollo claims to waive its discretionary management fee. However, it admits to investing 60% of clients’ money in funds that it managers. These funds have their own fees, which range from roughly 2 to 3.4%.

The fees are quite high, but Newport’s fees are even higher.

Newport

Newport charges 1% for its so-called “independent” discretionary management service. It then invests clients’ money primarily in the eight Harmony Funds managed by Momentum Global Investment Management (MGIM). The Harmony Funds have their own additional fees, which range between 2.6 and 4.5%:

Harmony Fees

Newport’s 1% discretionary management fee and the 2.6 to 4.5% fund fees are in addition to the insurance wrapper fees, which by themselves can be over 6% during the initial allocation period.

In total, investors will be paying at least 5% per year, possibly a lot more.

How Much Does SEAC get?

Newport discloses that it kicks back 0.5% of the 1% discretionary management fee, plus all of the 0.5% trail commission from the Harmony Funds.

The insurance wrapper kickback is much higher. For an insurance-wrapped savings plan with a 25-year lock-in, the upfront commission is roughly equal to all of the money that the investor pays during the first year. For a portfolio bond, the commission is 6-8% of the amount invested.

Big Chilli Magazine Facing Hong Kong Wrath

In the latest edition of Big Chilli, just a few pages back from the outrageous SEAC advertorial, Big Chilli also published an article about this blog, called “Financial Advisers Facing Hong Kong Wrath“:

Thailand Financial Advisers Facing Hong Kong Wrath

The article described how this blog had exposed several financial advisers for operating in Thailand without a license.

Thanks to Big Chilli’s bizarre and reckless editorial decisions, SEAC can now be added to the list of exposed “financial advisers”.

Assuming Big Chilli cares about its reputation and the financial safety of its readers, then, in its next edition, Big Chilli ought to publish a public apology, along with a note of caution regarding SEAC and its investment partners.

Related Links

Unlicensed, Thailand-Based Financial Adviser Expands Illegal Business Operations Into Hong Kong (The Rape of Hong Kong – April 3, 2015)

Unlicensed Financial Advisers Defy Thai Regulator After Being Placed on Investor Alert List (The Rape of Hong Kong – April 1, 2015)

Hong Kong-Headquartered Financial Advice Groups Placed on Thailand’s Investor Alert List (The Rape of Hong Kong – March 20, 2015)

Big Chilli

Swimming with Dolphins or Drowning with Sharks: Who Is Looking after Your Investments? (SEAC Advertorial) – (The Big Chilli – May 2015)

Financial Advisers Facing Hong Kong Wrath (The Big Chilli – May 2015)

Suffering from LM (The Big Chilli – April 2015)

Questions that All IFAs Need to Answer (SEAC Advertorial) (The Big Chilli – April 2015)

Big Mango Investment Query (The Big Chilli – April 2015)

LMIM Scandal – The Anger Spreads – (The Big Chilli – May 2014)

The LMIM Collapse: One Year Later, an Investor Speaks Out (The Big Chilli – April 2014)

Expat Investors Face New Fears Over “Illegal” Fund (The Big Chilli – April 2014)

Desperate Plight of Senior Expat Investors (The Big Chilli – March 2014)

Expats Stand to Lose Their Investments After Australian Fund Collapses (The Big Chilli – Sept 2013)

Unlicensed, Thailand-Based Financial Adviser Expands Illegal Business Operations Into Hong Kong

Neil Robbirt Profile

Neil Robbirt, CEO of Global Investments

In many parts of the world, commission-driven sellers of dodgy insurance policies and investment funds euphemistically describe themselves as “financial advisers”. Some stretch the truth even further, calling themselves “independent” financial advisers.

This misleading sales tactic has now been outlawed in the UK, but British insurance salesmen who expatriate to poorly regulated foreign countries continue to abuse the English language, as well as the gullibility of inexperienced investors.

Neil Robbirt, CEO of Global Investments, is one of these British salesmen.

Reckless Disregard for Thai Law

Global Investments has been headquartered in Thailand since 1994.  The company’s website states that it has sold financial products to over 3,000 people, and that it is “proud to be one of the most reputable and well-established names in the financial services industry”.

An official from the Thai Securities and Exchange Commission (SEC) has confirmed by email that Global Investments and Neil Robbirt are not licensed to sell investment products in Thailand, a fact which can be verified by checking here on the SEC’s website.

The penalty for selling investment products in Thailand without a license is between two and five years’ imprisonment and a fine of 200,000 baht to 500,000 baht.

An official from the Thai Insurance Commission confirmed by phone that Global Investments is also not licensed to sell life insurance policies.

The penalty for selling insurance policies in Thailand without a license is up to 6 months imprisonment and a fine of 50,000 baht.

Ponzi Scheme Promoter

Global Investments has left a trail of evidence on the internet showing how it misleadingly and negligently promoted the LM Managed Performance Fund (MPF), an unregulated collective investment scheme which is now known to have been a Ponzi scheme. The South China Morning Post has reported that the fund paid upfront commissions as high as 15%. The commission levels were so far above normal that it immediately sent up red flags to numerous industry insiders, such as Martyn Terpilowski, who identified the fund as a Ponzi scheme 4 years before it collapsed.

Below is an advertisement which Global Investments apparently paid for, in its attempt to boost sales and cash in on LM’s juicy commissions:

LM MPF Advertisement - Global Investments

Source: Page 5 of the 16 Sept 2011 Edition of AWOL

The ad claims there were “no fees”, even though the fund manager (LMIM) collected 5-10% per year in fees and paid salesmen up to 9% upfront commissions at the time. The ad also emphasizes that LM was regulated by ASIC, while neglecting to mention that the MPF was not.

The ad appears to target the general public, despite the fact that the MPF was a “professional investor” fund, not intended or suitable for ordinary retail investors.

“Poacher Turned Gamekeeper”

One ex-client alleges that Global Investments sold the LM MPF to over 100 people.

An LM victims group leader says that the company “topped the league table of all unlicensed Thailand-based ‘financial advisers’—both in number of clients trapped in MPF and total value of losses caused.”

After the MPF collapsed, CEO Neil Robbirt joined hands with several other “advisers” who had been flogging the fund. Together, they formed the executive committee of the “Advisers Committee for Investors” (ACI), a group of salesmen purporting to be fighting for the best interests of the people they had screwed. (See here.)

One LM victim cynically describes the ACI as “poachers turned gamekeepers”. Many believe that one of the main objectives of the ACI is to deflect attention away from the executive committee’s own greedy, reckless, and in some cases illegal behavior.

Luring Retirees into High Risk Funds

In an article originally published in the Bangkok Post, Neil Robbirt claimed that most of his clients were retirees and that he convinced them to put their money in funds that were allegedly earning returns of 12-14%.

In the same article, he also plugged the LM MPF’s “fixed rate of return” of 8.32%, which was itself so high that it was too good to be true.

On his company’s website, Mr. Robbirt is quoted as saying, “discretion is guaranteed in the interests of each and every Global client, and we believe we have developed a renowned reputation based on integrity, professionalism and the provision of expert advice.”

A legitimate “expert” financial adviser should know that high rates of return are obtained by taking high risks. An expert adviser should also know that it is reckless for retirees to allocate large portions of their portfolio to high risk assets, as retirees cannot afford to lose a lot of money. Most retirees are too old to reenter the workforce and rebuild a lifetime of savings.

It is therefore hard to understand how funds allegedly earning 12-14%, or even 8%, could be construed as in the best interests of retirees.

A 100% Return Becomes a 100% Loss

In the same Bangkok Post article mentioned above, Mr. Robbirt boasted about a property fund he was recommending. He said he expected investors to double their money.

This particular property fund invested in a “luxury development outside Pattaya called Ocean’s Edge, [consisting] of 32 exclusive penthouse-style apartments with infinity pools developed by an Australian Team.”

After being introduced by a “friend”, one of Global Investments’ ex-clients says Mr. Robbirt convinced him to invest 2.5 million baht in the Ocean’s Edge fund in 2007. He was told he’d get his money back plus 100% profit within three years. He was also promised an additional 15% interest for each year that the money was not repaid on time.

As of 2015, no money has been repaid. The apartments remain empty, as no buyers have materialized.

The ex-client is not optimistic that he will ever see his money again.

Making matters worse, he says Mr. Robbirt also convinced him to sink tens of thousands of pounds in the LM MPF Ponzi scheme, and tens of thousands more in a Zurich policy which he eventually cashed in at a 60% loss.

Below is a promotional video for the unsold Ocean’s Edge apartments:

The ex-client claims that Mr. Robbirt put a deposit on one of the Ocean’s Edge apartments himself. He says Mr. Robbirt used this fact to underline his confidence in the inevitable success of the fund he was promoting. When he was finished promoting the fund, Mr. Robbirt withdrew from the venture and recouped his deposit back.

Mr. Robbirt now claims he never earned a penny promoting the fund, and he takes no responsibility for his clients’ losses or the fund’s failure.

How a “Financial Adviser” Earns His Pay

Another former Global Investments client, who was also introduced by a friend, says Mr. Robbirt convinced him to put over half a million pounds in the LM MPF. The victim describes his experience with Mr. Robbirt as follows:

“Our last meeting was in February 2013. The agenda contained an item expressing reservation over my [relatively high] exposure to the LM MPF. At the meeting the item was met with what could almost be described as a rebuke for suggesting I should decrease my exposure to LM MPF. In no uncertain terms was I assured of the depth, quality and strength of the fund and consistency of performance and he saw no reason to adjust my position.

Less than a month later 2/3 of my life savings had gone.

I raised every aspect of my complaint with him over email and I have asked that at the very least all the LM commission he earnt is returned to me. He would not reveal his earnings but in my estimation it is over £80,000. He has point blank refused to consider any return.”

Dishonest as Ever

Currently, the “About Us” page of Global Investments’ website says:

Our philosophy is based on service through best advice. That means placing our client’s best interests at the heart of everything we do. As an independent company we are not tied to any one product or service provider. This translates into unbiased advice, fair and transparent terms and conditions, highly competitive fees and charges and a range of solutions from global financial institutions in highly regulated jurisdictions with routes of recourse and government backed investor protection schemes.

Before trying to determine how many lies and half-truths are in the above paragraph, consider the following facts:

  • LM victims have had no “routes of recourse” in any jurisdiction, let alone a “highly regulated” one.
  • An “independent” financial adviser, as defined by British law, is one who has no conflicts of interest, i.e., one who does not accept commissions from product issuers and is licensed to give investment advice on all products available in the market. An “independent” financial adviser only receives payment directly from his/her client.
  • Global Investments once paid for advertising in a Thai magazine, but rather than try to sell unbiased advice, it attempted to sell a high commission investment fund (the LM MPF), acting as the de facto marketing division for the fund manager. Global Investments’ website features prominent information about high commission, ripoff insurance wrappers (portfolio bonds), but the website does not mention low-cost, no-commission investment products, such as ETF index funds.
  • Global Investments has withheld information from clients about the commissions it has received. In some cases, Global Investments has claimed that there were “no fees”. News reports indicate that the commissions received by Global Investments were exorbitant. 

Global Investments Expands Into Hong Kong—Without a License

Recently, Global Investments upgraded its website, globalinvestments.net. The company purports to have an office in Hong Kong, situated in the famous and very expensive Two IFC Tower. Former clients say they were previously unaware that Global Investments had an office in Hong Kong.

Global Investments International - Website Home Page

Screenshot of the globalinvestments.net home page, taken on March 30, 2015

Global Investment’s main website links to an affiliated website, qropdirect.com, which contains information that aims to convince former British residents to transfer their life savings into high commission investment and insurance products.

QROPS Direct Website

Screenshot of qropsdirect.com home page, taken on April 2, 2015

There are no records that Global Investments, QROPS Direct, or Neil Robbirt are licensed to sell insurance and investment products in Hong Kong. Searches on the SFC, CIB, and PIBA websites come up empty.

The penalty for selling investment funds in Hong Kong without a license is up to 7 year imprisonment and a fine of $5 million HKD.

Selling insurance policies without a license is punishable by up to two years imprisonment and a fine of $1 million HKD.

Global Investments’ Hong Kong Office Is Merely “Virtual”

Global Investments’ Hong Kong address is listed as the 19th floor of Two IFC. A Google search for this address brings up links to a company called ServCorp, which offers a cheap service known as the “virtual office”.

Below are some ads excerpted from ServCorp’s website:

Your Address Could Be Here!

Your Phone Answered As You Like

“A Business of Any Size Can Sound Like a Fortune 500 Company”

ServCorp openly admits that it helps small financial services companies dupe potential clients into believing that those companies are more well-established than they really are. The service is a godsend for fly-by-night operators like Global Investments, who do not have a license to operate legally.

“Your Calls Will Find You No Matter Where You Are”

ServCorp offers companies based in one country (such as one with a weak legal and regulatory system) the opportunity to appear to be based in another. Global Investments apparently found this service to be appealing and potentially lucrative.

A Phone Call with a “Global Investments” Receptionist

I made a few calls to the phone number listed under Global Investment’s Hong Kong address. I recorded those phone calls and have uploaded them below.

Clip 1

In the first call, the receptionist answered the phone saying, “Global Investments Hong Kong Limited. How may I help you?”

When I told her that her company appeared to be unlicensed, she tried to transfer me to “Mr. Neil”, the company’s CEO.  I told her I did not want to talk to Mr. Neil, and that I instead wanted to talk to her. When I asked her whether she worked for ServCorp, she admitted that she did.

She then transferred me to Mr. Neil, so I hung up.

Clip 2

When I called again, I asked if ServCorp had a policy of checking whether its clients were licensed to do the businesses they were purporting to be doing. The receptionist said there was no such policy. She then transferred me to another receptionist who pretended that she did not work for ServCorp but instead worked for Global Investments.

At one point, she said she could not hear me and hung up. I am not sure if she was lying.

Clip 3

When I called again, the receptionist continued to pretend that she worked for Global Investments and not ServCorp, so I asked how long Global Investments had been selling investment products in Hong Kong. She said, “Since 2003”.

I repeated that the company appeared to be unlicensed. I asked her if she could tell me whether Global Investments was a “legitimate company”.

She said, “I cannot provide the information for you at this moment.”

I told her that information on the internet indicated that Global Investments had historically been based in Thailand. I asked whether Mr. Neil was currently in Hong Kong or Thailand. She said she didn’t know.

I was eventually transferred to Mr. Neil again, so I hung up.

Clip 4

When I called again, I pointed out that both Global Investments and ServCorp had exactly the same address. I asked the receptionist whether she worked for both companies. She said no. I told her I thought she was lying.

I pointed out again that Global Investments was not licensed to sell investment products, and I explained to her that selling investment products without a license was a criminal offense in Hong Kong.

I told her I wanted to know ServCorp’s policy regarding clients who were breaking the law. I asked whether ServCorp would continue to facilitate illegal activity, or whether it would terminate its business relationship and report illegal activity to authorities.

Before she could answer, we were cut off by a bad connection.

Clip 5

When I called back, the receptionist would not tell me anything about ServCorp’s policy regarding clients who were breaking the law. I concluded by telling her I thought ServCorp should stop doing business with Global Investments and report “Mr. Neil” to the authorities.

Ex-Clients Seek Justice

Many ex-clients of Global Investments have lost significant portions of their retirement savings. They have spent more than two years trying to recover their money, but so far, they have had no success.

Earlier this week, both the Thai and Hong Kong regulators were informed of Global Investments’ unlicensed business operations.

To date, the company has been allowed to operate outside the law for over twenty years without being held accountable.

Indignant ex-clients are hoping that regulators will finally bring Neil Robbirt and his company to justice.

Unlicensed Financial Advisers Defy Thai Regulator After Being Placed on Investor Alert List

In July 2014, Professional Portfolio International was placed on the Thai SEC’s investor alert list after the company was caught selling dodgy, high commission insurance policies and investment funds without a license. Eight months later, PPi appears to be at it again.

PPi Logo (2)

PPi’s website (ppi-advisory.com) remained inactive after it was placed on the SEC’s alert list. However, a few weeks ago, PPi advertised an event at the following venue in Bangkok:

PPI Events March 10

Recklessly, PPi afterwards posted photos of the event on its website, giving the SEC sufficient evidence to take PPi to task for repeated lawbreaking. Two of the photos show PPi’s advisers giving a PowerPoint presentation on “Investing in Managed Futures”.

An angry ex-client has forwarded the above information to the Thai SEC. One of PPi’s advisers, Gary Bradford, advised the ex-client to invest—through a QROPS and a portfolio bond—in the LM Managed Performance Fund, an unregulated fund which paid abnormally large commissions and is now known to have been a Ponzi scheme.

Gary Bradford is visible in the audience in photos 3 and 6 above.

The ex-client claims that Bradford “fraudulently used pretend qualifications from the Chartered Institute for Securities & Investments (CISI, UK)”.

After the ex-client filed complaints with CISI, CISI confirmed that Bradford was not a member and asked him to remove the credential from his LinkedIn profile and business cards. Bradford has not yet removed the credential from his LinkedIn profile.

Gary Bradford LinkedIn Profile

The ex-client has not recovered any money yet, but would be pleased to at least see PPi’s advisers behind bars.

According to an article in the South China Morning Post, the penalty for selling investment products in Thailand without a license is “between two and five years’ imprisonment and a fine of 200,000 baht (HK$48,650) to 500,000 baht”.

Gary Bradford’s photo has been removed from the “Our Team” section of PPi’s website, though he apparently continues to be part of the team. Eric Jordan and Roger Parry are currently listed as senior figures at PPi:

PPI - Eric Jordan & Roger ParryPPi’s website claims that it has an office at the address below. If true, the SEC would do well to pay a visit.

PPI Address

LM Sales Manager, Martin Venier, Reappears with Self-Promotional Website

Martin Venier Profile PhotoIf LM victims were wondering what happened to LM’s Hong Kong sales manager, Martin Venier, they now have an answer.

He recently set up a website, MartinVenier.org, through which he is promoting himself and the financial services of an alleged group of scientific, mathematical, and economic experts.

The alleged group calls itself “Portfolio Resilience Investor Analytical Services (PRIAS)”. A search for the group on the internet retrieves no results, except for Venier’s website.

Portfolio Resilience Investor Analytical Services

One of the services offered by PRIAS is described as “Curation Filtering”. A search for “curation filtering” suggests that the phrase was invented by Venier and his colleagues. Its meaning is unclear.

Note that the words “curation” and “filtering” are synonyms, so joining them together is redundant—a bit like combining the words “bamboozle” and “swindling”.

Self Managed Hedge Fund

Listed under “Curation Filtering” is a service called the “Self-Managed Hedge Fund (SMHF)”.

Unlike “Curation Filtering”, a search for “Self-Managed Hedge Fund” does retrieve results.

One of those results is the “First Meetup for Cybertraders Anonymous“, which took place in Sydney Australia on July 25, 2013 and was organized by a guy named Kingsley Jones.

At the meeting, Jones said he would be giving a presentation on the Self-Managed Hedge Fund, and he’d reveal how to become George Soros “in your bedroom”.

Kingsley J - Become Mr Soros in your bedroom

Six months ago, Jones announced on Twitter that the SMHF had been launched:

Self-Managed Hedge Fund is Here - 27 Aug 2014

On his blog, Martin Venier claims he is in Australia (and very busy with clients), so it’s possible that he is collaborating with Jones, helping to promote the SMHF, aiming to get obscenely rich from his bedroom.

[Note: About six months ago, Venier appeared to be a member of an Australian bitcoin group. This info was obtained from a link which has since been deleted. Several bitcoin scams have recently been in the news.]

The Big Investment Lie

Michael Edesess, author of The Big Investment Lie: What Your Financial Adviser Doesn’t Want You to Know, is scathingly critical of financial advisers and fund managers. He argues that most of them collect unjustifiably high fees for doing little more than ripping off investors.

Given that Edesess’ criticisms are aimed precisely at people like Venier and the others who were involved with the LM scam, it is surprising that Venier published an article written by Edesess on his website:

Edesess Photo on Venier's Website

Photo is of Michael Edesess. He was recently a visiting fellow at City University of Hong Kong. He also wrote a handful of articles for South China Morning Post.

One of Edesess’ quotes perfectly describe the LM debacle:

Corrupt Financial Advisory Services

Another of Edesess’ quotes aptly describe the mumbo jumbo (e.g., “curation filtering”) which Venier’s PRIAS group uses to describe its services:

Complicated-Sounding Products

At first, I assumed that Venier had published Edesess’ article without Edesess’ permission, so I contacted Edesess to warn him.

Stunningly, Edesess confirmed that he had known Venier for years and had given him permission to publish the article.

Even more surprisingly, Edesess told me that he did not believe that Venier was knowingly involved in any fraudulent activity when he worked at LM. He said the LM situation was “complicated”, and he did not believe that Venier should be held responsible.

However, after receiving my email, Edesess contacted Venier and asked him to remove the article from his website, which Venier has now done.

Edesess told me he “did not have time to deal with the matter”, presumably meaning that he did not want to be perceived as connected in any way with LM. He says he is currently working on a start-up in the United States.

Is Venier Innocent or Was Edesess Duped?

Readers of Martyn Terpilowski’s LM Emails will recall that, in late 2011, as Terpilowski was desperately trying to get his clients’ money out of the MPF, Venier made statements which suggested that the fund was operating like a Ponzi scheme. Specifically, Venier suggested that old investors were being paid back with new investors’ money, rather than with profits earned from investments.

When Terpilowski pointed this out to Venier, and when he pointed out that it was unethical (if not illegal) to continue promoting a fund in which existing investors were locked in against their will, Venier just dodged the issues, never giving a satisfactory response.

This was nearly one and half years before LM went up in smoke.

Martin Venier’s Cognitive Dissonance

In a couple of sections on his website, Venier talks about the psychological phenomena of “cognitive dissonance” and “confirmation bias”. Although he does not explicitly say it, it is easy to imagine that Venier is describing his own experiences at LM, particularly his experiences interacting with Martyn Terpilowski:

Martin Venier's Cognitive Dissonance, Internal Pain, and Physical Tension 

Venier no doubt had “uncomfortable feelings” when hearing Terpilowski call the MPF a Ponzi scheme and a fraud. This may have led Venier to seek information which confirmed the views (the LM sales pitch) which he was paid to believe and disseminate.

Venier claims that he created his new website “to prevent us from becoming victims of groupthink”. He seems to believe that he is uniquely qualified to perform this service, perhaps due to his firsthand experience.

Why 'We' Exist (underlined in red)

Notice the paragraph underlined in red. It seems as if Venier is subconsciously warning readers to carefully consider his former role at LM (i.e., the context shaping his current thoughts and actions) before assessing the information and services on his website.

Venier Continues to Criticize Everyone But Himself

After LM collapsed, Venier and Terpilowski had a very heated email exchange, in which Venier insulted Terpilowski, accused him of throwing his clients under the bus in order to cash in on LM’s excessive commissions (when the opposite was true), and he threatened to call the police. Venier never apologized for being wrong or for his role in helping LM defraud thousands of investors (whether wittingly or unwittingly).

Now, on his new website, Venier continues to construe himself as being totally innocent, while simultaneously casting blame on everyone else. He even describes himself as an “advocate for investors”.

Venier specifically blames fund managers (presumably Peter Drake), financial advisers, and investors for having “unrealistic expectations” that the MPF could “generate liquidity and capital stability simultaneously.” He says it was “a task all properly trained financial market practitioners understand is not achievable.”

Presumably, Venier views himself as “a properly trained financial market practitioner” who never had “unrealistic expectations” for the MPF. If that is true, it raises the question: Why didn’t he blow the whistle on Peter Drake and the so-called financial advisers, rather than continue facilitating the fraudulent marketing of the LM MPF to inexperienced retail investors?

Venier maintains he was innocent, but his commentary suggests that he was complicit.

Venier heaps blame on financial advisers for not disclosing the excessive commissions which LM paid, yet Venier is silent on whether LM did anything wrong by paying excessive commissions to incentive financial advisers to distribute a fund which Venier admits was doomed to fail.

Venier additionally criticizes financial advisers for being ignorant, lacking “real market experience”, having “poor formal training”, and promoting the MPF using false or misleading information. (Note that Venier admits to training these advisers, so maybe he should take some responsibility.)

Venier also blames some investors for “lacking savings” (i.e., investing aggressively in MPF’s promise of high and safe returns in order to make up for their lack of savings), which implies that Venier knew the MPF was being illegally/improperly sold to retail investors (i.e., those investors with less than $1 million USD in savings and no professional investing experience).

Below are two screenshots of Venier’s self-written biography on his website. The first screenshot is the original version. The second screenshot shows a paragraph about LM which Venier recently revised. Notice that Venier never actually says he worked for “LM”. Instead, he says he worked for “a fund manager with Australian property assets”.

Original Version

Who Is Martin Venier (Underlined)

Red underlining and comments were added for emphasis.

Revised Section on LM

Venier's Revised Bio (LM Section)

Illegal Activity?

Venier recently removed the content from the “Services” section of his website. It once openly promoted services including: Portfolio Resilience Investor Analytical Services, Curation Filtering, and the Self-Managed Hedge Fund.

The website now says it is not promoting anything:

Services Suddenly Restricted to Members Only

It’s unclear why Venier made the changes, but perhaps he was afraid of being reported to the SFC for violating Section 103 of Hong Kong’s Securities and Futures Ordinance (issuing unauthorized investment advertisements to the Hong Kong public), which is a criminal offense.

A screenshot of all his original service offerings is here:

Martin Venier's Services

Interestingly, the “Contact” page of Venier’s website shows that the PRIAS group is currently doing business in a region which appears to be Hong Kong (see the purple dots):

Current PRIAS Consulting Client Locations Screenshot

A search on the SFC’s website indicates that the PRIAS group is not licensed to do business in Hong Kong. Carrying on a business in an SFC-regulated activity without an SFC license is a criminal offense (see SFO Section 114).

Further Reading

The LM Emails (#7): New Sales Manager, Martin Venier, Implied that LM Was Operating Like a Ponzi Scheme

The LM Emails (#10): When Asked If LM Gave Special Treatment to Bond Investors, Martin Venier Dodged the Question

The LM Emails (#13): When LM Collapsed, Salesman Martin Venier Offered No Apologies—Only Insults and Threats

Highlights from the ILAS Victims Meeting with the Insurance Commissioner

OCI Logo

The Office of the Commissioner of Insurance (OCI) recently agreed to a meeting with ILAS victims. That meeting was held two days ago, on Monday, February 9th, 2015.

Several ILAS victims and OCI staff attended the meeting, including the Insurance Commissioner, Annie Choi.

I prepared a PowerPoint for the meeting. A modified version of it can be downloaded here:

Presentation for ILAS Victims Meeting with OCI

(In the modified version, I have taken out people’s names, clarified on a few points, and corrected an error.)

Victims’ Cases Have Several Issues in Common

At the beginning of the meeting, the Insurance Commissioner claimed that OCI was a fair, unbiased regulator.

I do believe that OCI is objective, reasonable, and makes decisions based on facts. However, it was my impression that OCI, up till now, has not been informed of several important facts.

For example, the Commissioner immediately assumed (and stated) that all of the ILAS victims’ cases were different and couldn’t be regarded as having something in common.

In fact, I think that most of the cases do have several issues in common, including:

  1. Most victims had indicated no need or desire for insurance, which meant that the ILAS products were unsuitable for them. Current regulations clearly state that insurance intermediaries are not allowed to recommend ILAS products to investors who have no insurance needs. Brokers are supposed to act in the best interests of clients. An unsuitable product is by definition not in the best interests of a client.
  2. The insurance intermediaries hid information about their commissions, such as the fact that all or most of the commission was paid upfront and not spread out over the duration of the policy. This remuneration structure rewarded aggressive selling (and mis-selling) rather than the provision of long-term service that the intermediary promised (such as investment advisory service). The Prevention of Bribery Ordinance requires brokers to obtain permission from clients before receiving a kickback from product issuers. Most brokers either did not get permission to receive a commission or else they obtained permission by deception, i.e., by omitting material facts and/or by providing a misleading representation regarding how and when the commission was paid.
  3. Most of the victims’ insurance intermediaries were holding themselves out as investment advisers, which meant they should have been licensed by the SFC to give investment advice. Many of them weren’t SFC-licensed. In cases where intermediaries were SFC-licensed, the intermediaries likely violated SFC’s Code of Conduct (for example, by not fully disclosing their commission). Also, ILAS policies that contain minimal insurance content may fall under the SFO definition of securities (even CIB admits this), so selling such a policy may require an SFC license to deal in securities. Most insurance intermediaries did not have this license. Carrying on a business in an SFC-regulated activity (or pretending to do so) without an SFC license is a criminal offense.

The above issues were raised with the Commissioner. It was my impression that she was open to the possibility that many of the victims’ cases do in fact have these issues in common. Personally, I was quite surprised that she did not raise any objections when I argued that many ILAS sellers likely needed an SFC license. She admitted that OCI was discussing the issue with SFC.

Does a “Good” ILAS Product Exist?

At some point in the meeting, the Commissioner claimed that there were good ILAS products. I disagreed with her.

Obviously, some ILAS products are not as bad as others, but when comparing any ILAS to a pure investment product, ILAS fees are unjustifiably higher.

To illustrate: iFAST Central is a pure fund platform that offers more funds than many ILAS products. iFAST’s platform fee ranges from 0.1 to 0.3% per year. Every ILAS product that I have seen charges 1% or more (i.e., three to ten times as much).

Why are the ILAS fees so much higher? I think it’s because the insurers are overcharging.

It seemed that the Commissioner’s idea of a “good” ILAS product is one that is packaged with a significant amount of life coverage.

If so, then I would still disagree that such a policy is “good”. Buying a pure investment product and a term life insurance policy separately is better. The fees will be lower (especially commissions), and thus the investment returns will be higher.

If there is an ILAS product that is better than “buy term and invest the rest”, then I want to know its name. I do not think it exists.

The Real Termination Rate

The Insurance Commissioner denied that more than 90% of ILAS policies are terminated early (even 25-year policies).

If this is true, then OCI should publish the data to prove it, since experts quoted in the media have said otherwise. At the moment, no one knows who to believe.

Additionally, I think OCI should publish data regarding the percentage of policyholders who maintain payments for the entire premium payment term. According to data obtained by financial adviser, Hugh Stevenson, the average policyholder stops making payments after 7.2 years. This has negative consequences for policyholders.

ILAS Was Sold in Hong Kong as Early as 1977

The Commissioner claimed that ILAS policies were sold in Hong Kong as early as 1977. This was news to me. SFC’s website shows the first ILAS products being authorized in 1990.

If ILAS has been sold in Hong Kong for nearly four decades, then the number of mis-sold policies could be higher than anyone had previously suspected.

Portfolio Bombs Are the SFC’s Responsibility

When I raised the issue of whether insurance brokers needed an SFC license to sell unauthorized funds, even through a portfolio bond, the Commissioner agreed.

According to her explanation, selling a portfolio bond is one thing; selling or giving advice on the investment products to be placed in the bond is a separate issue. She specifically said that insurance brokers who marketed funds (such as the LM MPF) were acting as investment advisers outside their identity as insurance brokers. She said this activity would fall under the SFO, and she would refer any related complaints to the SFC.

The SFC has previously denied responsibility for regulating investment products wrapped in portfolio bonds. The Insurance Commissioner’s statements suggest that the SFC can no longer do this. 

Next ILAS Victims Meeting to be Held with the SFC

After Chinese New Year, there will be another ILAS victims meeting with the SFC. The specific date and time is not yet confirmed. Victims who are interested in attending can email me for more information. (lindelll@gmail.com)

Portfolio Bomb: Distributing Unauthorized Funds through ILAS Products without Holding a Type 1 SFC License Was Likely a Criminal Offense

[This post has been sent to Hong Kong regulators and to victims of unauthorized funds which were distributed via ILAS portfolio bonds. Victims may refer to the information in this post when filing complaints.]

Money Bomb

Section 114 of the Securities and Futures Ordinance (SFO) forbids anyone from carrying on a business in an SFC-regulated activity (or holding themselves out as doing so) unless they hold an SFC license to engage in that activity. Anyone who breaks the law commits a criminal offense. The maximum punishment is a fine of $5 million HKD and 7 years imprisonment.

Selling Funds Is a Type 1 Activity

Anyone who wants to sell funds for a living must hold a Type 1 SFC license to deal in securities:

A screenshot obtained from SFC’s website. Click HERE.

A screenshot from SFC’s website.

Selling Funds through an ILAS Is Not Necessarily a Type 1 Activity

Under certain conditions, a person can legally sell funds indirectly through an investment-linked assurance scheme (ILAS) without needing an SFC license to deal in securities. The person only needs a license to sell this type of insurance policy.

The SFC issued a circular on 13 August 2009 stating its views on whether insurers, corporate insurance brokers, and insurance intermediaries needed to hold an SFC license when selling ILAS. The SFC concluded that, “as a general rule”, they do not. However, it stated that there could be exceptions in some circumstances. The SFC advised those selling ILAS to seek their own legal advice if they were engaged in activity that departed from what was described in the circular:

SFC's Concluding Remarks (cropped)

Much of the ILAS business conducted in Hong Kong falls outside the scope of SFC’s 2009 circular, which means that the SFC’s circular was pretty useless, if not deliberately misleading. Below, I describe three common scenarios in which a person selling ILAS likely needs a Type 1 SFC license.

Outside the Scope of SFC’s Circular (#1):
Selling ILAS Policies that Contain Minimal Life Cover

Schedule 5 of the SFO defines dealing in securities as “inducing or attempting to induce another person to enter into or to offer to enter into an agreement…the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities.”

Note that the value of an ILAS policy is determined by reference to fluctuations in the value of funds, which are classified as securities.

Dealing in Securities SFO

Screenshot of the SFO definition of “dealing in securities”, located in Schedule 5.

The SFC disagrees that selling ILAS falls under the definition of dealing in securities. The SFC claims that ILAS policies are purchased primarily to obtain life cover, not to profit from an increase in the value of the underlying funds. Here is a screenshot from SFC’s 13 August 2009 circular:

SFC Says the Purpose of Buying ILAS Is Not to Profit from Underlying Funds

The sentences underlined in red are false and/or misleading, since most ILAS policies have minimal life cover.

While it is true that some ILAS policies do provide a material amount of life coverage, most do not.

A portfolio bond, for example, usually only provides coverage equal to 1% of the value of the underlying funds. The annual fees applied towards the policy are much greater than 1%. Mathematically, the life coverage is completely canceled out.

The only justification for owning this type of ILAS policy is to profit from an increase in value of the underlying funds. Corporations and individuals who sell this type of ILAS policy are therefore dealing in securities, as described in paragraph (b) of the SFO definition.

This could be why the Hong Kong Confederation of Insurance Brokers (CIB), a self-regulatory organization, warns its members that they may need an SFC license when selling such policies. Here is an excerpt from CIB’s regulations for insurance brokers selling ILAS:

ILAS Policies with No Life Cover May Be Securities

Screenshot from CIB’s website.

Outside the Scope of SFC’s Circular (#2):
Issuing Any Advertisement, Invitation, or Document Which Is Not Authorized by SFC

Although sales of many types of ILAS polices fit the SFO description of dealing in securities, a person is excluded from the SFO definition of dealing in securities if the person “issues any advertisement, invitation, or document” which has been authorized by the SFC. This is stated in sub-paragraph (xi) of the definition:

Exemption to Dealing in Securities

Screenshot of the sub-paragraph (xi) exclusion of the SFO definition of dealing in securities.

In its 2009 circular, the SFC referenced the above exclusion when arguing that selling ILAS, in general, does not constitute dealing in securities:

Subparagraph xi

Screenshot from SFC’s 13 Aug 2009 Circular

According to Section 102 of the SFO, the definition of “invitation” and “advertisement” includes invitations or advertisements which are made verbally (such as in person at a cafe) or in writing (such as in an email or Whatsapp conversation). If, when selling ILAS, an insurance intermediary issues any advertisement, invitation, or document which has NOT been authorized by the SFC, then the exclusion mentioned in sub-paragraph (xi) of the SFO definition of dealing in securities would no longer apply. The intermediary would need to hold a Type 1 SFC license.

The Office of the Commissioner of Insurance (OCI) pointed this out in a 4 June 2007 circular:

Insurance Intermediary Will Need to Be SFC Licensed If They Utilize Unauthorized Documents

ICO stands for “Insurance Companies Ordinance”

OCI advised insurance intermediaries to do the following:

OCI - Don't Deviate from Authorized Materials (cropped)

Invariably, most insurance intermediaries issue some kind of verbal or written advertisement that is not authorized by the SFC. For example, intermediaries frequently promote ILAS as a “fund platform” or “tax wrapper”. Many insurance brokers, especially expat brokers, openly advertise ILAS portfolio bonds as vehicles for accessing a wider range of funds, including unauthorized funds. I know one retail investor who was cold-called by an insurance broker who promoted a certain unauthorized fund without even mentioning the portfolio bond (until later).

Insurance brokers who sell portfolio bonds which are linked to unauthorized funds necessarily must issue unauthorized advertisements, invitations, or documents related to the unauthorized funds. It is impossible to introduce an unauthorized fund without at least making a verbal unauthorized advertisement. Consequently, this activity will automatically classify as dealing in securities, which requires a Type 1 SFC license.

The Professional Insurance Brokers Association (PIBA), a self-regulatory organization, seems to hold a similar view. In its Code of Conduct for brokers selling ILAS, it advises its members to obtain an SFC license before selling portfolio bonds:

Brokers Selling Portfolio Bonds Should Hold an SFC License

Brokers who have promoted unauthorized funds via portfolio bonds without a Type 1 SFC license likely committed a criminal offense.

If they promoted unauthorized funds to retail investors (non-professionals), they likely committed a second criminal offense. Section 103 of the SFO forbids issuing “an advertisement, invitation or document which…contains an invitation to the public…to acquire an interest in or participate in…a collective investment scheme…unless the issue is authorized by the [SFC]“. Both OCI and SFC have warned the industry to take care not to break this law. An offense is punishable by up to 3 years imprisonment and a fine of $500,000 HKD.

Here is OCI’s warning:

Do not Depart from Information Contained in SFC Authorized Documents - Even Verbally (Underlined)

Source: OCI’s 4 June 2007 Circular on ILAS

Here is SFC’s warning:

SFC 2009 Circular - Do Not Utilize Unauthorized Documents

Source: SFC’s 13 August 2009 Circular on ILAS

Outside the Scope of SFC’s Circular (#3):
Carrying on a Business of Distributing Dodgy, Unauthorized, High-Commission-Paying, Offshore Funds through ILAS Portfolio Bonds

In its 2009 circular, the SFC claimed that, even if selling ILAS were to be regarded as an SFC-regulated activity (e.g., dealing in securities), it could not be regarded as carrying on a business in an SFC-regulated activity, because (according to SFC), there is no financial gain derived from promoting the funds which underlie an ILAS policy:

SFC - No Financial Gain Is Derived from Promoting Underlying Funds

I guess SFC doesn’t read the newspapers.

In the case of dodgy, unauthorized, offshore funds which are relentlessly flogged by expat insurance brokers, SFC’s observation is clearly incorrect. The South China Morning Post has reported that the LM Managed Performance Fund, which wiped out the savings of thousands of people across the world (including in Hong Kong), paid commissions which were as high as 15%. This is approximately twice as much as the 6-8% commissions paid by the insurance companies who supplied the portfolio bonds.

Promoting these dodgy, unauthorized funds via portfolio bonds is a huge business. According to another article in the South China Morning Post, more than 80 unauthorized funds, which were marketed in Hong Kong via portfolio bonds, have been “suspended” since 2008. Many of the funds turned out to be frauds. The news article does not mention the number of unauthorized funds which have not been suspended (yet), but presumably the number is quite large.

Insurance brokers who make a living promoting these dodgy, unauthorized funds are clearly carrying on a business in an SFC-regulated activity (dealing in securities), since they are issuing unauthorized advertisements, invitations, and/or documents (relating to the unauthorized funds) when they sell ILAS portfolio bonds (which contain minimal life cover). The brokers are not protected by the exclusion in sub-paragraph (xi) of the SFO definition of dealing in securities.

Therefore, these insurance brokers must hold a Type 1 SFC license to avoid breaching Section 114 of the SFO—even if they are dealing with professional investors.

Multiple sources say that many insurance brokers deny receiving commissions for promoting unauthorized funds via portfolio bonds. One source says that these brokers have fund commissions paid to a related SFC-licensed corporation (whose address is in the same building). Another source says the brokers have the commissions paid to an offshore company in order to evade corporate taxes. This practice of hiding fund commissions (from clients, regulators, and the government) likely involves criminal acts of fraud, bribery, and money laundering.

If brokers are hiding fund commissions in order to avoid being accused of breaching Section 114 of the SFO, I do not think they succeeded.

They would still be regarded as carrying on a business in an SFC-regulated activity, as they still earn money (the ILAS commission) by doing an act which exactly fits the SFO definition of dealing in securities:

“inducing or attempting to induce another person to enter into or to offer to enter into an agreement…the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities.”

Since the brokers issued advertisements, invitations, or documents which were not authorized by the SFC, they are not protected by the sup-paragraph (xi) exclusion.

The fact that ILAS, or notional units in an ILAS, are not by themselves classified as securities is irrelevant.

Financial Partners Limited

According to an article in the South China Morning Post, “When an Investment Fund Goes Bad, a company named Financial Partners was one of the most aggressive distributors of the LM Managed Performance Fund in Hong Kong.

A search for Financial Partners on the Confederation of Insurance Brokers (CIB) website gives a single result for a company named “Financial Partners Limited” whose CEO is Peter Kende. This is presumably the same Financial Partners and Peter Kende mentioned in the South China Morning Post article.

Screenshot from CIB’s website.

Screenshot from CIB’s website.

A search for “Financial Partners” on the SFC’s website also gives a single result for a company named “Financial Partners Limited”. Peter Kende is listed as one of its responsible officers.

According to SFC records, Financial Partners Limited only held a Type 4 SFC license (advising on securities) during the period when it was presumably selling LM funds. It did not obtain a Type 1 license (dealing in securities) until June 2014, more than 1 year after LM collapsed. Peter Kende also did not hold a Type 1 license until June 2014.

SFC License Record for Financial Partners Limited

SFC License Record for Financial Partners Limited

Assuming that my above analysis of the law is correct, then Financial Partners Limited would have needed a Type 1 license to legally distribute unauthorized funds via portfolio bonds. The company did not hold this license.

Insurance Companies

It seems that insurance companies selling ILAS with minimal life cover would also be dealing in securities if they issued any advertisements, invitations, or documents which are not authorized by the SFC.

In the case of an insurer who sold an ILAS portfolio bond that was linked to an unauthorized fund, it is hard to see how the insurer could have processed the application without issuing some kind of unauthorized advertisement, invitation, or document related to the unauthorized fund.

As I pointed out in another blog post last week, insurance companies that sold portfolio bonds linked to the LM Managed Performance Fund had a duty to distribute the fund’s unauthorized documents to policyholders or potential policyholders. I believe this may have required the insurers to hold a Type 1 SFC license.

Royal Skandia and Friends Provident are two insurance companies that sold portfolio bonds linked to the LM Managed Performance Fund. A search on the SFC’s website indicates that these companies did not have an SFC license.

SFC Should Issue a New Circular Addressing the Issues Raised in this Blog Post

The SFC’s 2009 circular was inadequate, inaccurate, and misleading because it failed to address the following facts, which the SFC should have known: (1) Most ILAS policies sold in Hong Kong contain minimal life cover; (2) intermediaries frequently issue unauthorized advertisements; and (3) in the case of portfolio bonds, intermediaries profit obscenely by promoting underlying funds.

If it turns out that large segments of the insurance industry have breached the SFO—and I believe they have breached it—then the SFC’s seemingly deliberate ignorance of the facts will have been one of the causes. 

Porton Capital CEO Threatens to Sue Ripped Off Investor for Talking to the Media

Porton Capital

Benjamin Robertson of the South China Morning Post has shone a spotlight on yet another investment fund gone bad:

HK Investors Suffer Huge Losses In Bets Through Cayman Islands Firm“.

Porton Capital, like LM and many other collapsed funds, paid excessively large, undisclosed commissions to the financial advisers who helped distribute it. 

Harvey Boulter, the CEO of Porton Capital, admitted that commissions ranged from 15 to 20%. However, like LM CEO Peter Drake, he denies that this was excessive.

Harvey Boulter, CEO of Porton Capital. Source: The Telegraph.

Harvey Boulter, CEO of Porton Capital. Source: The Telegraph.

Robertson’s article quotes an expert on funds like Porton who claims that a 20% commission is “very high” and that commissions normally do not exceed 5%.

Even more disturbing than the 20% commission is the fact that one investor apparently lost 90% of his investment through extra hidden charges. Porton Capital was supposed to use the investor’s money to purchase shares in a company called Enigma. However, 90% of the investor’s money disappeared. According to the article:

In 2006, an earlier Enigma investor paid 26 pence each for the shares. Company accounts show 365.3 million shares were issued at that time, raising £10.6 million (HK$124 million). The issue prices ranged from 2.1 to 4.3 pence.

It is not clear where the remaining 90 per cent of the client’s money went.

One of the Porton Capital victims, David Lewnes, was brave enough to go on the record to talk about his story. He apparently lost 50% of his investment through hidden charges. Upon speaking to the South China Morning Post, Lewnes received legal threats from Porton CEO, Harvey Boulter, who wanted to silence him.

Lewnes says he was sold Porton Capital through a Tokyo-based adviser.

As readers of Martyn Terpilowski’s LM Emails may recall, a Tokyo-based adviser named Fraser Jamieson was flogging both Porton Capital and the LM funds, despite receiving repeated warnings from Terpilowksi that both funds were “dodgy”.

In LM Email #16, Jamieson angrily told Terpilowski to “fuck off” and “spread his doom elsewhere.”

Jamieson’s clients have now suffered catastrophic losses, yet Jamieson has kept his massive commissions and is still doing business. He currently works at a financial advisory firm in Singapore called AAM and is apparently doing well.

Fraser Jamieson - Andrew Drummond

Fraser Jamieson. Source: Andrew-Drummond.com

Expat Crooks Drive Journalist Andrew Drummond Out of Thailand

Drummond's Website Logo

Several readers of this blog, particularly the LM victims, have probably heard of Andrew Drummond, as he published Martyn Terpilowski’s LM Emails on his website at the same time that I published them here. Drummond, based in Thailand, is well-known for exposing expat conmen.

It has been brought to my attention that, yesterday, there appeared on his website a statement announcing that he is leaving Thailand, headed for the UK, after receiving repeated violent threats against himself and his family.

The statement is here: British Journalist Quits Thailand after 25 Years – Statement (Andrew-Drummond.com)

The story is also in the Phuket Wan Tourism News: “Drummond Heads for Britain Warning Expat Crooks They Haven’t Won Yet“.

For some context on the situation, readers may find the following articles illuminating:

Thai Law Allows Expat Crooks to Escape But Punishes Journalists” (Phuket Wan Tourism News)

Thailand a Haven for Foreign Criminals — Surely Not” (Andrew-Drummond.com)

I am not sure how long Drummond plans to continue publishing articles on his website, but he did publish one new article after announcing that he was leaving.

Drummond’s Articles on LM

Here is a list of articles published by Andrew Drummond relating to the LM fiasco:

Every Victim of the LM Fund Scam Should Read This (Aug. 13, 2014)

LM Is Never Having to Say You’re Sorry (Aug. 16, 2014)

LM – Ponzi! Ponzi! Ponzi! – But Aussie Regulators Did Nothing (Aug. 20, 2014)

LM Managed Performance Fund Was For ‘Sophisticated Investors Only’ (Aug. 21, 2014)

LM Fund Client Was Able to Redeem His Investment – But He Was a Banker (Aug. 22, 2014)

Lies, Lies and More Lies – How LM Played for Time (Aug. 25, 2014)

‘What Chance Do Honest People Have?’ – How Bond Providers Turned a Blind Eye in LM Scam (Aug. 28, 2014)

About Turn? Royal London 360 Finds No Problem With LM (Aug. 29, 2014)

How the Media Unknowingly Colluded with LM (Aug. 29, 2014)

Fund Salesman Who Said LM Was ‘Highly Regulated’ Does a Belated About Turn (Sept. 3, 2014)

LM – The Appalling Offshore Stitch Up of Offshore Pensions (Sept. 5, 2014)

The LM Fiasco — ASIC Bears Its Gums (Nov. 20, 2014)

Expat Investing for Retirement in Asia – You Should Read This Warning (Dec. 16, 2014)

The LM Fund – Ding Dong Merrily on High – Now We Get It (Dec. 17, 2014)

LM Boss Given New Year Deadline (Dec. 24, 2014)

LM’s Unauthorized Fund Documents: Distribution to the Public Was a Criminal Offense

[The information in this blog post is intended to be a resource for LM victims in Hong Kong who are filing complaints with SFC, OCI, the police, and any other authority. A link to this post has been sent to all authorities. If any readers are not familiar with the LM scandal, read the the SCMP article, When an Investment Fund Goes Bad.]

LM MPF Information Memorandum Dec 2012

The LM Managed Performance Fund (MPF) was not authorized by the SFC for distribution to the Hong Kong public. According to Section 103 of the Securities and Futures Ordinance, it would have been a criminal offense for a financial adviser or insurance company to issue any of the related MPF fund documents (such as the Fact Sheet or Information Memorandum) to a non-professional investor. The penalty for an offense is a fine of up to $500,000 HKD and up to three years imprisonment.

Several LM victims who were interviewed by the South China Morning Post said that they were not asked to prove that they were professional investors, and “on their application forms, the sections regarding professional investor status [were] crossed out.” Presumably, these investors were not professional investors.

SFC Issued a Warning to the Industry in 2005

SFC Issued Another Warning to the Industry in 2009

Many LM victims were sold the MPF fund through a “portfolio bond”, which is a type of life insurance policy called an investment-linked assurance scheme (ILAS). ILAS policies, like investment funds, must be authorized by the SFC before being distributed to the Hong Kong public. If either the ILAS policy or the underlying investment funds are not SFC-authorized, it would be illegal to issue an invitation, advertisement, or other document inviting the public to purchase these products.

Even LM Warned Financial Advisers and Insurance Companies to Avoid Breaking the Law

LM Investment Management was fully aware of Hong Kong’s laws regarding the marketing of unauthorized funds to the public. That is why nearly every document that LM issued contained a warning to intermediaries which stated, “Not for distribution to Hong Kong public.”

Here is an excerpt from one of the MPF Fact Sheets, dated November 2012. See the red arrow:

Excerpt from the Jan 2013 LM Fact Sheet (Highlighted)

Excerpt from the LM MPF Nov 2012 Fact Sheet

Financial Advisers and Insurance Companies Broke the Law Anyway

The MPF Information Memorandum for bond providers (i.e., insurance companies) was packaged together with the MPF Application Form. The Information Memorandum states that it is designed for bond providers to give to their policyholders (“Indirect Investors”) for the purpose of providing information to them about the fund. The Information Memorandum also states that policyholders should read the Information Memorandum before directing the bond provider to invest in the MPF on their behalf:

In other words, the bond providers had a duty to give the MPF Information Memorandum to their policyholders, so that the policyholders could read the document and make an informed decision about whether they wanted to be exposed to the risks of the MPF.

If the bond provider gave the Information Memorandum to a Hong Kong policyholder who was not a “professional investor”, the bond provider would have committed a criminal offense.

As reported by SCMP, several LM victims who invested in the MPF, apparently through a portfolio bond, were never asked to show proof that they were a “professional investor”. These investors were presumably not professional investors.

When submitting the MPF Application Form, bond providers were required to affirm that they had broken no laws, such as when they gave the Information Memorandum to their policyholders:

Bond providers could not have given the Information Memorandum to a non-professional investor without breaking the law. It may be the case that some bond providers additionally committed an act of fraud by affirming that they did not break any laws.

Fraud is an act of deception perpetrated for financial gain. Bond providers clearly had something to gain when investing in the MPF. As explained by whistleblower Martyn Terpilowski, the LM MPF fund was very popular with advisers because the fund paid such high commission—as high as 15% upfront. Bond providers who did not process applications for the MPF fund risked losing business to their competitors, as advisers would simply advise clients to use an alternative bond provider who would process the application. 

Bond providers are not the only ones who may have broken the law. Advisers also had a duty to give the MPF fund documents to clients. According to a 2010 MPF Fact Sheet (which was for “Adviser / Intermediary Information Only”), the fine print stated that “investors must have read and considered the current Information Memorandum before investing in or holding this product”.

March 2010 Fact Sheet - Adviser or Intermediary Information Only (Highlighted)

LM MPF March 2010 Fact Sheet. “For Adviser / Intermediary Information Only”

Investors Must Have Read the Information Memorandum Before Investing - March 2010 Fact Sheet (Underlined)

LM MPF March 2010 Fact Sheet. Investors must of have read the Information Memorandum before investing.

If advisers gave the Information Memorandum to any clients who were non-professional investors, they committed a criminal offense.

SFC Must Hold Lawbreakers Accountable to Deter Future Violations and to Ensure that Victims Receive Justice

There is very strong evidence that both insurance companies and financial advisers (i.e., insurance brokers) violated Section 103 of the Securities and Futures Ordinance when they distributed the LM MPF fund. I hope the SFC will look into this matter further and punish anyone who is guilty of breaking the law. This will deter other insurance companies and financial advisers from feeling tempted to break the law again in the future.

However, the top priority of the SFC should be to keep in mind that many LM victims are retirees who have lost their life savings. These victims are facing and will continue to face severe financial hardships unless they receive compensation.

The SFC should also note that LM victims are scattered across the world, yet it appears that no regulator in any country has taken action against the financial advisers and insurance companies who irresponsible/unethically/illegally distributed the LM funds to their clients. I have personally been in contact with LM victims from more than half a dozen different countries, and a number of them have told me that they are all closely watching developments in Hong Kong, as they are hopeful that Hong Kong regulators will be the first to act and set a precedent for regulators across the region.

I hope the SFC does not let these people down.

LM’s Unauthorized Fund Documents

Below is a list of all the unauthorized LM fund documents which have been forwarded to me by several different sources. Click on the links to download.

LM MPF Summary Flyer – July 2008

LM MPF Fact Sheet – March 2010

LM MPF Summary Flyer – Sept 2010

LM Portfolio Bond Commission Instruction Form – Jan 2011

LM MPF Information Memorandum – 22 Feb 2011

LM MPF Rate Sheet – March 2011

LM MPF Fact Sheet – 30 June 2011

LM MPF Fact Sheet – 31 August 2011

LM Product Range and Upfront Commission Rates – 6 Oct 2011

LM – A Safe Harbour for Nervous Investors – 7 Dec 2011

LM MPF Fact Sheet – 30 Nov 2012

LM MPF Disclosure Update – 30 Nov 2012

LM MPF Information Memorandum and Application Form – 14 Dec 2012

LM MPF Fact Sheet – 31 Jan 2013

LM MPF Disclosure Update – 31 Jan 2013

LM MPF – List of Portfolio Bond, Platform, Trust, & SIPP Providers – 31 Jan 2013

Anyone who has more LM documents which are not listed here, please send them to me (lindelll@gmail.com), and I will add them to this list.

New Additions (Added on 23 Jan 2015)

LM MPF Three Highlights – Nov 2009 – Coomera Capalabra, Runaway Bay

LM MPF Information Memorandum – 25 Nov 2009

LM MPF Information Memorandum – 1 Nov 2011

LM MPF Audited Annual Report – 30 June 2012

LM MPF Update – Dec 2012

Peter Drake Responds to Questions about LM MPF – 1 March 2013

The Law: Section 103 of the SFO

Below, I have provided screenshots and links to sections of the law which I think are the most relevant to LM victims. Note that I am not a lawyer, so maybe I overlooked something.

Section 103 of the SFO states that it is an “offense to to issue advertisements, invitations or documents relating to investments in certain cases” (e.g., to non-professional investors). Note that the LM MPF was a “collective investment scheme” as mentioned in paragraph (b) below.

The Offense

Section 103(1) of the SFO

Section 105 of the SFO grants the SFC the ability to “authorize issue of any advertisement, invitation, or document which is or contains an invitation to do any act referred to in Section 103(1)” above. The MPF fund documents were not authorized under Section 105 of the SFO.

Penalty for an Offense

The maximum penalty for an offense is a fine of up to $500,000 HKD and 3 years imprisonment.

Section 103(4) of the SFO

Exceptions to the Rule

Unauthorized funds and related documents can be issued to “professional investors” without committing an offense.

Section 103(3) of the SFO

Section 103(3k) of the SFO

The Definition of a “Professional Investor”

The definition of a professional investor is described in several paragraphs in Schedule 1 of the SFO. The relevant paragraph is (j):

Definition (j) of Professional Investor in Schedule 1 of the SFO

Section 397 of the SFO grants the SFC the ability to make rules.

The rules made by the SFC regarding “professional investors” are located in two places. The first place is in the SFO under the Securities and Futures (Professional Investor) Rules Section 3. The part which concerns LM victims is paragraph (b), which states that individuals who have a portfolio of $8 million HKD or more will be regarded as professional investors:

Professional Investor - SFO Rules

The second place which describes SFC’s rules regarding “professional investors” is in SFC’s Code of Conduct, beginning on page 35:

Professional Investor - SFC Code of Conduct

Anyone who knows more about Hong Kong law than I do may feel free to leave a comment below or email me if I have left out any important information or made a mistake. (lindelll@gmail.com)

LM Document States that the Managed Performance Fund Was “Not for Distribution to Hong Kong Public”

A source has given me a copy of a document that is sure to outrage the many LM victims based in Hong Kong. I have drawn a red arrow pointing to the key sentence:

LM MPF Bond, Platform,Trust, SIPP Providers (with Arrow)

The LM Managed Performance Fund was not for distribution to the Hong Kong public because it was not authorized by the Securities and Futures Commission. The fund should have been available only to professional investors, not the middle-class families whose lives have been wrecked.

Local brokerages such as Financial Partners, and insurance companies such as the one formerly known as Royal Skandia, have no moral defense—and probably no legal defense—for distributing the LM MPF fund to families in Hong Kong.

For readers who are not familiar with the LM scandal, take a look at the South China Morning Post article, “When an investment fund goes bad“, as well as “The LM Emails“.