FSB probes Hong Kong firm

File photo: Reuters

File photo: Reuters

Published May 24, 2017

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London - Wherever there are British expats with money,

there’s a DeVere Group office not far away. And in many of those places, the

company’s aggressive sales tactics or high fees have drawn the attention of

regulators.

Now the financial-advisory firm, which says it has

attracted $12 billion in assets, including more than $500 million in the US, is

under investigation by the Securities and Exchange Commission, according to

five former employees informed of the probe by management before they left.

About half of the salesmen in DeVere’s New York office have quit or been fired

in recent weeks, they say.

Among the irregularities, according to the former

employees: The firm for years charged upfront commissions on some investments,

even though its SEC registration didn’t allow such fees. Three of the former

employees, all of whom asked for anonymity out of fear of retaliation,

said some salesmen had cocaine and other drugs delivered to fuel their

high-pressure cold-calling. The former employees said the SEC probe concerns

compliance issues and has intensified in recent months.

George Prior, a spokesman for DeVere, dismissed questions

about the probe and the allegations of former employees, saying he wouldn’t

discuss “unsubstantiated rumours or speculation.” Judy Burns, a spokeswoman for

the SEC, declined to comment.

“A high quality, results-driven service for our clients

is always at the forefront of the firm’s focus,” Prior said in an email, adding

that the company was conducting a “strategic review.”

‘Massive opportunity’

Nigel Green, a British stockbroker, started DeVere in

Hong Kong about 15 years ago. He previously had worked at offshore brokerage

Britex International, which ran into trouble when a high-yield fund it had been

selling stopped paying investors, according to reports in the Financial Times.

DeVere bought Britex in 2002, International Money Marketing reported.

Green expanded to the Middle East and Europe, and then to

Shanghai, Tokyo, Thailand and Africa, according to promotional videos posted on

YouTube. DeVere says it now has 80 000 clients in more than 100 countries.

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“When I went abroad, I was really shocked, it was a

massive opportunity,” Green said in a video posted on YouTube in 2016. “Today

people want international advice.”

Prior, the spokesman for Green, declined to make him

available for an interview.

Attractive Pitch

DeVere opened its US outpost in 2012. It hired mainly

young British men to pitch their countrymen on the tax benefits of moving their

pensions overseas. Former employees say they spent most of their time

cold-calling and sending messages on LinkedIn.

The salesmen had an attractive pitch. Under British law,

some workers who had retirement savings in the UK could move them overseas and

avoid taxes they’d have to pay when they withdrew the money.

There were a lot of fees. In addition to an annual management

fee, DeVere would charge a fee on the pension transfer that could be as high as

7 percent, spread over several years, three former employees said. Clients who

transferred pensions would have to decide how to invest the money, giving

DeVere salesmen another chance to earn fees.

Among the investments DeVere sold in the US were

structured notes from banks including Goldman Sachs Group Inc. and Morgan

Stanley, according to the former employees. These investments, a form of

derivatives, are a way to bet on the stock market. One Goldman note offered an

11 percent return if three indexes all went up by a designated date. DeVere

received a 4 percent upfront commission, the former employees said.

Collecting commissions

Because DeVere registered with the SEC as an investment

adviser, not as a brokerage, its employees aren’t allowed to collect

commissions.

“If you receive transaction-based commissions then you

need to be registered as a broker-dealer,” said Seth Taube, a former SEC

enforcement official who’s now a lawyer at Baker Botts in New York.

DeVere didn’t respond to questions about commissions. In

2014, Benjamin Alderson, then head of the New York office, told International

Adviser about SEC regulations: “You cannot be anything but squeaky clean or it

will show.”

Andrew Williams, a spokesman for Goldman Sachs, said the

bank terminated its distribution relationships with DeVere last year, declining

to say why. Mark Lake, a Morgan Stanley spokesman, declined to comment.

Zip line

DeVere employees who did well made a lot of

money. The firm had about 50 US salesmen at its peak, and the top tier

made more than $500 000 a year, former employees said. The best performers were

invited to DeVere’s Christmas party in London. At the 2015 event at the

Grosvenor Hotel, Green, DeVere’s founder, descended to the stage on a zip line

amid fireworks, and the former lead singer of the Pussycat Dolls performed, the

employees said.

Green, a trim and diminutive man, visited New York every

few months. An employee would be assigned to bring a kettlebell to his

hotel room for his morning workouts. Some former salesmen said he reminded them

of the sinister nuclear-plant owner Mr. Burns from “The Simpsons.”

Three of the former employees said they would drink

booze out of paper cups during the day when Green wasn’t watching. Younger guys

were sent downstairs to buy drugs from delivery men. Most of the misbehaviour

stopped around 2015, the former employees said. Salesmen who worked at DeVere

more recently said they hadn’t seen anything untoward.

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In 2015, one of DeVere’s few female employees sued for

sexual harassment, saying salesmen made vulgar and racist comments about her

husband, a black professional football player. The New York Post published a

story about the lawsuit with the headline “I worked in real-life ‘Wolf of Wall

Street’ den: NFL player’s wife.” Prior, the DeVere spokesman, said at the time

that the allegations were “false and incredulous.” The case was settled out of

court, though the former employee, Philippa Okoye, has since filed a second

lawsuit alleging she wasn’t paid.

Singapore sanction

DeVere has a history of run-ins with regulators. In 2008,

a Singapore subsidiary was fined for using unlicensed advisers and selling

insurance products outside its license mandate, according to a statement by the

city-state’s regulator. The firm closed the office that year.

In Hong Kong, a former DeVere subsidiary was fined HK$3.1

million ($398 000) last year for breaches including using unlicensed advisers

and failing to hand over information to a local regulator. Green had already

acquired another firm, Acuma Hong Kong, and he uses that brand in the city now

instead of DeVere.

DeVere is on a list of firms published by Japan’s

regulator that aren’t authorized to solicit investors. It was on a similar list

in Thailand, though it isn’t anymore. Its U.K. subsidiary stopped providing

some pension advice this year amid a regulatory review. DeVere has blamed some

problems on scammers using its name.

South Africa’s Financial Services Board is also

investigating DeVere, according to Nokuthula Mtungwa, a spokeswoman for the

agency. Ross Pennell, a former manager of DeVere’s Cape Town office who said

he’s been contacted by the regulator, said the probe concerned fees and

disclosures. He said clients weren’t told about some of the commissions they

were paying or that some investments locked up their money for years.

“In my experience, DeVere was sometimes more focused on

making sales than actually giving proper financial advice,” Pennell said in an

interview.

After leaving DeVere in 2014, Pennell sued the company

over an unpaid bonus and other money he says he was owed. He said he then

received threatening anonymous phone calls, and a mobile-phone message with

what appeared to be surveillance photographs of his wife and children. He

reported the threats to South African police, who determined there wasn’t

enough evidence to pursue the matter. A judge ruled in favour of Pennell in the

pay dispute this month, but DeVere is appealing.

Pension warning

An SEC investigation may not be the biggest threat to

offshore advisers like DeVere: In March, the UK government imposed a 25 percent

tax on some pensions transferred overseas. The UK Financial Conduct Authority

also posted a warning on its website in January about the risks of pension

transfers, such as advisers who recommend high-risk investments or scams.

DeVere said in a May 13 press release that its strategic

review will involve a corporate restructuring and should be completed by the

end of the month. The company sold its Bahamas operation to its managers and

has been busy this year setting up new businesses. It got an investment-banking

license from Mauritius, an island east of Madagascar, opened a private bank on

the Caribbean island of St. Lucia and started a “global e-money app” that it

says will rival traditional banks.

“Banking as we have known it until now is finished,”

Green said in an April 10 press release announcing the app.

BLOOMBERG

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