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.