By Gareth Vaughan
A Canadian company listed on a Danish regulated sharemarket in London with a New Zealand broker.
Sound like an interesting scenario? Interesting probably wouldn't be the description David Mapley would give.
Mapley is a Brit living in Switzerland who made the news five years ago after taking a complaint about Consolidated Debt Obligations, packaged in an investment known as Timberwolf and sold by Goldman Sachs, to the US Securities & Exchange Commission. Goldman Sachs is facing fraud claims over that deal.
Mapley, whose involvement came as an independent director of Australian hedge fund Basis Capital Funds Management, appeared on an ABC Four Corners programme discussing Timberwolf, famously described in an internal Goldman Sachs email as "one shitty deal."
More recently Mapley, once more in the capacity of a director, has found himself going into battle again. This time there's no high profile global investment bank on the other side. Instead there's an Australian named Bryan Cook and a registered New Zealand financial service provider known as London Capital NZ Ltd.
In Canadian court documents Mapley describes the London Capital group as "a pump and dump financial group that fraudulently establishes companies for short-term, super-normal profiteering from market manipulation and aggressive share selling programs to investors based in countries of weak financial regulation and law enforcement."
In a Skype interview with interest.co.nz Mapley said the New Zealand connection "completely" enabled this to happen.
"London Capital could not have pulled off what it pulled off, or has pulled off, without the FSP (financial service provider) status in New Zealand," Mapley said.
"The process of (New Zealand) financial service provider registration seems at best farcical. London Capital were deregistered, and as I recall, within one month they changed their name, same people, same modus operandi and re-registered."
"London Capital New Zealand suddenly became 'Asia Finance Corporation (with) doing business as London Capital in brackets'. So as far as anyone was concerned London Capital was still in business," said Mapley.
"So one wonders what is going on at the FSP (register)? Why don't they have a black list? Why aren't these people on a black list that can never touch New Zealand FSP status again? That to me seems quite bizarre. That shows very lax controls," Mapley said.
A disappearing accountant
As CEO of a company called City Windmills that's listed on the Danish regulated and London based GXG Markets, which describes itself as the European growth market for SMEs, Mapley came into contact with Cook and London Capital NZ.
"As the company progressed and got bigger, we needed to appoint a corporate adviser and GXG introduced us to Bryan Cook and London Capital NZ," said Mapley.
London Capital NZ had a GXG broking licence. After about a year Mapley said London Capital NZ asked him to join the board of another GXG listed company, Asia Pacific Gold Mining Investments (APGMI), which is registered in New Brunswick, Canada.
Mapley said given he has some background in the mining and resource sector, he thought he could add some value and agreed to do this. His fellow board members were "very solid, good quality people." APGMI had a market capitalisation of nearly £250 million.
However, Mapley said his first task as a director, arranging an audit, promptly showed things weren't what they seemed.
"We were using an accounting firm in the US for a Canadian company which made no sense at all and the accountant had disappeared, had left not only our company but three or four companies already on the GXG in default by basically doing a runner. London Capital were handling everything, the payments, our bank accounts, we couldn't move without London Capital approving," said Mapley.
He then found another accountant, a Canadian, and APGMI started submitting numbers.
"As I became more familiar with the background and accounting of the company, (I realised) I'm looking at a company that's worth less than half a million dollars."
"And I'm looking at a half million dollar company trying to figure out why on the stock exchange GXG in London, we have a value of £233 million," Mapley said.
His enquiries ultimately led to the discovery that only one trade had been done in APGMI shares, during 2013, and the broker was London Capital NZ.
Arrested in Switzerland & taken to Germany
Having got no answer from Bryan Cook, Mapley says he and his fellow directors were then summoned to London by Cook's sister Julie and associate Thomas Yi, who is also an Australian citizen. This was in June 2014.
"We were all taken into a room one by one separately to be told Bryan Cook had been arrested in Switzerland and taken to Germany and was helping authorities with an investigation into some financial matters, and that was it," said Mapley.
"I live in Switzerland (so) I know that for someone to be arrested in Switzerland and extradited to Germany is quite a serious matter."
Stuttgart public prosecutor Claudia Krauth told interest.co.nz last week Bryan Cook had been sentenced to "imprisonment for a term of one year nine months on probation for intentional market manipulation" apparently involving about a dozen companies. Krauth said Cook, who had been in custody since June last year, had been released.
Julie Crengle, a partner at Wellington law firm Crengle Shreves & Ratner, says she represents Asia Finance Corporation and London Capital NZ and in that capacity her firm has regular contact with Yi and Julie Cook, and used to have contact with Bryan Cook.
"None of AFC, LCNZ, Mr Yi or Ms Cook will be commenting on matters that are the subject of legal proceedings," Crengle said.
GXG stays mum
As reported by interest.co.nz earlier this month, London Capital NZ isn't the only registered New Zealand financial service provider to cause headaches for GXG Markets. Others to do so include the Quro Trust and RST Capital Trust. All three have had their corporate adviser and broker memberships of GXG terminated over recent months. As outlined in the earlier story, London Capital NZ's membership was terminated due to "extensive non-compliance" with GXG's rules.
Interest.co.nz has made several attempts to get comment from GXG on its troublesome New Zealand financial service providers. However despite pledges from both GXG spokesman Paul Quade and CEO Peter Almberg, to respond, GXG is yet to do so.
Questions I want answered include; How significant was the New Zealand financial service provider status in GXG's decisions to give broker and other licences to New Zealand registered financial service providers such as London Capital NZ and the Quro Trust?
And did anybody from/representing GXG contact any New Zealand regulator(s) or authorities to verify the status of the New Zealand financial service providers before they were granted GXG licences?
Mapley is in no doubt the New Zealand connection was important in London Capital NZ securing GXG licences.
"The GXG sees a very respectable jurisdiction in New Zealand and thinks, 'well if a company has a financial service provider regulator in New Zealand that is good enough for us, with our Commonwealth ties, to accept that jurisdiction for the purposes of granting a broking licence to this reputedly bona fide company.' And they gave London Capital the tool and mechanism to go into serious fraud and price manipulation of stocks," said Mapley.
The Virgin Gold 'deal of the century'
In terms of how many people were impacted and how much money was involved, Mapley said APGMI had nearly 900 shareholders, and London Capital NZ sold 18 million shares after establishing "a false price" of £2.33 a share. He also alleges Yi, co-founder of the company with Bryan Cook, was granted 100 million shares by Julie Cook meaning Yi effectively woke up on July 16, 2013 "suddenly worth" £233 million.
"He (Yi) sits there with this huge shareholding and starts peeling off shares. They sold shares in Indonesia, Thailand, Malaysia, Singapore, Cambodia, India, UAE, they went through Asia selling shares," said Mapley.
Following the trail Mapley maintains ultimately leads back to a company called Virgin Gold Mining Corporation, with shares in that entity exchanged into APGMI shares via a couple of other companies. A series of spruiking and glitzy videos about Virgin Gold are still available online including this one and this one and this one.
The first video linked to above says because Virgin Gold's headquarters are in Panama it's able to pay tax free dividends.
"Hundreds of thousands of people became investors in a very large mining scam set up around 2010 from Bryan Cook and others in Switzerland who had Panamanian banking relationships who created this concept, through internet investing, of the gold mining deal of the century and investors piled in through internet portals run by London Capital," said Mapley.
"(By) sending money to London Capital's bank account in Poland they could buy shares in silver, platinum, gold shares which gave you entitlements... (and) very high returns every month. You got more returns if you brought your friends in. (They) created a pyramid selling scheme based on a total fraud. And as the regulators got wise to them they closed down the vehicle and said 'we had to transfer the company assets into another vehicle," said Mapley.
"Our estimate is they (investors) put in between $2 billion and $4 billion over a number of years. And if you look on the internet or YouTube you see the scale of the selling operation which was very large. They had a team of actors who appeared on the website who we traced to modeling agencies in Australia."
What Paul Goldsmith & the FMA said
Mapley has been in touch with both the New Zealand Financial Markets Authority (FMA) and Commerce and Consumer Affairs Minister Paul Goldsmith about London Capital NZ/Asia Finance Corporation. He describes his reception as a "mixed bag." Goldsmith was "sympathetic" and FMA CEO Rob Everett, after Mapley "got nasty" said; "These people aren't regulated to be brokers in other countries.' And I put that straight over to the GXG who fell off their chairs and said what?"
Mapley argues the FMA position that it can't be responsible for what happens outside New Zealand isn't good enough.
"So as I bluntly put it to the FMA 'basically you're giving drivers licences to people who can go and drive anywhere in the world apart from New Zealand and cause whatever carnage and crashes, but it's not your remit, you don't care."
"You can't give a licence (registration) to an entity to act offshore without them having a presence in New Zealand. To hand over a driving licence to someone to go and drive elsewhere on this planet who has never even driven a car in your own country is kind of irresponsible. They need to have someone accountable in New Zealand. And I mean accountable by proper staff that if there's a problem someone can step in and grab these people, round them up and say 'what are you doing', " said Mapley.
"Why is there no international coordination because funny enough New Zealand is part of this planet when it hands out willy-nilly licences to go around and be a James Bond killing markets elsewhere."
"They have to be responsible and they have to be coordinated. They have to make sure they are talking to other exchanges and other regulators like the FCA in the UK and the SEC in the US and say 'we are granting these licences, here's our register. These companies have the following power and the following disqualifications.' So the UK when it gets approached by a New Zealand financial service provider says 'I'm sorry we can't give you a licence (because) according to your regulator you're not licensed to actually do broking activities'."
This sort of communication could help prevent the type of undesirable regulatory arbitrage that saw shares being sold to investors in Asia who believed a New Zealand broker representing a Canadian company on a London stock exchange was "bona fide and has real intrinsic value as you'd expect from combining a Canada, New Zealand and UK jurisdiction," said Mapley.
FMA 'considering the registration status of Asia Finance Corporation'
A spokesman for Goldsmith noted London Capital NZ was deregistered from the New Zealand Financial Service Providers Register in 2013 and the FMA is "currently considering the registration status of Asia Finance Corporation and following the statutory process for engaging with them about their status on the Register."
"Asia Finance and London Capital have never been licensed or regulated in New Zealand and the FMA does not have jurisdiction over activities conducted by those companies, or individuals associated with them, outside of New Zealand. The FMA has provided information to regulatory authorities abroad and will continue to offer assistance and seek information from Asia Finance when required," Goldsmith's spokesman said.
London Capital NZ was a registered New Zealand financial service provider between Boxing Day 2011 and March 7, 2013. Asia Finance Corporation has been registered since April 12, 2013. Asia Finance Corporation is also a member of the Financial Dispute Resolution scheme.
New Zealand registered financial service providers and companies have left a significant stain on this country's reputation over the past few years. Among other things they've been caught up in chartering a plane to fly North Korean weapons to Iran, money laundering, tax fraud, and Ponzi schemes. Taking advantage of New Zealand's simple company and financial service provider registration, which is run by the Ministry of Business, Innovation & Employment, and this country's good international reputation, their only real ties to New Zealand may be a suburban postal box, virtual office, or small accounting firm provided as their address. (See all our stories on offshore finance companies here).
In the bowels of its website the Reserve Bank runs a warning about offshore New Zealand finance companies. It advises a cautious approach from anyone considering doing any form of business with entities that promote themselves as "New Zealand offshore finance companies", or use similar descriptions, and that offer financial services either online or from locations outside New Zealand.
"No such category of entity is recognised under New Zealand law. The entities involved are usually just registered in New Zealand as companies or limited partnerships, and they have no special status," the Reserve Bank warning says.
"These entities are not licensed or supervised as financial service providers by any New Zealand authority. They are required to register a New Zealand address, but this is usually that of a compliance agent, with the entities having no real physical presence in New Zealand. These entities are often directed or owned by persons who are not resident in New Zealand. Details about the directors and ownership of these entities can be obtained by searching the online database of the New Zealand Companies Office," the Reserve Bank adds.
Under powers it gained last year the FMA, by following a natural justice, statutory process can deregister entities from the Financial Service Providers Register when registration gives a misleading impression of activity or regulation in New Zealand, or may harm the integrity or reputation of the register. The FMA announced in May it had removed its first batch, 23 in total.
Switch to a licensing regime from a simple registration process?
In a consultation paper issued last month, the Ministry of Business, Innovation & Employment raised the possibility of moving the Financial Service Provider Register from one of simple registration to a licensing regime. No mention was made of how much this could cost or how it might be funded. However, the consultation paper noted the activities of some overseas operating financial service providers create a risk to both New Zealand's reputation as a well-regulated jurisdiction, and to the reputation of legitimate New Zealand financial service providers.
The paper says similar jurisdictions don't have the problems New Zealand has largely because they licence all types of financial service providers. New Zealand opted for a registration regime because licensing can impose significant costs on financial service providers, creating a barrier to entry and reducing competition, the paper says.
The paper asks; "Do you consider misuse of the Register by offshore financial service providers is a significant risk to New Zealand’s reputation as a well-regulated jurisdiction and/or to New Zealand businesses?" And; "Are there any changes to the scope of the registration requirements or the powers of regulators that should be considered in response to this issue?"
Goldsmith's spokesman said; "As with all the questions asked in the issues paper, the Minister is keeping an open mind to any matters raised as a part of the consultation process. At this stage, he has not made any decisions regarding any potential legislative changes."
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