By Richard Smith
It’s high time for an update on this vast fraud story, which has, near its core, Bryan Cook and Thomas Yi, of bogus international investment bank London Capital. Here’s a synopsis of the story so far at NC, and the global press coverage that has ensued.
First, there was “Is Power8, Sponsor of Everton FC, Fulham FC and RCD Espanyol, a Giant Ponzi?”. This is the story of how three major European football clubs were duped into providing credibility for Far Eastern investment fraud which, incomplete and informal surveys suggest, may have led to losses of multiple $100Mns in China and Taiwan alone (and there are known to be many other victims, in Malaysia for instance). The Spanish press have recently got hold of the story, in two articles in El Periodico of Barcelona, here and here. As you can see, even if your Spanish isn’t up to it, the coverage provides further evidence supporting my suggestion that Bryan Cook and London Capital might have had something to do with it. Much more coverage will follow as that part of the story evolves.
Then there’s the main Virgin Gold story, another elaborate pyramid scam running from 2011 to now, also purportedly worth at least $250Mn, with some claiming that total losses could run into the billions. It’s synopsized and elaborated here. Closely linked to London Capital and Bryan Cook again, we have Asia Pacific Gold Mining Investments (APGMI), a follow-up pump and dump scam targeting any Virgin Gold investors that might be able to stomach yet more losses. APGMI’s whistleblowing ex-director, the fearsome David Mapley, scourge of Goldman Sachs, puts in an appearance. This part of the story got traction in the press too, in the New Zealand Herald, here, and in The Australian here, with subsequent Australian coverage revealing that Bryan Cook went on trial in Germany, on 17th April, on 33 counts of investment fraud. Lately, the Malay-language part of the Singaporean press has started covering the story too, here.
Then there are bizarre offshoots of the London Capital saga: a Mitt Romney non-story, and three million phantom geese in China, whose plight put retired Bond star Sir Roger Moore on the warpath, even though there were no geese and, consequently, no actual plight. Additionally, we spot a gentleman in Italy, who, shortly before his arrest in connection with international financial fraud, fronted a high-profile conference on preventing international financial fraud. That story has some real Arab princes and some fake semi-secret-society regalia, by way of additional decoration. Lastly we take a swipe at MSNBC’s Krystal Ball, entangled in closely connected pump-and-dump action via her husband. Sadly no-one, so far, has picked up on any of these surprising ramifications; old but colourful news.
That’s the sprawling back story and the press, to date. There is plenty yet to come.
For a start, let’s sprawl some more, and drag in the Financial Commission of New Brunswick (FCNB). APGMI, part of the Virgin Gold scam, was registered in New Brunswick by one James Adams. Naturally enough, when alert APGMI director David Mapley started his whistleblowing world tour, one of his destinations was New Brunswick, where he complained to the local regulator, the FCNB. One doesn’t necessarily expect a Canadian state regulator to react enthusiastically to some furious bad-mannered foreigner making a multi-jurisdiction complaint. In this case, though, FCNB’s low-key response, reported to me by Mapley, is surprising, because the FCNB knew all about the pump and dump background of James Adams already. They had even taken action against many other companies registered by Adams, long before Mapley complained.
James Stuart Adams, to give him his full name, is a key member of a large and diffuse international group of penny stock promoters. Over the past 4 years at least, Adams’ two firms, Touchstone International Business Services, a business services provider to small firms, and Integral Transfer Agency, a transfer agent for Canadian- and, indirectly, US- registered stocks, have had one role or another in at least 60 penny stocks listed on a variety of international stock markets, including:
- The Berlin Stock Exchange
- The Frankfurt Stock Exchange
- GXG Markets
- Various segments of the US OTC markets
- The Malta Stock Exchange
In May 2012 the FCNB, on the basis of their own research, or alerted by overseas complaints, such as German press reports, in April 2012, of a “scam wave, made in Canada” that was taking place on German exchanges, took action against 9 of the 74 stocks registered in one of Adam’s favourite accommodation addresses, Suite 101, 334 Main Street, Shediac, New Brunswick. FCNB also issued investor warnings about at least a further 19 stocks linked to Adams.
The officers at the companies that defended the FCNB action turned out to be nominees, with no genuine executive role. There is no evidence to suggest that the FCNB acted on the natural inference that the most conspicuous bad actor involved might therefore be Adams himself.
No public explanation is available for why the FCNB ignored the other 50-or-so companies registered in Shediac, either. A reasonable and semi-informed guess would be that since none of the other companies owned up to offering securities to the general public, the FCNB simply had no legal basis for acting against them. The FCNB may even have felt lucky to get away with spending litigation budget on protecting German investors, which was the main effect of their ultimately successful court action.
This type of hole in legal and supervisory frameworks is relentlessly exposed in jurisdiction after jurisdiction by scammers who can incorporate a shell company in one jurisdiction, list it in another, and manipulate its price from a third, to the detriment of dumb retail investors in some other country altogether. No crook in their right minds runs this type of operation in just one country these days. Why take that risk, when dozens of additional jurisdictions, whose involvement is guaranteed to multiply the costs incurred by budget-constrained investigators, are just a mouse click away? Regulators are mandated to mind their local turf, and therefore enjoy a relatively quiet life. Meanwhile, huge volumes of suspect activity involve multiple jurisdictions, and are ignored by enforcement agencies. Thus, offshore perps also enjoy a relatively quiet life, but a very lucrative one.
In any event, subsequent events make it clear that the FCNB action did not greatly deter Adams. At the end of 2012, the Frankfurt Exchange shut down their junior segment, the First Quotation Board, citing “massive and frequent suspected cases of market manipulation”. In fact, with 700 stocks delisted, it is clear that the market was by then so overrun by fraudulent stocks that no other practical course of action presented itself. The market shutdown had a knock-on effect on the Berlin Exchange, where 290 securities had a secondary listing. Companies formed by Adams make up a respectable proportion of the Canadian stocks delisted in the German action. The shutdown of these exchanges has of course simply annihilated an important funding source for legitimate small companies. That the German authorities judged this to be the lesser of two evils gives some measure of the scale of the problem to which Adams’ activities contributed.
Adams and confederates were unperturbed. Their response was to shift their operations to the initially naive and oblivious GXG Markets, a specialist small-cap stock exchange based in London and Denmark, where Touchstone International Business Systems became a registered introducer of companies, and Integral Transfer Agency became a registered Transfer Agent.
Once again, a series of dubious stocks with a registered address at Suite 101, 334 Main Street, Shediac, New Brunswick put in an appearance. They are joined by further stocks that have Integral Transfer Agency as transfer agent, and by stocks with two more serviced office or maildrop addresses favoured by Adams: 96, Norwood Road, Moncton, and 372 Richmond Street West, Toronto. Between 2012 and 2014, around 30 companies associated with Adams, either via Touchstone or Integral, were introduced to GXG Markets. One of those thirty companies was APGMI. Just like APGMI, the companies were frequently introduced or brokered on GXG by New Zealand registered Financial Services Providers, which look as if they are regulated in New Zealand, but, by a quirk of New Zealand law, aren’t in fact regulated anywhere. This quirk is a renowned open invitation, which crooks accept, on GXG and elsewhere, in impressive numbers.
GXG Markets ignored many tip-offs about these stocks and others, until there was a change in their senior management in mid 2014. Since then, GXG have methodically set about the task of identifying, investigating, sanctioning and delisting them. They have quite a mess to wade through.
While all that was going on, Adams was getting into trouble with the Ontario Securities Commission (OSC), mid-2013 to March 2015, via his ownership interest in a pump and dump stock, A25 Gold Resources, that he and confederates were floating on the Malta Stock Exchange. The Maltese spotted it almost instantly and suspended it. A regulatory action by the OSC followed, much delayed by defence lawyer tactics (as seen also in the FCNB action of 2012). For this one caper, A25, Adams landed a 5-year ban from participating in securities offerings, in March 2015.
So, in the light of all this international pump and dump action, much of which was known of in New Brunswick, it is indeed surprising that the well-organised and industrious Mr David Mapley got, by his own account, such a terminal brush-off from FCNB. It all makes an interesting contrast with the sprightly and penetrating response of the OSC, too.
Responding to my emailed query about the background, FCNB very kindly drew my attention to the investor warning that they issued on the 24th Feb about APGMI, but sadly passed up the opportunity to comment on the reasons underlying their apparent decision not to take, or support, any other action whatsoever with respect to APGMI. There is much else that FCNB could have done, short of regulatory intervention. They could, for instance, have followed the good and effective example of the Malta Stock Exchange, and conferred with regulators overseas. I haven’t been able to confirm that the FCNB took even the elementary and inexpensive step of emailing GXG Markets to discuss APGMI or Adams.
It must be admitted that along with FCNB’s narrowly interpreted remit, there are other obstacles to effective action. For instance, Adams worked via Integral Transfer Agency and Touchstone, and still controls both operations. As far as I can see, from a sampling of the big Canadian transfer agencies’ web sites, Canadian transfer agents don’t even have to register with a regulator. Nor is there much obvious control of company incorporators in Canada. It’s a free-for-all.
Anyway, Mr Mapley was undaunted. After various snarls at the FCNB, and with up to 18% of shareholder votes under his belt, he took the APGMI complaint to Charles McAllister, who is the provincially appointed Director in New Brunswick. This officer has special powers and duties under New Brunswick corporations law. I’ve underlined the important piece below: the Director may decide, presumably when provided with enough prima facie evidence, to proceed with an investigation even without a shareholder complaint. I’m sure such evidence would have been forthcoming from Mr Mapley, who is used to briefing US Senate committee members, and of course the FCNB had a bundle of relevant information too.
155(1)The holders of not less than ten per cent of the issued shares of any class of the corporation or the Director may apply, ex parte or upon such notice as the Court may require, to the Court for an order directing an investigation to be made of the corporation and any of its affiliated corporations.
155(2)If, upon an application under subsection (1), it appears that
(a) the business of the corporation or any of its affiliates is or has been carried on with intent to defraud any person,
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted, or the powers of the directors are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of a security holder,
(c) the corporation or any of its affiliates was formed for a fraudulent or unlawful purpose or is to be dissolved for a fraudulent or unlawful purpose, or
(d) persons concerned with the formation, business or affairs of the corporation or any of its affiliates have in connection therewith acted fraudulently or dishonestly, the Court may order an investigation to be made of the corporation and any of its affiliated corporations.
…and so on. Having waded through all those imposing mechanisms, readers will no doubt find it disappointing that Mr McAllister simply declined to act. Never mind the dreariness of reading all that legal prose, though: why on earth did anyone even bother writing it? According to Mr Mapley, the reason given for not intervening was that Mr McAllister believed that the investors had enough funds to pursue their own action. It is unclear from Mr Mapley’s account how Mr McAllister divined this, nor how Mr McAllister drew the further conclusion that on this occasion it was quite unnecessary to exercise the powers that he has. Mr McAllister did not respond to an email requesting clarifying comment.
Overall, one naturally expects more mischief from Adams and pals, emanating especially from New Brunswick, with its unenthusiastic state regulators and state investigators.
Meanwhile, Yi and London Capital move on just as implacably as Mr Mapley. As forecast in the closing words of one of my February blog posts…
denuded of its serious directors, and with Yi at the controls, APGMI is heading for oblivion: delisting, dissolution. APGMI investors will never even see the few cents per share that APGMI is really worth right now.
…Yi’s next step is to deregister APGMI from the GXG exchange.
Three are various ways that penny stock manipulators can engineer the delisting of their stocks, once they judge that the scam has run its course. The simplest is to stop paying the annual listing fees. Another is to miss the deadline that many exchanges impose for the submission of annual accounts, an infraction that usually guarantees a delisting. Either way, the exchanges are manipulated into tidying up after the scammers.
It so happens that the deadline for APGMI’s last annual account submission was 31st May. In early June, APGMI’s auditors confirmed to Mr Mapley that, despite multiple prompts in the runup to the deadline, APGMI’s new board had never even got in touch to organise the audit.
So far, GXG, who now have a painfully-acquired grasp of what is going on, have ignored the accounts submission rule breach and, I think, a missed fee payment, too. Thomas Yi, the sole surviving APGMI board member, is therefore forced to change tack. Keen to depart into the night, he announced on the 2nd June an EGM motion to delist APGMI. This is the last-resort exit route: there is absolutely no chance of passing it off as an unfortunate accident. Amusingly, the EGM release discloses that Yi hasn’t yet dreamed up a pretext for seeking a delisting, and promises to come up with one in due course.
Mr Yi has the votes, for sure: he controls APGMI via the 82% stake owned by his Hong Kong company, London Capital Advisors. Now that his colleague Mr Cook is on trial in Germany for stock fraud, Yi is also the sole director of APGMI’s former GXG broker, NZ-registered Asia Pacific Finance Corporation, which traded on GXG as London Capital (NZ). The one GXG trade reported by London Capital(NZ), back when Cook was director, in just 100 shares, set the market cap of APGMI, a start up with assets of £1Mn or so, at £233Mn. On paper, the insider pricing of this single tiny insider trade benefitted insider Mr Cook’s business partner, insider Mr Thomas Yi, to the tune of around £190Mn.
Yi’s rush for the exit leaves another little loose end. APGMI’s most important asset is a 25% holding in another company, GP Resources Ltd, that GP signed over to APGMI in return for £1Mn or so of funding from London Capital (Seychelles). According to Mr Mapley, who is in touch with GP Resources too, APGMI has so far failed to submit the valid signed stock transfer to the appropriate register in Ethiopia. So where’s that valuable stake going to end up, then? If the register entry is never made, the much-abused shareholders of APGMI will end up owning a worthless unlisted shell.
Onlookers might well conclude that, given the story so far, this is precisely the outcome to expect. They might also suspect that, along with the accounts and the registered stake in GP Resources, the missing public explanation for the delisting will remain an unresolved issue; eaten by a dog, perhaps.