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Singapore trial begins on alleged 'ponzi' oil scheme involving C$175m

Singapore trial begins on alleged 'ponzi' oil scheme involving C$175m

Source: Business Times
Article Date: 29 Sep 2020
Author: Kelly Ng

Over 1,000 investors across Asia coming together to sue Yau Kwok Seng, Capital Asia Group and Capital Asia Group Oil Management.

Over 1,000 investors across Asia have come before the Singapore courts to sue a Singaporean whom they allege to be the mastermind of a ponzi oil investment scheme that defrauded thousands of investors of C$175 million (S$180 million).

The trial, which will begin on Tuesday, stems from a collective action brought forth via POA Recovery - a special purpose vehicle set up to help investors from different legal jurisdictions recover alleged damages - against Yau Kwok Seng, Capital Asia Group (CAG) and Capital Asia Group Oil Management.

Mr Yau, who employed a decentralised network of marketers, had promised investors 12 per cent per annum of returns for buying into crude oil barrels, when in fact the product they were supposedly wagering on did not exist, the plaintiff argued.

POA Recovery is accusing Mr Yau of structuring and selling a sham investment product and "profiting handsomely in the process".

Over 4,000 investors across Singapore, Malaysia, Hong Kong and Macau were said to have poured C$175 million into the scheme between September 2012 and October 2015.

According to the plaintiff's opening statements, Mr Yau had worked with a Canadian counterpart named Juergen Hainzl to design an investment scheme that involved the purchase of barrels of crude oil at a 3 per cent "wholesale discount".

Investors then had the option of either taking delivery of the barrels or having Canadian-based oil and gas company COGI sell the barrels on their behalf to third-party buyers.

On paper, this cycle of purchasing and on-selling would happen every quarter, giving investors net profits on the sale of their oil barrels amounting to 12 per cent per annum.

The plaintiff is seeking to show that Mr Yau knew, from the outset, that his Canadian counterpart had intended to use investors' capital to fund purchases of oil and gas properties, not crude oil barrels.

Investments into land and oil fields involved a "materially different level of risk" from the purchase of existing oil barrels, the plaintiff argued.

It also claimed that the alleged plot bore the hallmarks of a Ponzi scheme, whereby fresh capital paid in by new investors was used to pay distributions to existing investors. It also accused Mr Yau of "skimming off" up to 20 per cent of each investor's capital, pocketing them as commissions for CAG.

The scheme eventually "collapsed" in October 2015, when COGI, the parent company of POA Canada, went into receivership, according to court documents.

The plaintiff argued: "In reality, the product described in the contractual documents and marketing materials was a sham. This case does not concern a failed investment, or a market gone sour. Yau was peddling a product that did not exist - one that was simply illusory."

Mr Yau and his co-defendants, CAG and CAG Oil Management, acknowledged that COGI went into receivership in October 2015 and payments to the investors ceased.

They argued, however, that the state of affairs was sparked by the collapse in oil prices.

"COGI's financial position was in jeopardy and eventually its downfall dealt a fatal blow to the crude oil investments," the defence argued.

The defendants claimed that crude oil was allocated to the investors and then resold to oil giants, with the returns paid back to the investors.

They further argued that stakeholders knew that the money raised was used "for development and purchase of oil and gas leases/assets".

"It bears repeating that this was a successful and lucrative investment product before the 2015 oil crash," the defence said in its opening statements.

The defendants also said that as 90 per cent of marketing for the scheme took place outside Singapore, CAG should not be held liable for the statements and actions of sales agents and marketers.

They also said that commissions are a standard practice in the industry and that it was "absurd to suggest that there (was) any secrecy or concealment of any kind".

They disputed the plaintiff's claim that the defendants earned 18 to 20 per cent in commissions, noting that the associate marketing companies and sales agents received more.

In addition, the defendants claim the plaintiff is bringing the suit "for a collateral purpose".

BT understands that the investors had also lodged police reports in Singapore and Malaysia in 2018 - in June and August respectively - against promoters of the scheme.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.



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