Envy nickel trading fraud: Chief investment officer of related firm fined over conflicts of interest

SINGAPORE: The chief investment officer of a firm related to the Envy nickel-trading fraud was fined S$9,000 (US$6,960) by a court on Tuesday (Oct 7) for regulatory failings by his company, Envysion Wealth Management.

The company was operating on millions of dollars in loans given to its chief executive officer by businessman Ng Yu Zhi, who was running a nickel scheme through his separate company, Envy Global Trading, that turned out to be bogus.

Not only was this not declared to investors, but the company also did not disclose that its revenue largely came from referral fees it was earning from Ng's company.

Doo Chun Ki, a 56-year-old Singaporean, pleaded guilty to one charge of neglect as an officer of Envysion for failing to mitigate conflicts of interest in the management of assets under the Securities and Futures (Licensing and Conduct of Business) Regulations.

Another charge of failing to put in place an appropriate risk management framework was taken into consideration.

The court heard that Doo, who has master's degrees in applied finance and financial engineering, was one of three directors of Envysion at the time.

The other two were Shim Wai Han, chief executive officer, and Tan Kay Siong, chief operating officer.

The company was incorporated in April 2019 and granted a Capital Markets Services licence by the Monetary Authority of Singapore (MAS) in November 2019 for fund management.

Envysion was a family office in the business of advising and managing investment portfolios. It managed Envysion Global Investments VCC, of which the Envysion Commodities Strategy Fund was a sub-fund.

The Envysion Commodities Strategy Fund was launched in May 2020 and was a collective investment scheme. The fund's sole investment strategy was to invest in receivables arising from the sale of nickel, which were offered by Envy Global Trading.

Envy Global Trading and the nickel receivables scheme were run by Ng Yu Zhi, who is currently on trial for criminal offences.

Based on representations made by Ng and others from Envy Global Trading, Doo understood that Envy Global Trading would purchase a specific quantity of nickel from a mining firm, Poseidon Nickel, to buy Poseidon's nickel stockpile at a discounted price.

In turn, Envy Global Trading would then sell the nickel to forward buyers and profit from the difference between the discounted buying price and the selling price.

Between May 2020 and January 2021, Envysion entered into receivable purchase agreements with Envy Global Trading on a monthly basis to purchase a portion of the nickel receivables for the fund.

There were a total of 122 investors in the fund. From around May 2020 to February 2021, Envysion and the fund invested about S$56.5 million and US$15.4 million (S$19.9 million) of their funds received from investors with Envy Global Trading.

All three Envysion directors made significant personal investments into the nickel trading scheme as well, with Doo investing over S$1 million into the scheme from around mid-2019.

The scheme later collapsed as Envy Global Trading did not have the purported nickel stockpile from Poseidon, or the purported forward buyers. Investors in the fund lost a total of about S$67 million.

As chief investment officer, Doo's role was to oversee the investment team. He had extensive experience in the banking industry before joining Envysion, including as head of structured products, Asia, at Julius Baer, and global product manager for Fixed Income, as well as acting global head of FX, Rates, and Commodities in Standard Chartered Bank, Singapore.

CONFLICTS OF INTEREST

Envysion's CEO, Shim, was friends with Ng. When Shim did not have enough capital to fund the paid-up capital for Envysion at the time it was set up, Ng offered to lend her money.

He later lent her a total of S$5.5 million, which was used for Envysion's business operations. The loan agreement signed by the pair stated that they were an "investment" in Envysion Holdings and could be converted into a 50 per cent shareholding in Envysion Holdings.

The loans were significant to Envysion's operations. For example, in March 2020, MAS informed Shim that Envysion was in breach of its financial regulatory requirements as its base capital had fallen below its minimum regulatory requirement and also that its financial resources had fallen below 100 per cent of its total risk requirement.

After this, Shim received loans of S$1.1 million from Ng in early March 2020, which were injected into Envysion to meet the MAS requirements.

She took a further personal loan of S$2 million from Ng in August 2020, which she in turn loaned to Envysion.

Around the second half of 2020, Shim informed Doo that she had taken a personal loan of S$5 million from Ng, and that she had invested the money into Envysion.

Doo was not aware of the exact terms of the loan or the exact details of how the money was invested.

These loans were not repaid to Ng during the course of the fund's investments into the nickel receivables scheme.

Envysion earned referral fees from Envy Global Trading for referring clients to subscribe to the nickel receivables scheme, through their subscriptions in the fund.

These fees were a significant source of revenue for Envysion, with the referral fees amounting to S$3.3 million in 2020, approximately 65 per cent of Envysion's total revenue for that year.

Around July 2020, Doo began to be uncomfortable with the investments in the nickel scheme. This was because Envy Global Trading did not provide Envysion with enough supporting documents for the scheme despite repeated requests by Envysion, including shipping and insurance documents, among other reasons.

However, Doo also knew that Envysion's most significant revenue stream was from the fund. Because of this, it was not feasible to cease Envysion's investment into Envy Global Trading's nickel trading scheme without Envysion having to take significant steps to reduce its personnel and costs for its continued operations.

At the same time, Doo was making various attempts to diversify Envysion's revenue stream.

Given Envysion's investments through its fund into the nickel scheme, the personal loans Ng gave to Shim and the referral fees received by Envysion amounted to conflicts of interest in the management of the fund between the investors' interests and Envysion's interests.

Because of the loans that could potentially be converted into a 50 per cent shareholding in Envysion Holdings, which owned Envysion Wealth Management, Ng had potential indirect influence over Envysion.

As the referral fees formed a large part of Envysion's revenue, Envysion had a significant financial incentive to invest through the fund into the nickel scheme and to persuade its clients to do the same, the prosecution said.

Despite this, Envysion failed to mitigate the conflicts of interest. It made only generic disclosures but did not disclose the significant loans Ng had given Shim, which were used for Envysion's business operations, or the extent of the proportion of Envysion's revenue made up by the referral fees from Envy Global Trading.

The prosecution sought a fine of S$10,000 to S$12,000 for Doo, saying he was an experienced banking professional who was to oversee the evaluation of investment opportunities for Envysion.

"We recognise that the accused himself was a victim in Ng's scheme and suffered personal losses," said Deputy Public Prosecutor David Koh.

"Nevertheless, the accused bears significant responsibility given his role in Envysion for the regulatory failures. The accused was increasingly uncomfortable with Envysion's investment into the fund, but decided that there was no choice but for these investments to continue," he said.

"Envysion also took no steps to mitigate the very substantial conflicts of interest between the interests of its clients and its own interests – a fundamental breach of its licensing conditions which was contributed to by the accused’s neglect."

Doo’s defence lawyers, Mr Ronald JJ Wong and Ms Rebecca Soh from Covenant Chambers, sought a fine of S$5,000 to S$7,000 instead.

They said in their mitigation plea that the harm caused by Doo’s offence “simply cannot be ascertained”.

“What is certain is the prosecution’s attempt to link the investors’ losses to Mr Doo’s actions is fallacious, as there is no evidence to prove that Mr Doo’s negligence – or (Envysion’s) failure to mitigate the identified conflicts of interest, for that matter – caused the losses suffered by investors,” said the lawyers.

They pointed to how the High Court has described Ng’s nickel trading scheme as “a billion-dollar fraud perpetuated on all and sundry, from the common man on the street to sophisticated investors who were seduced by the apparent attractive returns”.

“It was the fact that Ng was running a Ponzi scheme that led to the fund’s investors’ losses – it would be fallacious for the prosecution to assert that Mr Doo’s actions had caused the investors’ losses,” said the defence lawyers.

As for Doo’s own personal losses, they said he has had to deal with the fallout of “not just a failed investment, but a ruined career in the financial industry”.

“As a father of 3 children, Mr Doo worries about how he will support his family financially, given his inability to land full-time employment,” said the defence.

Doo’s wife is now the sole breadwinner of the family. His lawyers said their client has “already been punished in various ways” as a result of the subject matter of his charges.

Doo could have been fined up to S$50,000 for his offence.