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Ex-directors of gold investment firm on trial over fraudulent multimillion-dollar scheme

Ex-directors of gold investment firm on trial over fraudulent multimillion-dollar scheme

File photo of gold bars seen at a gold and silver separating plant. (Photo: Reuters/Leonhard Foeger/File Photo)

SINGAPORE: Two former directors of a company that sold gold bars to the public in a buyback scheme went on trial on Monday (Feb 8) for fraudulent trading. They were allegedly involved in a multimillion-dollar Ponzi scheme that drew more than 2,000 investors.

Iseli Rudolf James Maitland, 59, and Malaysian How Soo Feng, 44, are contesting a charge each of being part of a business that fraudulently sold gold bars under a buyback scheme promising returns, when there was no substantive profit-generating business and no sustainable means of honouring its payment and buyback obligations. 

Under the scheme by their company, The Gold Label, members of the public bought gold bars as part of investment contracts where they were promised returns of between 3.5 per cent and 12 per cent over a period of time, plus the principal sums, if they chose to sell their gold bars back to the firm.

In October 2010, within a year of starting its sale of gold bars, the accused initiated a winding-up of the company, which had a total liability of S$85.3 million at the time.

READ: More than 2,000 cheated in multi-million dollar gold investment scam

It had about S$452,000 in its bank accounts and owed creditors S$736,600 by the time the company was wound up in February 2011.

Maitland and How are defended by teams of lawyers led by Adrian Wee from Characterist LLC and Shashi Nathan from Withers KhattarWong respectively.  

A third co-accused, Wong Kwan Sing, has absconded and is wanted by the police. He was last located in Malaysia. 

According to the prosecution's case, Maitland, How and Wong were the directors of The Gold Label, which was incorporated in Singapore in April 2009. From December 2009, the company sold gold bars to clients at prices that were on average 24 per cent above what it cost to buy the gold bars, and the clients would receive payouts over the course of their contracts.

The Gold Label offered two types of plans, with contracts lasting three or six months and with total returns to clients between 3.5 per cent and 12 per cent depending on the contracts. 

If clients exercised the sell-back option, that is to ask The Gold Label to repurchase the bars at the end of the contract, the company would have to return the clients their principal, including GST refunds if applicable.

The prosecution's case is that this gold buyback scheme was a Ponzi scheme or money circulation scheme disguised as a gold trading programme offering lucrative benefits, said Deputy Public Prosecutor Kevin Yong.

Maitland and How began approaching sales agents to help market the Gold Buyback Scheme, offering monthly commissions for agents' sales. They told the agents that The Gold Label would engage in back-end gold trading to generate the requisite returns, but refused to elaborate on the details of this trading, said the prosecution.

"In truth, The Gold Label had no substantial alternative source of revenue, and (Maitland) and (How) knew this. The Gold Label did not engage in gold trading," said Mr Yong. 

"Instead, proceeds from the sale of the gold bars were either meaninglessly transferred between The Gold Label's bank accounts, used to buy more gold bars to sell to new clients, or used to honour The Gold Label's existing obligations towards clients and agents."

The only investment The Gold Label attempted outside of the purchase and sale of gold bars was a time deposit of S$1.9 million placed with Standard Chartered Bank in June 2010, which was fully withdrawn by August that year before its maturity date.

Between December 2009 and March 2010, Maitland and How allegedly received a total of 2 per cent of the contract value for each contract sold on the first month and 1 per cent of the contract value for each subsequent month for the remaining contract duration.

These payments were described as director fees, and this quantum was revised to a fixed monthly payment of S$20,000 to be shared among Maitland, How and a company Wong ran.

"The scheme was not sustainable as revenue was not invested to pay the obligated returns. Unsurprisingly, the scheme could not last, and the company eventually filed for voluntary winding up a little over a year after it began sales," said Mr Yong.

On Oct 7, 2010, Maitland and How initiated a winding-up of The Gold Label. At the time, the company's total liability arising from outstanding payouts and potential fulfilment of exercised sell-back options for existing contracts was S$85.3 million. It had only about S$452,400 in its bank accounts.

COMPANY BOUGHT OVER BY MAN WHO IS NOW A PROSECUTION WITNESS

Instead of being wound up, it was later acquired by a sales agent, Gordon Aw Chye Yen, under the company Goldvine Investment. Mr Aw testified for the prosecution on Monday, detailing how he first came to know of the scheme and later bought over all the company's shares.

Mr Aw said he met Maitland and How through an acquaintance when the two of them were introducing their gold business. In a meeting, Maitland and How said they were already doing business with gold investment firm Genneva, and said they would do better than Genneva.

They claimed that The Gold Label would sell gold with internationally recognised hallmarks as opposed to Genneva's gold, saying they had connections and would like to tap the Singapore market.

According to Mr Aw, Maitland and How said they could do better than Genneva as they already had a supply of gold and were working with a team that was rolling the profits to meet the payments required for the gold scheme.

Mr Aw said he first came to know of a possibility of cash-flow problems in July 2010, after word spread that a major marketing firm was pulling out of the arrangement.

At a subsequent meeting with Maitland and How, he concluded that they were not in control of the situation. In taking over the company, he sought answers for the supposed formula the pair had for generating revenue but found that "it was nothing". 

There was no fixed gold bar supplier and no key supplier to provide a low price as the pair had first claimed, said Mr Aw. 

"We realised we could not continue the sales," he said. "We were not willing to go ahead ... because we felt it was extremely risky and we weren't willing to go into that, and we were not able to see a lot of movement from the sales."

He added that because of "the bad press" The Gold Label was getting, many agents were persuading their clients to get their money back. Eventually, Mr Aw decided to cut his losses and wound up The Gold Label through a creditors' voluntary winding up. At this point, the amount owed to creditors was estimated at S$736,600.

According to the prosecution, Maitland and How admitted in statements to the Commercial Affairs Department that the "formula" was non-existent, and that The Gold Label's business was not financially sustainable because revenue obtained from the scheme was not invested to generate the needed returns.

To convict the pair, the prosecution will have to prove that The Gold Label ran a business for a fraudulent purpose, and that both the accused were knowing parties to this business.

Mr Yong said it is likely that Maitland and How "will try to conveniently push all the blame" to Wong, that Wong was responsible for the "formula" while Maitland and How were responsible only for selling the gold bars.

The trial continues. If convicted of fraudulent trading under the Companies Act, the accused could be jailed for up to seven years, fined up to S$15,000, or both.

The former general manager of Genneva was given 56 months' jail in July last year for fraudulent trading. The gold investment company had owed its customers gold bars worth almost S$45 million.

Source: CNA/ll(gs)

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