S$1.5b nickel fraud: Court allows liquidators to claw back bonuses, commissions from Ponzi scheme's ex-staff

CNA

5 days ago

SINGAPORE: The High Court on Tuesday (Jul 29) allowed liquidators to claw back bonuses, commissions and other payments from former employees of the Envy group of companies that allegedly perpetuated a S$1.5 billion (US$1.16 billion) Ponzi scheme involving bogus nickel trading.
The court found two directors liable for about S$842 million, an administrative executive liable for S$1.9 million, and six employees liable for about S$42 million in total.
The judge said the billion-dollar fraud was perpetuated on "all and sundry, from the common man on the street to sophisticated investors who were seduced by the apparent attractive returns".
The alleged mastermind of the scheme, Ng Yu Zhi, founded the Envy group of companies and is separately on trial for dozens of criminal charges including forgery, cheating and criminal breach of trust.
However, he declared bankruptcy after a partial judgment for about S$416.4 million and US$17.6 million was obtained against him.
The three Envy companies - Envy Asset Management, Envy Management Holdings and Envy Global Trading - and those firms' three liquidators then turned to Ng's former employees in a bid to claw back money.
Judicial Commissioner Mohamed Faizal said the purported nickel trading was non-existent. The Envy companies never transacted with an Australian company known as Poseidon Nickel to purchase London Metal Exchange Grade Metal, nor did they sell the nickel to any third-party buyers.
The trading was a Ponzi scheme propped up by various forgeries and false representations to the investors, said the judge, and none of the money from investors was used to buy nickel.
Instead, the funds were transferred to Ng, paid as directors' fees to Ng and another director Ms Lee Si Ye, paid as commissions, profit-sharing payments, referral fees or other payments to various employees, paid as "profits" in excess of invested principal to investors, or transferred or paid to related entities such as other companies owned by the Envy companies.
TWO DIRECTORS FOUND LIABLE FOR MILLIONS OF DOLLARS
The High Court on Tuesday issued two lengthy judgments on the case. First, it found two directors of the Envy companies jointly liable for total sums of S$593 million, US$192 million and 880,000 euro (US$1.02 million). This amounts to about S$842 million.
This sum corresponds to the total amount of money owed by the insolvent Envy companies to investors.
Ms Lee, a trained accountant who came to know Ng during the course of her previous job as an auditor, was found fully liable for the entire sum.
The second director, Envy's head of trading Mr Ju Xiao, was found liable for up to 40 per cent of the same sum.
The court also found administrative executive and client support associate Mr Cheong Ming Feng, who conveyed Ng's instructions to another party to forge documents, liable for S$1.92 million.
Ng was the founder of the Envy companies and held at least 80 to 90 per cent of the ordinary shares of the companies.
Ms Lee held the remaining 10 to 20 per cent of the ordinary shares.
During her employment with the Envy companies, she was directly responsible and had oversight over the Envy companies' "back-office functions". These included accounting, updating of records of the flow of funds between the companies and investors and calculation of commission, salaries, bonuses and profit shares to be paid to employees.
The judge said Ms Lee clearly had some knowledge of the "various discrete aspects" of Ng's fraudulent behaviour. ShHe was "grossly derelict" in her duties and failed to make the sort of inquiries that any director should have made.
However, there was also evidence that she was being duped by Ng, as she had numerous family members invest money in the purported nickel trading. There was also evidence of Ng reassuring her that the business was legitimate.
The court found that Mr Ju was aware of, or chose to be "wilfully blind" about the hollow nature of the nickel trading. He forged four contracts and coordinated with Ng on what details were required, and knew that the purported trading was amiss.
Having experience in commodities and metal trading, he conceded that he did not personally invest in the trading as the returns seemed "too high", the court said.
The administrative executive, Mr Cheong, knew that he was creating forgeries, which were being circulated to internal employees and external investors, the court found.
However, he did not know that such actions were to prop up a non-existent scheme. The court found that he possessed "a rather rudimentary understanding" of the business, and the power differential was apparent from his correspondence with Ng, as Mr Cheong did what he was told.
Mr Cheong had invested in the nickel trading personally, and even paid investors out of his own pocket to keep the business going when Ng was arrested.
The court found only Mr Ju liable for fraudulent trading, as he was a knowing party to the Ponzi scheme or at least chose to be wilfully blind about its nature.
While Ms Lee and Mr Cheong acted dishonestly or inappropriately in some way and fell "far short" of the standards required of them in their roles, neither of them knew that the nickel trading was a Ponzi scheme.
PAYMENTS TO OTHER EMPLOYEES CAN BE CLAWED BACK
The plaintiffs sued for different types of payments that had been given to the trio to be clawed back. These include profit sharing and commission payments, salaries, allowances, bonuses and reimbursements, directors' fees and dividends.
The court ruled that all payments sought by the plaintiffs be clawed back from the trio. This is with the exception of Ms Lee's and Mr Cheong's basic salary payments, which were contractual obligations.
Ms Lee had a basic monthly salary of S$5,500 from January 2016. She also had a variable component of her salary which was 20 per cent of the company's monthly net profit.
Her basic salary became S$13,200 from September 2020 and she could get a discretionary bonus based on performance.
Mr Ju had a basic monthly salary of S$24,000 per month from November 2019, with a possible two months' bonus.
Mr Cheong had a basic monthly salary of S$2,600 from May 2017, along with a variable portion of his salary which was 50 per cent of the company's monthly net profit generated by his clients.
In September 2020, his basic salary increased to over S$3,000 in September 2020 and he could get a performance bonus.
The second judgment issued by the court allowed the claimants to claw back commission payments, profit sharing payments, referral fees and over-withdrawn sums from six Envy employees.
They are: Sales directors Mr Lau Lee Sheng and Mr Teo Wei Wen Benjamin, financial accountant and office operations director Ms Shen Xuhuai, sales associates Mr Koh Hong Jie and Mr Chua Wei Jian Jordan and business development director and marketing communications director Mr Guo Yujia.
Mr Lau was found liable for S$17.9 million, Mr Teo was found liable for S$10.2 million, Ms Shen was found liable for S$6.1 million, Mr Koh was found liable for about $5 million, Mr Guo was found liable for S$2.6 million and Mr Chua was found liable for about S$370,880.
All six of them had been paid commissions for referring investors to invest in the fake nickel trading.
Four of the them had been paid "over-withdrawn sums", which refer to the money in excess of their investment principals in the purported nickel trading.
The judge noted that "for any Ponzi scheme to achieve a certain scale, its primary architect would require enablers: individuals who knew full well what was going on but were happy to keep quiet as long as their financial interests were advanced by doing so, or individuals who engaged in questionable business practices without asking too many questions".
"This case features the unfortunate confluence of all of these truly distressing features. The outcome was a truly shocking one," he said.
The verdict in Ng's separate criminal trial is pending.