In the UK we fight financial fraud through the FCA,tPR and a variety of enforcement agencies which together are “action fraud”. Our Regulators are accountable for ensuring that organisations that they regulate behave properly and that investments that they offer do not put consumer’s money at risk.
The same duties apply to the Channel Islands’ Regulators, the J (Jersey) FSC and the G (Guernsey) FSC who operate in these crown dependencies autonomously from UK regulators.
But these Channel Isles Regulators are not resourced as UK regulators are, and appear to have been used by one United States organisation to legitimise what is turning out to be a Ponzi Scheme.
In as much as the people of the Channel Isles fall under Crown Dependencies, we consider them British, they deserve the same care as mainland people do. But the sorry tale of Lumiere Financial Services and Providence Investment Funds PCC Limited, calls into question the competence of these Regulators and suggests that both Channel Isles and UK consumers think twice before investing through any adviser or fund regulated by the JFSC and GFSC.
The JFSC, who are responsible for overseeing the sales of the funds through Lumiere Wealth have issued three press releases stating they are aware of the train crash happening around them, the most recent of these statements , made earlier this month simply explains that they are aware that the boss of Lumiere has been locked up by Jersey’s joint financial crimes unit. They are listed here http://www.jerseyfsc.org/the_commission/general_information/latest_news/index.asp
Anatomy of a fraud
Here are the facts of the matter as taken from the complaint of the US Securities and Exchange Commission. If you want to short-cut – just read the headlines.
I. Providence Financial and Providence Fund Offer and Sell Unregistered Securities through Unregistered Brokers.
17. From at least as early as 2011, Providence Financial and Providence Fund have been issuing, offering to sell, and selling fixed rate promissory notes to investors in the United States and elsewhere.
18. Generally, the notes pay annual interest rates of 12% to 13%. Investors generally have the option of purchasing a note with a one-year term at or slightly less than 12%, or purchasing a note with a longer term at a higher interest rate. Providence Financial and Providence Fund allow investors to elect to receive monthly or quarterly cash interest payments or take a one-time payment of interest, at a higher rate, upon maturity.
19. Providence Financial and Providence Fund purport to use the proceeds of those notes to generate profits via investment in receivables transactions –a practice they refer to as “factoring” – made through certain affiliated companies in Brazil. At least 400 U.S. investors currently hold at least $64 million in notes issued by Providence Financial and Providence Fund.
20. The notes issued by Providence Financial and Providence Fund are securities, as that term is defined in the federal securities laws.
21. No registration statement has been filed with the SEC concerning the notes sold by Providence Financial or Providence Fund to investors in the United States.
22. Providence Financial and Providence Fund have offered and sold the unregistered notes through a network of unregistered brokers, including Defendants Churchfield and Jarrell.
23. Churchfield, Jarrell, and other unregistered brokers have offered and sold Providence Financial and Providence Fund notes pursuant to agreements with a related Providence Group company that pay the brokers an annual commission in the amount of 6% of the face value of each note sold.
24. Jarrell began selling the promissory notes in March 2012, and has offered and sold the notes to investors with whom Jarrell had an investment advisory agreement in place.
25. In 2015, Providence Financial and Providence Fund paid Jarrell approximately $260,000 in commissions on the sale of the promissory notes. In addition, Providence Financial and Providence Fund have paid for half of Jarrell’s office rent since Jarrell began selling the promissory notes to his clients. Jarrell did not disclose this compensation to any of the investors to whom he sold Providence notes, including the individuals with whom he had advisory agreements in place.
26. Churchfield began offering and selling Providence Fund and Providence Financial promissory notes in 2013. At Providence Financial’s and Providence Fund’s direction, Jarrell provided guidance, training, and assistance to Churchfield on how to offer and sell the promissory notes. In addition to the 6% commission paid to
CASE 0:16-cv-01877 Document 1 Filed 06/07/16 Page 8 of 18
Churchfield, Providence Fund and Providence Financial paid Jarrell a 3% annual “override” commission on the face value of notes sold by Churchfield. Accordingly, 9% of the proceeds of the investments sold by Churchfield would be devoted, annually, to commissions for Churchfield and Jarrell.
27. In 2015, Providence Financial and Providence Fund paid Churchfield approximately $130,000 in commissions on the sale of the promissory notes, which represented Churchfield’s sole source of income for that year. In addition, Providence Financial and Providence Fund have paid for all of Churchfield’s office rent since he began offering the promissory notes.
28. Jarrell and Churchfield identified potential investors for the promissory notes by, among other things, holding “social security seminars.” In the course of selling notes to investors, both Jarrell and Churchfield explained the investment to potential investors using documents provided to them by Providence Financial and Providence Fund. They met with and answered questions from investors and potential investors, accepted application materials, forwarded signed applications and promissory notes to Providence Financial and Providence Fund, and transferred investor funds to and from Providence Financial and Providence Fund.
29. Providence Financial and Providence Fund offered higher interest rates to noteholders that did not take monthly or quarterly interest payments in cash, but instead allowed interest to accrue until their notes matured. The majority of investors chose not to take monthly or quarterly cash interest payments, but instead opted to allow interest to accrue until the notes reached maturity.
30. When their notes matured, many investors did not take repayment of their principal and payment of accrued interest in cash. Instead, they “renewed” their notes by transferring the principal and any accrued interest on their mature notes into new notes. Both Jarrell and Churchfield walked their clients through the note renewal process, collecting client signatures on new notes and other documents and forwarding those documents to Providence Financial and Providence Fund.
31. At some point in 2015, Providence Financial and Providence Fund begansending Jarrell and other unregistered brokers an “Accredited Applicant Questionnaire”along with other documents used in the note renewal process. However, Jarrell never used this questionnaire with his clients. Moreover, numerous promissory note investorswere not “accredited” as that term is defined in the federal securities laws.
II. The Promissory Note Offering Materials Contain Material Misrepresentations and Omissions.
32. Providence Financial and Providence Fund gave investors only a limited amount of information about the notes or their purported factoring business in Brazil. That information initially took the form of a Providence Fund “Executive Memorandum,” which Providence Fund and Providence Financial provided to investors and the unregistered brokers who promoted the promissory notes.
33. Providence Financial and Providence Fund later provided investors and brokers a document entitled “Providence Financial Investments Inc. High Yield Fixed Returns Information” (the “Information Memorandum”).
34. Providence Financial and Providence Fund additionally promoted, and continue to promote, the promissory notes on a public website: www.provfinance.com.
35. Neither the Executive Memorandum, the Information Memorandum, the website, nor any of the other materials that Providence Financial and Providence Fund provided to investors included financial statements or balance sheets related to Providence Financial, Providence Fund, or any of their affiliates. Indeed, when requested by Churchfield to provide such information, Providence Financial and Providence Fund refused, telling Churchfield: “we are not a public company and don’t disclose this.”
36. The Executive Memorandum, the Information Memorandum, and the website provide a general description, and tout the profitability, of the receivables financing business that Providence Financial and Providence Fund purport to conduct in the Brazilian factoring market. These offering materials describe factoring as a financial transaction whereby a business sells its accounts receivable to a third party (the factor) at a discount, and the factor obtains the rights associated with the receivables. In theory, the factor makes money via the spread between the discounted purchase price of the receivables and the supposedly larger amount the factor collects when the outstanding receivables are paid off.
37. The Executive Memorandum describes the promissory notes, and states that Providence Fund will pay noteholders 12% annual interest, with payments to be made monthly. The Executive Memorandum indicates that note proceeds will be used, solely, to finance receivables factoring in Brazil. The Executive Memorandum additionally describes the promissory notes as a “low to moderate risk” investment.
38. Similar to the Executive Memorandum, the Information Memorandum contains a general discussion of receivables financing and factoring in Brazil, but provides scant details about Providence Financial’s or Providence Fund’s operations or how those companies will use investor funds to engage in factoring transactions.
39. The Information Memorandum additionally states that one of Providence Financial’s main philosophies is to: “Provide investment safety with real high yield returns.” The Information Memorandum additionally represents, in a section titled “Charges”: “There are no fixed charges to clients.”
40. The website similarly states, in a section titled “Charges”: “No fees or charges to our lenders [the promissory note holders].”
41. The Executive Memorandum, the Information Memorandum, and website each fail to disclose any use for the note proceeds other than investing in factoring transactions in Brazil. For instance, none of the offering materials provided to investors disclosed that Providence Financial and Providence Fund would pay 6% annual commissions on each promissory note sold. The offering materials additionally do not disclose that, from 2011 to 2015, a small set of Providence Group executives have received nearly $9 million from Providence Group’s U.S. entities.
42. These offering materials also do not disclose information describing the current financial condition, the current assets and liabilities, or the ability to repay investors, of Providence Financial, Providence Fund, or their related entities. Moreover, beyond general statements downplaying the risks of the investment, the offering materials
contain little, if any, disclosures about the risks attendant to receivables factoring, generally, or the promissory notes, in particular.
III. Providence Financial and Providence Fund Face Serious Financial Problems.
43. Contrary to their representation that the “sole” use of investor proceeds would be to fund Brazilian factoring transactions, Providence Financial and Providence Fund deployed at least 32% of investor proceeds on expenditures other than receivables factoring.
44. One result of Providence Financial and Providence Fund expending large portions of investor proceeds for uses other than factoring is that they hold receivables investments that are significantly lower in value than their obligations to investors. For example, at year-end 2014, Providence Financial and Providence Fund owed investors more than $52 million, yet their Brazilian affiliates held only $13 million in receivables assets. For 2015, Providence Financial’s and Providence Fund’s obligations to U.S. investors had increased to $64 million, yet their receivables investments had dwindled to $10.6 million.
45. Moreover, Providence Financial’s and Providence Fund’s Brazilian affiliates have faced difficulties collecting certain of their accounts receivable.
46. Providence Financial’s and Providence Fund’s current financial situation appears extremely tenuous. Based on the most current bank statements available, Providence Financial and Providence Fund hold less than $250,000, spread through 28 accounts.
47. Compounding these problems, Brazil’s currency has sharply devalued against the U.S. dollar, with a nearly 50% decline in 2015. As a result, Providence Financial and Providence Fund cannot repatriate their Brazilian assets to repay the U.S. investors without suffering significant currency exchange losses. Accordingly, the only way Providence Financial and Providence Fund are able to repay U.S. investors is through the proceeds of new investments.
48. Nevertheless, Providence Financial and Providence Fund continue to offer the promissory notes to U.S. investors, and do so without disclosing any of the financial concerns described above.
Lumiere and Providence
It wasn’t just US investors who were targeted. Providence had its eyes on Europe and chose the Channel Islands in which to set up.
Lumiere Fund Services was set up by Provident to bring the toxic Providence Financial and Providence Fund into Guernsey’s Protected Cell structures.
Lumiere Wealth was set up by Providence Financial to sell its products in Jersey, these products were made available through a wrapper produced in Guernsey by a sister company – Providence Investment Funds PCC. Lumiere was put into administration in Jersey in July by the Jersey Authorities , shortly after the Guernsey fund house.
Little of Lumiere Wealth’s website survives but they still advertise on Linked In
Lumiere Wealth is an exciting new wealth management company which has launched in St Helier.
Combining local and international expertise with a personal touch, the independent firm focuses on building long-term relationships with both private and corporate clients. Lumiere Wealth’s range of services include investments, savings, pensions, pension transfers, life insurance, private medical cover and general investment advice.
Lumiere Wealth is licenced by the Jersey Financial Services Commission and is led by founder and Managing Director Chris Byrne. Chris has a wealth of experience having worked over 15 years as a Wealth Manager at RBS International & NatWest Offshore in Jersey, where he focused on investment consultancy and management.
Joining Chris is a team of vastly experienced Jersey residents having worked at major financial brands and organisations. The key personnel include Director, Jason Mills, who previously ran the Offshore Investor Solutions sales teams at RBS International; Business Development Manager Andrew Forster, who was an Associate Director at RBS International; and Office Manager Annie Simeon.
Chris said; “We are passionate and pragmatic about what we do. The team of experienced consultants have more than 100 years’ experience collectively, combining effective guidance with personal service. We are very proud of the generation-spanning relationships we nurture with our clients. We aim to provide a friendly professional approach to ensure that our clients’ aims and objectives are understood and will be met with a personal financial plan tailored to meet their specific requirements.”
Lumiere Wealth are keen to be supportive of local events and charities, and are proud to sponsor the Jersey Men’s Basketball Team at the eagerly awaited NatWest Island Games.
Chris and his team look forward to welcoming you and building a long rewarding relationship.
Worryingly, Linked in lists their Specialities as
Investments, Retirement planning, Pension transfers, Life Cover, Protection
This tweet suggest the market that Lumiere was interested in;
— Lumiere Wealth (@LumiereWealth) June 8, 2016
Who has been selling ?
I suspect (having lived and worked in Jersey and managed operations in Jersey and Guernsey, that Chris Byrne’s credentials were pretty watertight. RBS international is a major force in Jersey.
The personal statements of Chris Byrne’s team include this
Having decided that I am far to young to retire, I am pleased to have been provided with a wonderful opportunity to join Chris Byrne and his team at Lumiere Wealth.
For the first time in a long number of years I am now able to focus fully on the aspects of the business that I most enjoy, and do best, which is looking after the financial well being of my clients.
Lumiere’s Former Business Development manager is a member of Jersey Crime Stoppers
Here’s how confident Lumiere were of their reputation for probity – earlier this year!
No boiler room operation
Lumiere was not seen as a boiler-room operation by the Jersey press. This is how Jersey News broke the story to Islanders in August
The fund had been recommended to Jersey clients by Lumiere Wealth Ltd, an independent financial advisory firm with a prestigious office suite at Castle Quay on the Waterfront.
Lumiere Wealth, affiliated to Miami-headquartered Providence Group, was established in Guernsey in 2014 and moved into Jersey only last year and until recently 16 staff were employed in the Jersey office under managing director Chris Byrne.
The premises are a short walk from the JFSC’s offices.
Who have been the victims?
if you’ve read the SEC’s complaint, you’ll see the kind of people who’ve been ripped off in the United States, it seems the successful formula has been replicated here.
The UK first
Providence has a City office in Heron Tower, it may be that this fund was available to UK investors through Lumiere. Lumieres in Jersey had a listing on Unbiased (Jersey). It sold a £25m “minbond” to UK retail investors in 2014. This bond went bust leaving investors £7m out of pocket as reported in the Financial Times. The FT has reported on other connected mini-bonds
The UK mini-bond documents were approved by Independent Portfolio Managers, a Financial Conduct Authority regulated company. IPM also approved documents and acted as a security trustee for the collapsed Secured Energy Bonds mini-bond
The FT investigated this
In June 2015, IPM told the Financial Times that despite being linked to the collapsed SEB bond, it had “tried to increase the oversight” it had of Providence Bonds. IPM did not respond to requests for a comment on this story.
Mini-bonds have attracted thousands of retail investors over the past two years with projections of high returns.
They are not eligible for the Financial Services Compensation Scheme and in the event of a default, investors have found it hard to gain redress. Holders of the Secured Energy Bond were told by two UK financial regulators that their case could not be looked at.
IPM is still trading successfully despite the problems with the investments in Providence Bonds. However the Providence mini-bonds are generally considered toxic by everyone I know in the wealth management industry,
Clearly this news did not get as far as the GSFC who had approved Lumiere Funds the previous year or the JFSC which approved Lumiere Wealth while all this was breaking!
Presumably -whoever was selling Providence mini-bonds in the UK, were doing so through Guernsey.
The Channel Isles next
The undisclosed victims of Lumiere’s activities would appear to be the wealthy of the Channel Isles.
The victims are currently anonymous. It is likely – judging by the list of specialities on linked in , that they will include those in the Channel Islands few defined benefit pension schemes.
Jersey people are understandably quiet about losing their money. Jersey is heavily dependent on financial services and its reputation as a place of probity among the various offshore financial services centres is carefully cultivated.
It is unlikely that the victims of Lumiere and its parent Providence will be making themselves known any time soon
What can we learn?
The facts laid out by the SEC are pretty damning. The arrest of Christopher Byrne suggests that the Jersey authorities consider him complicit in a fraud. Yet – until July of this year, Lumiere was a part of Jersey’s financial establishment. Lumiere’s fund administration business in Guernsey still has an open website advertising the presence of Providence’s CEO – Antonio Buzaneli on its Board
No one could be in any doubt that the principal purpose of Lumiere Wealth was to market Providence funds.
Jersey is a small island where reputations count for a lot. However there appears to have been an acceptance that the reputations of the Lumiere management team were enough in terms of due diligence.
The failure of the JSFC to pick up on what Lumiere were actually selling until the action of their Guernsey counterparts is hard to fathom. What due diligence did the JFSC do on Providence when Lumiere Wealth set up in 2015? Was the organisation just given the nod on the basis of the CVs of Chris Byrne and his colleagues. Why did it not pick up on what had happened in the UK to the failed mini-bonds and did it have no dealings with the SEC who were conducting an enquiry into what was going on in Brazil?
Sadly, all I think we can learn from Lumiere Wealth is that the standards of regulatory oversight of wealth managers in Jersey are in question.
As for the GFSC’s oversight of Lumiere Fund Services and the various protected cells of Providence Investment Funds, this too seems to have been found wanting.
If we can learn anything from Lumiere, Providence and the behaviour of the Regulators is that neither Jersey or Guernsey have proper oversite of the products and services they endorse
If you want to invest in the Channel Islands, be sure to understand what you are investing in, because – quite clearly – no one in authority does!