Fraud and Corruption- An Insider’s Guide to Look’s Securities of Hong Kong
Working in compliance departments can be a no-win situation when flagging wrongdoing can kill your career if the company is more interested in profits. My experience at Hong Kong brokerage Look’s Securities Limited is testament to exactly that.
After witnessing what I can only describe as widespread fraud across every level of management, including the compliance team I worked in, Look’s Securities fired me when I reported it. Bribes, unauthorized transactions, share dumping, you name it, Look’s Securities is open to it. I had enough of the obvious and open corruption going on, and wanted no part of it; I didn’t want to go to jail, it wasn’t worth it. I do want to tell my story however since Look’s Securities is already under investigation by the SFC and get things off my chest.
I was hired in 2017 to identify suspicious behavior and transactions, and help the firm deal with any legal issues, which meant conducting investigations and settling matters related to misconduct. Look’s Securities began operations a year earlier in 2016, and it was clear from very early on in my tenure the legal and compliance department was really there to facilitate fraud.
Through my career I have worked in the first and second lines of defense, and during my time in Look’s Securities at 1908, 19/F, K11 Atelier, 18 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong, I reported to the managing director Samuel Lee, and Vivien Lai, another registered officer, and another manager, Hilda Chan.
All three are now being investigated by the authorities here in Hong Kong.
According to some paper logs, suspicious activity reports from staff at the brokerage began filing in to the Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) two years ago.
Both the SFC and the HKMA now have a full investigation open into Look’s Securities, but the firm has a lot of underworld connections inside Hong Kong and partner firms in the US who can apply pressure where necessary.
Anyone who spoke up internally was moved along quickly. Look’s Securities has had significant staff turnover levels, including the Responsible Officers whose job it is to supervise compliance.
The duty of stockbrokers is to always give an honest assessment of any transactions, and there is a prohibition on lying and other forms of deception.
Yet brokers at Look’s Securities would;
- frequently omit important information when contacted by certain companies asking what happened to their stocks;
- look the other way on suspect transactions, and;
- make frequent material misrepresentations;
- pass envelopes full of cash as hush-money.
Not only that, but compliance staff and management would take bribes from other executives to help cover their tracks when they dumped shares transferred to them from an American company.
All this was going on away from the sight of the original share owners, who had no clue their collateral had been sent to us and then sold through back-channels and off-market to pay for the loan going the other way. Both Look’s and the loan company were creaming off the top, and in some cases Samuel Lee, Vivien Lai and Hilda Chan were looking at between 5 and 20 percent cut of the trade.
More than a few unregulated investment and loan operations, mainly based in the Hong Kong but with operations globally, use Look’s Securities to help hide their unauthorized trading activities, because the brokerage is a black hole for share dumping.
Problems start when Look’s Securities dumps large volumes of shares, causing clearly suspicious movements in the markets. A company in the US who lends their shares out in exchange for a loan suddenly sees its share price tank a couple days after transferring the shares over to Looks.
The ripples from these share price movements cause a default on their loan contract, meaning the loan originator can then argue they were obliged to sell the shares. By then, however, Look’s Securities have already taken care of this, and having routed the shares through strange and obscure channels, it’s usually impossible for the company who were innocently looking for a loan to ever find out what happened.
A secondary factor here is the market manipulation going on from these irregular share price movements; it is a deliberate ploy to acquire and then dump millions of shares without warning, and not even the original share owner will know what is happening, and so anyone aware of what is happening can take a position accordingly and benefit, and those not in the loop are exposed through no fault of their own.
The easiest way to cover tracks and blame a rogue broker for an unauthorized sale is to falsify the account creation process so actually that broker never existed in the first place. Look’s Securities are experts at this kind of account forgery, that has fooled the regulators for several years with its account creation set up, faking KYC documents, contracts and other requisite evidence. Often passport pictures are recycled along with birth certificates, address proof and other fake documentation, such as POA.
Samuel and Vivien work with their outside source to create bogus accounts, sometimes 5, sometimes 10, using various proxies, that will again allow them to fudge the trace of a transaction as it is funneled through the Look’s Securities system. This also allows certain clients of Look’s Securities to increase the volume of stock by pushing it through the dummy accounts.
Having such a level of control over both dummy and legitimate accounts also allows other forms of tampering – meaning Samuel and Vivien can manually move securities around and not record the transfer. The account holder may think they have securities holding, but the account is empty, and likewise, an account holder may not realize their account is being used to wash the traces of certain stocks.
Internal Systems and Controls
Looks’ Securities has rudimentary post-trade surveillance systems, a regulatory requirement in case the enforcement officers want information. What Look’s Securities don’t have is a system that works the way it should, and this is very deliberate. Nobody knows this, and it’s only that I have seen it myself first hand – this is information only a select number of people know about.
The systems can identify potentially suspicious trading but there are no policies in place to ensure anything is acted on. The systems are also calibrated to alert only Samuel Lee and Vivien Lai and Hilda Chan.
I asked about testing the calibration of these systems as a way of checking they were working after I saw clear suspect transactions take place, and was shut down.
Look’s Securities actually uses the same post-trade surveillance systems which were designed for the whole Look’s group, which covers their sister operation, Look’s Asset Management. The software is set up to cater for the other companies in the group, and will capture barely anything routed through it by Look’s Securities. It is essentially a dummy.
Reviews of some legitimate transactions are written up just to cover for the regulator should they start asking questions as to why nothing is filed, but there is no oversight of these reviews and nothing independent about them.
Why more than 3 million shares in an American manufacturing company are being sold via Look’s Securities a day after they have been handled by an intermediary will slip through the gaps and go undetected. Also, nobody checked on the phony reviews, so it’s not like anything was likely to change.
Look’s Securities probably couldn’t identify truly suspicious transactions like money laundering because the system had been designed to ignore them.
Occasionally we’d have a call or video chat with an external compliance team, but all of this went undocumented. It was unrecorded calls every time. No training or other checks were in place to ensure surveillance was working. For the sake of appearances, false trades were escalated just to put on a show.
Management weren’t going to challenge any of this, they were encouraging it. When you’re getting 20% of a $2 million trade, why would you? There were cash envelopes delivered to the offices for Samuel, Hilda and Vivien. They would often hand some of the kickbacks around to the compliance staff also in on the scam.
There was no real front office function, when the automated system worked so well. They would automatically generate reports, while letting transactions to companies that had been flagged as unauthorized or potentially illegal were let go.
Some transactions didn’t meet the criteria to be captured on the post-trade surveillance reports, which was even better, as then there’s no way for them to be reviewed. So, I don’t even know how many trades I missed, there could be hundreds, millions of dollars.
Hilda Chan, Samuel Lee, and Vivien Lai considered themselves to be experts at overseeing the trade process, and so there was never any attempt to undertake quality assurance, or double check the reviews. All the system did was occasionally confirm that the Look’s Securities internal controls were fine, and that a specific trade had been reviewed by management if not the automated system.
The “management review” was an informal, undocumented phone call between Look’s Securities and High West Capital Partners.
We were consistent at filing suspicious transaction reports – why draw attention to ourselves by claiming our system was flawless? However, these had been reviewed and it was clear there would be no comeback from the SFC.
Pump and Dump
Looks is notorious for paying the underworld hustlers to pump-up the stock right before Looks needs to dump it. Again cash envelopes are being offered to sketchy street thugs who set-up fake stock promotions. I witnessed this first hand several times and told to be quite. I was even ordered to find such underground promoters.
Some staff, like myself, have been feeding information such as the above to trusted agents inside the SFC for the last two years. I was informed that the US Securities and Exchange Commission and some other agencies have also been working with the SFC and the HKMA to uncover more details. It’s time others came forward to tell their stories.