How Looks’ Securities dumps shares and hides the trail of a global stock-lending fraud
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.
You can read more with more in depth research on Look’s Securities Limited website.
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.
I was hired in 2017 to identify suspicious behavior and transactions, and help the firm deal with any misconduct. Look’s Securities began operations a year earlier in 2016, and it was clear from the start we were there to facilitate a very big fraud operation.
Throughout 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 SFC and local authorities here in Hong Kong, and the Hong Kong mafia that has lost money working with lenders connected to Look’s Securities.
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.
It is my understanding 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.
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.
The High West Capital Partners connection
Although there are a couple of US investment and loan operations who use Look’s Securities to help them hide their unauthorized trading, the main American business is a company called High West Capital Partners.
High West Capital Partners, who are registered in Singapore, the BVI, the US (and apparently in Hong Kong although they have no license to operate here) could not carry out their fraudulent activity without the help of Look’s Securities.
The problems started when Look’s Securities began dumping larger and larger volumes of shares, causing obvious suspicious movements in the markets. A company in the US who lends their shares to High West Capital Partners in exchange for a loan suddenly sees its share price tank a couple days after they sent the shares over.
The ripples from these share price movements cause a default on their loan contract, meaning High West Capital Partners 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 approached High West Capital Partners looking for a loan to ever find out what happened.
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? That’s a big slice of the pie.
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 at the time there would be no comeback from the SFC as it was stage-managed.
In reality, the SFC is aware of this. Some staff, like myself, have been feeding information such as the above to trusted agents 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 of the US parties involved, as they are suspected to be based nearby the Look’s Securities offices.
Whether Look’s Securities justifies its actions as being so far away from the companies in America it is destroying, I don’t know.
They are part of a major stock-loan fraud, however, and have forced hundreds of companies and individuals into bankruptcy because they have no collateral left after repaying a loan in good faith.