‘WHAT CHANCE DO HONEST PEOPLE HAVE?” – HOW FUND PROVIDERS TURNED A BLIND EYE IN LM SCAM

“THIS IS A DODGE – I SWEAR ON MY LIFE”

Fund providers such as Royal Skandia and Friends Provident turned a blind eye to warnings over the dodgy LM Managed Performance Fund despite repeated emails from whistle-blower financial man Martyn Terpilowski – then based in Tokyo.

The fund managers attitude to the well being of people who had had put their pensions into LM by financial advisers was almost flippant with one dismissing the conversation with a remark ‘How’s business’.

In fact ‘business’ was all it was to the three groups who had their claws into naive investors who were trusting them to look after their pensions. All claim they did due diligence. But that seems to amount to be being wined and dined by LM executives and agents – IFAs were getting claw backs of 9 per cent or more if they could lock their clients into funds for three years.

(Intro by Lindell Lucy of www.therapeofhongkong.com)

Martyn Terpilowski has a knack for spotting dodgy investments. High commissions, high management fees, and unrealistic rates of return are three of the biggest warning signs.

Martyn first noticed something was wrong with LM’s Managed Performance Fund (MPF) in 2009 when LM started lying to investors about liquidity and then kept campaigning for cash while redemption payments were indefinitely “delayed”. A few of Martyn’s clients had invested in the MPF at around 2005-2006, so he had a responsibility to keep a close eye on it.

Several years ago, Martyn also noticed some things he didn’t like about a different fund run by Castlestone Management. He predicted that it would run into problems. In July 2011, when Castlestone’s offices were raided by the Financial Services Authority (the British regulator), he forwarded the news headlines to bond providers Generali International and Royal Skandia, and he warned them that LM Investment Management would be in trouble next. 


Both life companies ignored him.


Six months later, after one of Martyn’s clients had been waiting in the MPF redemption queue for a year and a half, he requested an update on his client’s position. The numbers he received indicated that scores of investors were jumping the queue. For the next several weeks, Martyn pressured LM for an explanation, but no one would tell him the whole truth. He suspected that LM was hiding a serious problem.


Martyn subsequently sent emails to Royal Skandia and Friends Provident International (FPI). He strongly advised them to stop accepting new MPF investments.


In one email to Skandia, Martyn said:


“This is dodge – I swear on my life…I hate to say it but I do not think the money is coming back and I cannot let this continue and more people get duped.” 


He forwarded dozens of suspicious emails that he’d received from LM, and he even offered to speak in front of the investment boards of both companies. 


Most of the emails Martyn forwarded to Skandia and FPI have been published on this blog over the past two weeks. (See here and here.)


Upon seeing the emails, FPI put an immediate block on new investments into MPF and promised to investigate further.


Skandia said they’d consult with FPI and also conduct an investigation.


However, just one week later, Skandia stopped responding to Martyn’s emails. No one ever contacted him again, and Friends Provident swiftly unblocked the MPF.


Stunningly, both Skandia and FPI continued to accept new MPF investments until the moment LM collapsed, one year later in March 2013.


—


Martyn’s emails to Skandia and Friends Provident contained an abundance of alarming information, including proof of MPF’s chronic redemption delays, possible ponzi activity, large commission increases, and LM’s habitual lack of honesty.


Because Skandia and FPI turned a blind eye, they are undoubtedly responsible, at least in part, for the devastating financial losses suffered by those investors who bought the MPF through their platforms after April 2012.


They are also partly responsible for the losses suffered by those who were stuck waiting in the MPF redemption queue indefinitely. According to a recent news article, both Skandia and FPI have admitted that they did not experience major redemption delays. This means they were jumping the queue in front of people like Martyn’s client, and they knew they were doing it. They were therefore undoubtedly complicit in LM’s unfair treatment of certain classes of investors, namely direct investors.


Supposing Skandia and FPI knew about LM’s questionable conduct well before receiving Martyn’s emails—and they should have known, given that Martyn and his colleagues had independently spotted numerous red flags as early as January 2009—then Skandia and FPI could be on the hook for even more blame.

They are already being harshly criticized for allowing unlicensed advisers to sell MPF (a high-risk “sophisticated investor” fund) to inexperienced investors and retirees via their platforms.


When asked why he thought Skandia and Friends Provident had behaved so recklessly, Martyn Terpilowski said, “They were afraid of losing market share.” A Skandia executive once told him, “If we don’t take [the MPF], then someone else will. It is very popular with brokers.”


Four sets of emails are copied below and arranged in roughly chronological order.

Warning to Generali International, July 2011

Martyn Terpilowski

From: Martyn Terpilowski
Sent: Thursday, July 21, 2011 12:16 AM
To: [Generali Employee]
Cc: [Martyn’s Colleague]; [Martyn’s Colleague]
Subject: Are u reallly sure u want to be taking these guys around with you and having them on your platform – i hate to say it but right again!!!!

http://www.ftadviser.com/InvestmentAdviser/Investments/News/article/20110720/928a9f1c-b2c9-11e0-a7cc-00144f2af8e8/FSA-raids-Castlestone-offices-in-latest-blow-to-group.jsp

Best regards

Martyn

Generali International

From: [Generali Employee]
Sent: Thursday, July 21, 2011 8:59 AM
To: [Martyn Terpilowski]
Cc: [Martyn’s Colleague]‘; [Martyn’s Colleague]
Subject: Re: Are u reallly sure u want to be taking these guys around with you and having them on your platform – i hate to say it but right again!!!!

Hi Martyn

I believe Castlestone are co-operating with the FSA [Financial Services Authority] as per another headline I saw, but I guess that’s not as sensational and headline grabbing as the [above].

Guess we’ll have to wait and see what the fallout is after the investigation has closed.

In the meantime, how’s business?

Regards

[Generali Employee]

Martyn Terpilowski

From: Martyn Terpilowski
Sent: 21 July 2011 09:07
To: [Generali Employee]
Subject: RE: Are u reallly sure u want to be taking these guys around with you and having them on your platform – i hate to say it but right again!!!!

The thing is it is so obvious it is dodge if u actually watch how they can’t even follow the Gold price – I have known this well before all this started…. But it is just totally unsurprising…

LM next – u heard it here first – very similar meglamaniacs in charge who are dangerous people…

Biz – ok – did a big direct Winton deal yesterday for a referral… apart from that bits and bobs – usual…

MT

Warning to Royal Skandia, July 2011

From: Martyn Terpilowski
Sent: Thursday, July 21, 2011 8:17 AM
To: [Skandia Employee]; [Skandia Employee]; [Skandia Employee]
Subject: LM next – watch this space.. scary…

http://www.ftadviser.com/InvestmentAdviser/Investments/News/article/20110720/928a9f1c-b2c9-11e0-a7cc-00144f2af8e8/FSA-raids-Castlestone-offices-in-latest-blow-to-group.jsp

Best regards

Martyn

Warning to Royal Skandia, April 2012

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: 11 April 2012 20:22
To: [Skandia Employee]
Subject: FW: LM

Mate – I have mentioned this before, but I think you guys should seriously look at whether you should be taking LM business. It is going to go very wrong. I can fill you in on the details whenever, but I have clients with a couple of million in there who have been in waiting lists to get there money back a number of years. The information I get from them is also very shady indeed. Please see emails below.

I am very serious. It does not make sense anyway you look at it.

Rgds
Martyn

Royal Skandia

—–Original Message—–
From: [Skandia Employee]
Sent: Thursday, April 12, 2012 10:33 AM
To: Martyn Terpilowski
Subject: RE: LM

Hi

Thanks for the heads up – will feedback comments / info internally and we will investigate further.

Cheers

[Skandia Employee]

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: 12 April 2012 09:38
To: [Skandia Employee]
Subject: RE: LM

Mate – I have hundreds of docs where this come from and happy to go infront of your investment board – they cannot get away with this any longer. It is disgusting what they are doing. MT

Royal Skandia

—–Original Message—–
From: [Skandia Employee]
Sent: Thursday, April 12, 2012 10:41 AM
To: Martyn Terpilowski
Subject: RE: LM

Ok will keep you posted from our side

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: 12 April 2012 09:46
To: [Skandia Employee]
Subject: RE: LM

This is a huge issue and funnily enough very popular with brokers – what chance do the honest people have??

Royal Skandia

—–Original Message—–
From: [Skandia Employee]
Sent: Thursday, April 12, 2012 6:25 PM
To: Martyn Terpilowski
Subject: RE: LM

Hi

Do you have some additional info that you can pass on for us to review further?

Thanks
[Skandia Employee]

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: Thursday, April 12, 2012 6:34 PM
To: [Skandia Employee]
Subject: RE: LM

Mate – I have pages and pages and pages – will send u a few… This is dodge – I swear on my life and I have tried to deal with it internally but there is no way I can do it anyway – I hate to say it but I do not think the money is coming back and I cannot let this continue and more people get duped..

They just keep telling us about selling assets that never happens and my client has waited over 2 yrs (this was a 1yr investment).. There solution to the problem, indemnify commission by 3 yrs and pay brokers 9% upfront – that should shut people up and they cant get their money anyway… I mean mate – the waiting list is at least 2 yrs and they now refuse to give queue numbers, which they used to give… It is ridicoulus – I will send some more stuff. If they are taking so much in, how can they never pay it out? It is like Ponze plus scheme and these guys are scary as speak like this is normal.…I am very serious and worried for the $3m I have in there total.

We all understood the situation with the markets but this is different. Clients would NEVER invest if they knew this and you know that.

Stuff coming over now.
MT

Royal Skandia

—–Original Message—–
From: [Skandia Employee]
Sent: Thursday, April 12, 2012 6:41 PM
To: Martyn Terpilowski
Subject: RE: More LM

Ok thanks – will feed all of this on for further review

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: 12 April 2012 17:39
To: [Skandia Employee]
Subject: More LM

And – please think about it. It is very obvious and scary.

Good evening.

MT

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: 12 April 2012 17:45
To: [Skandia Employee]
Subject: RE: More LM

Mate – I know it looks like this is personal, but I do not want anyone else to lose their money. I fear for my clients $3m and this biz is all 4yrs old+. I stopped doing LM biz when they carried taking in and just closed to redemptions without telling anyone. They lied and then just increased commissions to get more support. Brandeaux dealt with this completely differently and far more professionally. LM’s attitude scares me. I am happy to meet anyone from RSK and back this up. Enough is enough.

Martyn

Royal Skandia

—–Original Message—–
From: [Skandia Employee]
Sent: Thursday, April 12, 2012 6:50 PM
To: Martyn Terpilowski
Subject: RE: More LM

Ok understand, I know we are following up with FPI as well so will keep you posted.
Cheers

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: Thursday, April 12, 2012 6:57 PM
To: [Skandia Employee]
Subject: RE: More LM

Cheers mate – Martin Venier reckons I do not get it because I am not Australian…. Pretty good explanation of why nothing adds up.

There other funds are in an absolute mess also. I used to like them, but I know lies when I see them and there are lots here.

I just want real answers and so should you and FPI. How can a fund that is taking so much in, have people waiting for more than 2 yrs to get their money back from the end of the 1 yr term? How can they be expanding if this is the case? And where is the money? – I thought taking in when not paying out was illegal. They say queue but 2 yrs + to me is closed and they will not even give a queue number for clients anymoreAt best it is being sold by every broker under false pretences – as no one would ever invest if this was highlighted to them – the 1 yr fund that may be 10ys and we have no responsibility to tell u when u might get your money back, but do not worry – trust us we are Australian. Rubbish.

Have a good evening. I am looking fwd to hearing from their lawyer.

MT

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: 18 April 2012 12:41
To: [Skandia Employee]
Subject: RE: More LM

You guys found all this out now?

MT

—–Original Message—–
From: Martyn Terpilowski
Sent: 28 April 2012 09:47
To: [Skandia Employee]
Subject: RE: More LM

Any news on LM? I know they reckon they have no list anymore as it was lost in a computer system error and young girls in the office were using the wrong files for the queue numbers for their clients to get their money back, but my client is still no closer after 2 yrs to getting any money back. This is illegal in many countries (Taking money in and not paying out).

Please let me know what you have discovered.

cheers

Martyn

Warning to Friends Provident International, April 2012

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: Wednesday, April 11, 2012 8:23 PM
To: [FPI Employee]
Subject: FW: LM

Mate – I think I have mentioned this before, but I think you guys should seriously look at whether you should be taking LM business. It is going to go very wrong. I can fill you in on the details whenever, but I have clients with a couple of million in there who have been in waiting lists to get there money back a number of years. The information I get from them is also very shady indeed. Please see emails below.

I am quite serious. It does not make sense anyway you look at it.

Rgds
Martyn

Friends Provident International

—–Original Message—–
From: [FPI Employee]
Sent: Thursday, April 12, 2012 9:41 AM
To: ‘Martyn Terpilowski’
Subject: RE: LM

Hi Martyn

We’ve put a block on new investment into LM MPF while we look at the answers regarding the delay in redemptions. The life offices talk to each other, so I wouldn’t be surprised if the others have put a block in, too.

You can imagine that IFAs don’t give me much negative feedback about this fund, so thanks very much for sending this.

Let me forward this email to our guys looking at this.

Would love to hear about Melanie using the wrong file! Better still, read the emails from LM about it. Hard evidence required.

Thanks again.

[FPI Employee]

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: Thursday, April 12, 2012 10:24 AM
To: [FPI Employee]
Subject: RE: LM

Hi [FPI Employee]

Yes it is true that no IFA will tell u this which is a damning indictment on the industry. I believe they now have a 3 yr term where they indemnify the commission (9%). This keeps the broker happy and also prevents any questions on you getting your money out. We all understand whay happened in the Lehman crisis and clients never saw these as bank deposits as Martin Vennier suggests they were sold. These hold ups have now become unexplainable. When Brandeaux stopped paying out, they stopped taking money in – that is the norm in these cases and I have no issues with that. This after all is a 1 year term and my client has been in over 3 yrs and getting no closer to getting his money back. We have been promised that clients waiting will get there money back through the sale of assets etc, but this has gone on for years and LM are expanding and taking lots of money in!!! I have over $3m of clients money still in there and fear it will never return. When you talk to these guys, they seem to be on a different planet which is very scary. They act as if they do not see the issue and as long as the client is getting the return, why does he need the money so desperately? but it scares me and this stable unit price could just be made up. Look at the MIF unit price that has steadily come down to 0.73 from 1.00. The fact anyone still deals with LM is amazing as there is no way a client would invest if they knew there was a 2yr+ waiting list on the backside and we are no closer to knowing how yr+ long the queue really is or more likley if it exists?. There used to be a queue system, but Martin refuses to give those numbers out now and says they were just a mix up from a file in the office by Melanie as there are host of factors that affect redemptions, but they are taking loads in apparently….Surely I am not the only one who sees this as wrong and my client is now going legal as it has gone on too long. These guys are dangerous meglomaniacs (like Madoff or Stanford) who just talk a game, that makes no sense when looked at – will fwd u some other stuff also as I am going nuclear on them. They have left me with no choice.

Please share this with Skandia, although I have mentioned to [a Skandia employee already].

Rgds
Martyn