(Bloomberg) -- Wherever there are British expats with money, there’s a DeVere Group office not far away. And in many of those places, the company’s aggressive sales tactics or high fees have drawn the attention of regulators.
Now the financial-advisory firm, which says it has attracted $12 billion in assets, including more than $500 million in the U.S., is under investigation by the Securities and Exchange Commission, according to five former employees informed of the probe by management before they left. About half of the salesmen in DeVere’s New York office have quit or been fired in recent weeks, they say, and the firm has closed its Miami branch.
Among the irregularities, according to the former employees: The firm for years charged upfront commissions on some investments, even though its SEC registration didn’t allow such fees. Three of the former employees, all of whom asked for anonymity out of fear of retaliation, said some salesmen had cocaine and other drugs delivered to fuel their high-pressure cold-calling. The former employees said the SEC probe concerns compliance issues and has intensified in recent months.
George Prior, a spokesman for DeVere, dismissed questions about the probe and the allegations of former employees, saying he wouldn’t discuss “unsubstantiated rumors or speculation.” Judy Burns, a spokeswoman for the SEC, declined to comment.
“A high quality, results-driven service for our clients is always at the forefront of the firm’s focus,” Prior said in an email, adding that the company was conducting a “strategic review.”
Nigel Green, a British stockbroker, started DeVere in Hong Kong about 15 years ago. He previously had worked at offshore brokerage Britex International, which ran into trouble when a high-yield fund it had been selling stopped paying investors, according to reports in the Financial Times. DeVere bought Britex in 2002, International Money Marketing reported.
Green expanded to the Middle East and Europe, and then to Shanghai, Tokyo, Thailand and Africa, according to promotional videos posted on YouTube. DeVere says it now has 80,000 clients in more than 100 countries.
“When I went abroad, I was really shocked, it was a massive opportunity,” Green said in a video posted on YouTube in 2016. “Today people want international advice.”
Prior, the spokesman for Green, declined to make him available for an interview.
DeVere opened its U.S. outpost in 2012. It hired mainly young British men to pitch their countrymen on the tax benefits of moving their pensions overseas. Former employees say they spent most of their time cold-calling and sending messages on LinkedIn.
The salesmen had an attractive pitch. Under British law, some workers who had retirement savings in the U.K. could move them overseas and avoid taxes they’d have to pay when they withdrew the money.
There were a lot of fees. In addition to an annual management fee, DeVere would charge a fee on the pension transfer that could be as high as 7 percent, spread over several years, three former employees said. Clients who transferred pensions would have to decide how to invest the money, giving DeVere salesmen another chance to earn fees.
Among the investments DeVere sold in the U.S. were structured notes from banks including Goldman Sachs Group Inc. and Morgan Stanley, according to the former employees. These investments, a form of derivatives, are a way to bet on the stock market. One Goldman note offered an 11 percent return if three indexes all went up by a designated date. DeVere received a 4 percent upfront commission, the former employees said.
Because DeVere registered with the SEC as an investment adviser, not as a brokerage, its employees aren’t allowed to collect commissions.
“If you receive transaction-based commissions then you need to be registered as a broker-dealer,” said Seth Taube, a former SEC enforcement official who’s now a lawyer at Baker Botts LLP in New York.
DeVere didn’t respond to questions about commissions. In 2014, Benjamin Alderson, then head of the New York office, told International Adviser about SEC regulations: “You cannot be anything but squeaky clean or it will show.”
Andrew Williams, a spokesman for Goldman Sachs, said the bank terminated its distribution relationships with DeVere last year, declining to say why. Mark Lake, a Morgan Stanley spokesman, declined to comment.
DeVere employees who did well made a lot of money. The firm had about 50 U.S. salesmen at its peak, and the top tier made more than $500,000 a year, former employees said. The best performers were invited to DeVere’s Christmas party in London. At the 2015 event at the Grosvenor Hotel, Green, DeVere’s founder, descended to the stage on a zip line amid fireworks, and the former lead singer of the Pussycat Dolls performed, the employees said.
Green, a trim and diminutive man, visited New York every few months. An employee would be assigned to bring a kettlebell to his hotel room for his morning workouts. Some former salesmen said he reminded them of the sinister nuclear-plant owner Mr. Burns from “The Simpsons.”
Three of the former employees said they would drink booze out of paper cups during the day when Green wasn’t watching. Younger guys were sent downstairs to buy drugs from delivery men. Most of the misbehavior stopped around 2015, the former employees said. Salesmen who worked at DeVere more recently said they hadn’t seen anything untoward.
In 2015, one of DeVere’s few female employees sued for sexual harassment, saying salesmen made vulgar and racist comments about her husband, a black professional football player. The New York Post published a story about the lawsuit with the headline “I worked in real-life ‘Wolf of Wall Street’ den: NFL player’s wife.” Prior, the DeVere spokesman, said at the time that the allegations were “false and incredulous.” The case was settled out of court, though the former employee, Philippa Okoye, has since filed a second lawsuit alleging she wasn’t paid.
DeVere has a history of run-ins with regulators. In 2008, a Singapore subsidiary was fined for using unlicensed advisers and selling insurance products outside its license mandate, according to a statement by the city-state’s regulator. The firm closed the office that year.
In Hong Kong, a former DeVere subsidiary was fined HK$3.1 million ($398,000) last year for breaches including using unlicensed advisers and failing to hand over information to a local regulator. Green had already acquired another firm, Acuma Hong Kong Ltd., and he uses that brand in the city now instead of DeVere.
DeVere is on a list of firms published by Japan’s regulator that aren’t authorized to solicit investors. It was on a similar list in Thailand, though it isn’t anymore. Its U.K. subsidiary stopped providing some pension advice this year amid a regulatory review. DeVere has blamed some problems on scammers using its name.
South Africa’s Financial Services Board is also investigating DeVere, according to Nokuthula Mtungwa, a spokeswoman for the agency. Ross Pennell, a former manager of DeVere’s Cape Town office who said he’s been contacted by the regulator, said the probe concerned fees and disclosures. He said clients weren’t told about some of the commissions they were paying or that some investments locked up their money for years.
“In my experience, DeVere was sometimes more focused on making sales than actually giving proper financial advice,” Pennell said in an interview.
After leaving DeVere in 2014, Pennell sued the company over an unpaid bonus and other money he says he was owed. He said he then received threatening anonymous phone calls, and a mobile-phone message with what appeared to be surveillance photographs of his wife and children. He reported the threats to South African police, who determined there wasn’t enough evidence to pursue the matter. A judge ruled in favor of Pennell in the pay dispute this month, but DeVere is appealing.
An SEC investigation may not be the biggest threat to offshore advisers like DeVere: In March, the U.K. government imposed a 25 percent tax on some pensions transferred overseas. The U.K. Financial Conduct Authority also posted a warning on its website in January about the risks of pension transfers, such as advisers who recommend high-risk investments or scams.
DeVere said in a May 13 press release that its strategic review will involve a corporate restructuring and should be completed by the end of the month. The company sold its Bahamas operation to its managers and has been busy this year setting up new businesses. It got an investment-banking license from Mauritius, an island east of Madagascar, opened a private bank on the Caribbean island of St. Lucia and started a “global e-money app” that it says will rival traditional banks.
“Banking as we have known it until now is finished,” Green said in an April 10 press release announcing the app.