FNG Exclusive… FNG has learned that BRI Ferrier, the appointed administrator and liquidator of (formerly) ASIC licensed Retail FX and CFDs broker Prospero Markets, has filed an initial report for clients and creditors indicating that its preliminary investigations show that there are sufficient funds to discharge all client claims at the Australia based broker.
Prospero Markets had its ASIC AFS license suspended and was effectively shut down in late 2023, as its ownership was caught up in an Australian Federal Police action against a major China-based money laundering ring.
BRI, which was formally appointed last month after the Federal Court of Australia granted a request made by financial regulator ASIC to issue a formal wind-up order for Prospero Markets, said its initial reports confirmed that the Commonwealth Bank of Australia continues to hold the company’s designated client trust funds, totaling circa AUD$19.7M. Those trust funds remain frozen while BRI determines total client claims and runs an orderly distribution process, subject to directions from the Court.
At this stage BRI anticipates a (relatively short) timeframe of 2-3 months until it can refund client claims, subject to Court directions and assuming no substantive arise issues in the adjudication process.
The administrator added that it has also secured a substantial portion of the company’s operating funds, with further recoveries being pursued. At this stage, BRI expects that there are also sufficient realisations to pay employee creditors in due course, and that unsecured creditor claims may be paid in full, subject to recovery of all assets and BRI’s investigation of all claims.
More facets of BRI’s review and appointment follow below.
BRI appointment as liquidator of Prospero Markets
Andrew Cummins, Jonathon Keenan and Peter Krejci of BRI Ferrier were appointed Joint and Several Liquidators of the company on 10 April 2024 pursuant to an Order of the Federal Court of Australia, as noted above. The winding up application was filed by the ASIC on just and equitable grounds, following a range of concerns regarding management and compliance discussed below.
Based on BRI’s preliminary enquiries, it appears that the company may be solvent, however this is subject to recovery of all assets and the completion of its investigations into the total client and creditor claims, which will take time.
A more detailed report will be provided to creditors in July 2024.
Upon its appointment, BRI immediately contacted the Director, Mr Xuehao (Hal) Zhou. Mr Zhou explained that he had only been appointed in October 2023 and advised that Mr Wei (David) Hong, one of the Responsible Managers under the Company’s AFSL, was a key source of information pertaining to the Company’s operations generally. It was understood that Mr Ye (Eric) Qu, was previously the managing director of the business, however, since October 2023, Mr Qu’s involvement has been limited. BRI’s contact with the Company’s management team has therefore been primarily with Mr Hong and Mr Zhou.
Prospero Markets Group Structure
It appears that the Company operated as part of a broader group of businesses, all providing financial services within Australia and offshore, referred to as the “Prospero Group”. Certain associated entities and persons within the Prospero Group have been pursued by regulatory bodies, such as the AFP, AFSA and ASIC, where there have been allegations of money laundering and other offences, which has resulted in various prosecutions and, ultimately, led to this liquidation.
BRI prepared below a chart summarising the known structure of the Company and associated entities, which appear relevant to this Liquidation. This is based on BRI’s preliminary enquiries, and more will become known in due course.
BRI’s initial activities
The business ceased trading in late 2023, around the time that the Company’s AFSL was suspended by ASIC. The remaining operations were limited to the maintenance of critical infrastructure relating to the financial services business and clients’ interests in same.
BRI’s initial focus in the Liquidation has been to pursue recovery of the Company’s assets (including the client trust funds), and secure relevant records in order to facilitate an efficient distribution to creditors in due course. In respect of the Company’s liabilities, the majority appears to be represented by client claims, which are statutory trust claims. BRI has already received a substantive level of enquiries from clients, specifically pertaining to the timing and withdrawal of client funds.
The liquidator is also aware that the Company owes various liabilities in respect of the business operations, particularly former employee claims and trade creditors. BRI has been contacted by various former employees and trade creditors in respect of outstanding debts owed by the Company. It has also identified trade supplier liabilities in the Company’s management accounts, however the management accounts are not up to date given the cessation of trading some months ago. BRI has engaged the Company’s former bookkeeper to assist with reconciling the management accounts, which it anticipates being completed in the coming weeks. There may be additional creditors identified, subject to further investigation work.
It is too early to determine if there are any claims to be pursued in the Liquidation and/or what recoveries may result from the same, particularly if the Company is solvent. In any event, BRI is required to investigate the Company’s affairs and the conduct of its officers, and report its findings to ASIC in due course. If any creditors have information relevant to the Liquidation, they are encouraged to contact BRI without delay, such that it may assist its investigations.
Prospero Markets history and background
Prospero Markets held an AFSL and operated a financial services business in which it was authorised to deal with derivatives and foreign exchange contracts, making markets and providing general financial product advice for same to retail and wholesale clients. In October 2023, the AFP charged several individuals in relation to allegations of money laundering and other offences involved in the Chang Jiang Currency Exchange business, where some of the parties involved were in the management of the Company.
It appears that ASIC had been monitoring the Company since late 2022. Following the AFP conducting prosecutions of associated parties, ASIC commenced a formal investigation into suspected contraventions of various obligations relating to filing certain declarations, audited financial accounts and reporting as required under laws and regulations governing the AFSL. On 20 December 2023, ASIC suspended the Company’s AFSL after the Company’s failure to lodge audited financial accounts for FY2023. Following this suspension, the Company largely ceased trading as it was unable to issue financial products and all open client positions were apparently closed. During this period, the majority of staff were terminated by way of formal redundancy.
As a result of ASIC’s investigations into the Company’s affairs, ASIC formed the view that there were serious concerns regarding the Company’s management of the business. Accordingly, ASIC made an application to the Federal Court of Australia to wind up the Company on ‘just and equitable’ grounds pursuant to section 461(1)(k) of the Act, and BRI was appointed as Joint and Several Liquidators on 10 April 2024.
Prospero Markets asset recoveries
Upon its appointment, BRI focused primarily on securing the Company’s assets (including client funds) and records held on various IT platforms.
BRI received confirmation that the Commonwealth Bank of Australia (CBA) is holding various bank accounts, which the Company had determined to be designated client trust accounts holding client funds totaling circa $19.7M. Those accounts had been frozen some months prior to its appointment in accordance with orders obtained by ASIC and other regulatory bodies. BRI has issued instruction to CBA that the freeze is to remain over all those trust accounts while we investigate the total client liability position.
The liquidator said it has sought legal advice in respect of the client funds, as there are potential mixing issues and the extent of the client liabilities is yet to be determined. Having regard to that advice, BRI has formed the view that a Court application is required to seek judicial advice and directions as to (among other things and without limitation):
- the extent and characterisation of trust funds;
- the process for resolving client claims in respect of returning trust funds;
- the Liquidators’ expenses incurred in dealing with the trust funds; and
- the appropriate course for disbursing funds to clients.
In respect of other Company assets, BRI also wrote to a number of LPs and Australian financial institutions, identified as operational funds through the Company’s books. To date, it has recovered approximately $2.02M from three Liquidity Providers (LPs), $1M from Bendigo Bank and $15K cash on hand into the Liquidation bank account.
BRI is continuing to pursue recovery other operational funds, including amounts held with an LP (apparently in Singapore) who has refused to release the Company’s funds. BRI has instructed its lawyers to make a formal demand to this LP, and ultimately may need to seek orders of the Singaporean Courts.
The liquidator is also investigating approximately $1.1M funds that were withdrawn from an LP in the months prior to its appointment, however which are now missing. It is pursuing tracing of the funds from the various financial institutions and is working towards a recovery. Further work is required, and legal proceedings may be necessary if adequate responses are not forthcoming.
The Company had two offices, one in Box Hill, VIC and another in the Sydney CBD. The assets are those leased premises primarily consisting of office furniture, IT equipment, fixtures and fittings, and certain cash and sundry items. BRI has attended these leased premises and also engaged an independent valuer, O’Maras, to catalogue the property and provide a valuation report on the physical assets. Subject to recovering what value it can from the physical assets, BRI intends to disclaim the Company’s interest in the leased premises and any unrealisable property that remains onsite. BRI noted that there may be claims from third parties over certain assets.
Prospero Markets MT4 records
BRI said it has sought to secure Company books and records, in particular, MT4 client data, to determine if the level of client funds held with the CBA are sufficient to enable a return of client funds in full. It has engaged an MT4 expert to obtain access to, and secured the MT4 client data stored on two servers. It also sought to secure continued access to the MT4 platform and has liaised with MetaQuotes in this regard.
Correspondence with the Director and Mr Hong indicate there are two groups of clients – one group domiciled in Australia considered to be clients of the Company, and another group who are clients of Prospero Markets LLC, a company incorporated in St Vincent and the Grenadines. These clients appear to be located offshore, primarily in China.
BRI’s investigations (which have been confirmed by the Director and Mr Hong) have confirmed that the offshore clients utilise the Australia company’s MT4 license, and the Company’s Australian based clients utilise the MT4 license of another related entity known as Prospero Markets Company Limited (a company incorporated in New Zealand). This presents an issue, as BRI’s appointment is only over the Company and not any other entities in the Prospero Group, which may impact its investigations.
The liquidator added that it is aware that MT4 access to Prospero Markets Company Limited has been restricted and now appears to have been taken offline. It has requested that this access urgently be restored, to assist with the return of client funds. Regardless, BRI confirms that it has secured a backup of the MT4 data, and if required, it is likely in a position to verify client liabilities from this backup with the assistance of the MT4 expert engaged.
BRI has also sought to secure other Company records, including obtaining copies of the Company’s email server, CRM database, and general computer systems to varying success. Its efforts are ongoing.
In addition, the liquidator has obtained access to the Company’s Reckon management system and have arranged for the accounts to be brought up to date by the Company’s former bookkeeper. BRI anticipates this work to be completed in the coming weeks.
Prospero Markets client funds recovery and timeline
As mentioned above, the Company ceased trading prior to BRI’s appointment. It understands that all open positions were closed on or around 13 November 2023. BRI has invited clients with available equity to lodge a claim in the Liquidation and provide supporting documentation, such as a copy of the most recent MT4 statement confirming their equity position.
BRI has also received claims from clients of the related offshore entity, Prospero Markets LLC, and is advised by the Director and Mr Hong that these clients do not have valid claims against the Company. Its enquiries indicate a mixing in terms of operational aspects of the MT4 licenses, and investigations are required to formally adjudicate those claims. Accordingly, BRI is currently registering those parties as potential client creditors to be reviewed and adjudicated prior to any distribution.
In accordance with the Company’s Product Disclosure Statement, if there are sufficient client funds to meet client liabilities after costs, then monies will be returned in full. If there are insufficient client funds to meet client liabilities, after costs, then monies will be returned on a pari passu (proportionate) basis.
BRI said it has also sought legal advice and has formed the view that it requires judicial advice and directions in respect of the characterisation and treatment of client funds and client distribution process, to ensure that it is appropriately dealing with the client funds and that the costs of the distribution process can be met from the client funds. Accordingly, BRI intends to file a Court application to be heard on an urgent basis. This work will be undertaken parallel with the client distribution process detailed above. However, the return of client funds will not be conducted until judicial advice is obtained, justifying the clients’ rights and BRI’s proposed course of action in that regard.
Subject to the Court making judicial directions and there are no substantive issues encountered in the adjudication process, BRI anticipates a timeframe of 2-3 months for a distribution to clients.
Prospero Markets employees
The liquidator is advised that the Company terminated all staff prior to its appointment. The termination was by way of formal redundancy, when the Company ceased to trade in late 2023. As such, former staff may be entitled to redundancy entitlements, such as payment in lieu of notice and severance (redundancy) pay.
Former employees of the Company have a statutory priority of payment in respect of outstanding entitlements such as wages, superannuation, annual leave, long service leave, payment in lieu of notice and redundancy. In the event that there are insufficient funds to pay a dividend to priority (employee) creditors in a winding up, employees (excluding the Directors and related parties) may lodge a claim under the FEG scheme with the Department of Employment and Workplace Relations in respect of certain entitlements that they are owed, subject to them meeting the eligibility requirements of the FEG scheme. FEG does not pay outstanding superannuation.
At this stage and based on preliminary investigations, BRI believes realisations may be sufficient to discharge the priority (employee) creditors, however the timing of such payment is dependent on the outcome of investigations into Company’s affairs, including the trust assets and claims, which may take some time to determine. On this basis, the liquidator encourages former employees to lodge a claim with FEG as soon as possible.
BRI said it will provide further information on the employee claims and potential distributions in the upcoming statutory report to creditors.
We will continue to follow this story as it develops.
