ISSUES  |  AUGUST 21, 2014 9:00 PM
Is the crude oil scheme too good too be true?
STORY BY
KHAIRIE HISYAM
khairie@kinibiz.com
Can crude oil guarentee returns issue inside story imageWhile much light had been shed on the crude oil investment scheme in the previous part of this series, a deeper concern for investors would be one name reportedly linked to the scheme — Jürgen Hanne, who was reportedly convicted of fraud. Amid the questions and controversy, however, the investment scheme is engaging the authorities in seeking to be regulated, said the scheme’s promoters.

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In January 2013, German weekly business news magazine Wirtschaftswoche published a series of articles on Conserve Oil Corporation (COC) and Proven Oil Canada (POC), the latter selling closed-end funds on behalf its parent company COC.

The articles, among others, raised questions on POC’s business model given the relative sparseness of details and highlighted the link between petroleum consultancy Sproule and COC, given that Sproule president Harry Helwerda’s son Jordan formerly worked with COC.

However Harry Helwerda was quoted as saying that he was never directly involved in the assessment of COC’s oil and gas reserves.

Additionally the weekly also questioned POC’s links to Jürgen Hanne, who was “convicted of fraud” before fleeing to Canada on parole, said the weekly, after his real estate fund for nursing homes in Germany collapsed at the turn of the millennium.

In an interview with KiniBiz, Jonathan Quek, one of the investment scheme’s promoters in Malaysia, confirmed the tie to Hanne but denied any active involvement on Hanne’s part in the scheme.

“(Hanne) is an independent guy,” said Quek to KiniBiz. “He doesn’t really run COC — COC is run by another team.”

‘Separate companies’

Proven Oil Asia (POA) and POC are separate companies with separate ownership, said Quek, though acknowledging that both are linked to COC.

Jonathan Quek“Their structure is totally different from ours — ours is crude oil trading, theirs is fund management,” said Quek in an interview with KiniBiz.

According to Wirtschaftswoche’s reports, following its series many investors withdrew their funds citing reference to its article on the scheme, causing POC’s fund to “collapse”.

In turn POC sued the publication, claiming its reports untruthful. When the dust settled, however, only “a few sentences” were amended out of a “long list” of things that POC had issues with, reported the magazine. Additionally some 80% of the proceedings costs had to be borne by POC whereas the weekly bore the rest.

Wirtschaftswoche called the court action an “own goal” on POC’s part. “In several respects (the Hamburg district court) rejected the application of Proven Oil,” it reported.

However, German investors reportedly undertook a class-action suit against POC after nearly all payments stopped by March this year.  While this is claimed by POC to be due to worsening business conditions and deteriorating profitability, POC had not released full audited financial statements despite requests from lawyers.

As for Hanne, Wirtschaftswoche reported that Alexander Gramatzki and Sebastian Hanne, his sons, works for COC, as does Hanne’s former partner Jürgen Hainzl. In addition COC is claimed to be using the same address in Canada that Hanne’s former companies did.

When asked on the connection, Quek declined to comment as he is unsure of the matter, although he remarked that he brought the issue up with COC’s management and in turn received emailed assurances. KiniBiz is waiting to sight a copy of the email at press time.

“You have to understand that this man was affiliated to landbanking business, a pretty huge one. Of course when you come up and you run your own stuff, people would not like it,” remarked Quek on Hanne to KiniBiz. “If you study a bit back about his background, he was running one of the largest landbanking business in the world. “

“I won’t be surprised if people find trouble with him,” added the financial author.

Transparency questions

Comparing the information disclosed in the scheme’s brochure and online web pages with what Quek has disclosed in the interview with KiniBiz, there appears a wide gap.

Royal Dutch Shell Building in The HagueAccordingly there had been previous criticism on the scheme, with some outright labelling it as a scam, given the scarcity of details backing up the returns guarantee.

In response to KiniBiz’s question on this point, Quek acknowledged that it is an issue.

“The problem is I can’t reveal longstanding contracts with BP, Shell, Exxon Mobil etc online,” he said to KiniBiz. “I would be sued.”

There had even been one incident of a sales agent for the scheme trying to create an authorised copy of the legal documents sighted by KiniBiz, added Quek. “We didn’t sack the agent but gave a first warning.”

As for the critics, Quek feels it is unfair as they are commenting without understanding the whole picture.

“Of course everyone has their own right to give their own opinion but I think it’s very important to go to the right source to seek for opinions,” said Quek.

Should investors worry?

Transparency questions never inspire confidence, and in the investment scheme’s case, neither does links to a person such as Hanne. In addition the shadow of past high-profile schemes that had failed hangs above any new investment product in the market.

“When we started this project, it was somewhere close to the closure of Genneva. And some people would tend to relate us to Genneva,” said Quek, who is part of the Wealth Insider Group (WIG) team, a local financial education and investment outfit which promotes the scheme.

doc66vjmsvcbr5n8457aaoQuek is referring to the gold investment scheme ran by Genneva Malaysia Sdn Bhd, which in 2012 was raided by Bank Negara Malaysia on suspicion of money laundering and illegal deposit-taking, among others. The sessions court however later declared that genuine gold trading had indeed taken place, though the central bank has said it intends to appeal the decision.

“I believe when you have a black sheep in the industry, everyone would say that the whole industry is corrupted. (So) there are talks like that,” added Quek, who also invests in gold and silver, to KiniBiz. “But after people really understand the entire project (things got better).”

Apart from Genneva, however, there had been other schemes aplenty in Malaysia.

Past investment programmes include landbanking schemes such as one ran by Profitable Plots, which in 2008 was declared by the Companies Commission of Malaysia or SSM as selling land to investors which it had no right to sell in the first place.

In February last year the investors of businessman Lee Kim Yew’s Country Heights Grower Scheme, which promised 8% returns for the first four years, accepted a goodwill package of RM25 million to terminate the program after it proved to be unsustainable.

conserve oil corp logoWith regards to the crude oil investment scheme, should Malaysian investors worry given the trails from POA and POC both lead ultimately to COC, given the controversy surrounding POC and its reported links to Jürgen Hanne?

Quek, a licensed financial planner with the Monetary Authority of Singapore (MAS), reiterates that the business model is different in Asia, referring to POA.

“Germany is Germany, it’s a different business model over there — (POC) was fund management. In Asia (POA) is crude oil trading,” said Quek. “It’s totally different.”

“In Germany you don’t have a party like KPMG coming in and auditing etc. I’m not very sure if they even have a first charge because it’s fund management, a totally different business model,” he added. “You don’t have assured returns to investors (there).”

Seeking regulation

Amid the criticism, however, Quek revealed that the investment scheme’s promoters are engaging the authorities in order to bring the scheme under regulation.

“We are doing our best to have our lawyers to work with SSM and SC to see how we can regulate this product,” said Quek, though declining to comment further on what progress had been made in this regard. “The last thing I want is for us to be raided by SC and Bank Negara, so we are taking a very active approach to contact all these regulators.”

KiniBiz had sent queries to the SC on the matter and is waiting for a response at press time.

monetary-authority-singaporeInterestingly this move came as the Monetary Authority of Singapore (MAS) proposed a set of regulations to improve investor protection last month.

Among others, this would involve removing access to investment schemes involving land-banking and physical assets such as precious metals from retail investors. Additionally MAS is also seeking to have retail investment products rated in terms of complexity and risk, according to its consultative paper on the proposal (available here).

It remains to be seen if Malaysian authorities would follow suit.

As for the crude oil investment scheme, it is unclear how the scheme would be regulated as the process — which involves the purchase of physical crude oil — is not much different from the purchase of other physical assets such as buying retail gold items.

“We are working it,” said Quek. “But we need to really thoroughly understand their template so that if we change our model according to their template only then can it be regulated.”

Here are excerpts of the interview:

Quek: When we started this project, it was somewhere close to the closure of Genneva. And some people would tend to relate us to Genneva. I believe when you have a black sheep in the industry, everyone would say that the whole industry is corrupted.

There are talks like that. But after people really understand the entire project (things got better).

Some of our clients actually flew to Canada to look at the entire project and some clients
are now even talking about buying oil fields and going into joint venture with Conserve Oil Corporation (COC) You can do that if you want to — you can actually buy an oil field if you want to and then COC can do everything for you, you just go into profit-sharing with COC. No issues about that.

So we have all these projects coming up and so far we are pretty alright.

KiniBiz: What are the entry requirements for the crude oil scheme?

Quek: RM5,000.

KiniBiz: So you put down RM5,000 and you get 3% every three months for a fixed duration.

Quek: Yes. At this point of time we don’t even call our investors ‘investors’. We call them Asian buyers. Because you’re buying physical crude oil. Your receipt is your real physical crude oil which you can withdraw if you want.

KiniBiz: There has been criticism before about whether the scheme is too good to be true since the brochure doesn’t have much detailed information.

Quek: To me it’s a risk because you (are commenting but) don’t really understand the whole thing and (is) a bit unfair, yes. Of course everyone has their own right to give their own opinion but I think it’s very important to go to the right source to seek for opinions.

KiniBiz: Based what information is available online, the scheme raises many questions as much of what you divulged in this interview are not stated.

Quek: The problem is I can’t reveal longstanding contracts with BP, Shell, Exxon Mobil etc online. I would be sued. This will breach COC’s contract because these are all private and confidential stuff.

We do not even allow agents to take these contracts out of office. If you’re here in my office, I can take you upstairs to see it.

We even caught people photocopying it before — it was a sales agent. You have to
understand that they need sales, they want to do their best to convince clients. They are desperate for sales. So we told the agent he is not allowed to do that, that would breach our trust with COC. We didn’t sack the agent but gave a first warning.

KiniBiz: Have you won over any of the critics so far?

Quek: We always welcome people to come and meet us because one thing that I don’t want is for people to invest based on emotions. We want them to invest based on real
true facts. So we are always open for people to come in, we show you the truth, we show you our proof.

KiniBiz: Conserve Oil Corporation (COC) is reportedly being investigated in Germany. Is that true?

Proven oil canada logoQuek: It’s not true. What happened is that there is another company called Proven Oil
Canada (POC).

POC was a structure that COC used in year 2008. It is a fund structure in Germany. So in Germany they operated like a unit trust, like a fund. And they were being sued for several reasons.

Their structure is totally different from ours — ours is crude oil trading, theirs is fund
management.

KiniBiz: Are both companies related, Proven Oil Asia (POA) and POC?

Quek: Two separate companies. POA and POC are different with separate ownership. But they are all related to COC.

KiniBiz: Another concern is that Jürgen Hanne, the man behind several collapsed investment scheme, is reportedly linked to COC. Is that true? What role does he play?

Quek: He’s an independent guy. He doesn’t really run COC — COC is run by another
team. When I went to Canada I met the whole team.

I have also met Jürgen Hanne before. You have to understand that this man was affiliated to landbanking business, a pretty huge one. Of course when you come up and you run your own stuff, people would not like it. If you study a bit back about his background, he was running one of the largest landbanking business in the world.

I won’t be surprised if people find trouble with him.

KiniBiz: Is it also true that he has two sons involved in the management of COC?

Quek: That I can’t comment on, I’m not very sure. But you have to understand that
in Germany there are two Jürgens that they are talking about, and they always
mistake these two Juergens for each other.

And you have to understand, Jürgen is a very normal name in Germany just like Tan is a very normal name in Malaysia.

I did bring this up to the management and they did send me a reply email, though I forgot the exact details.

KiniBiz: With this sort of names floating around the scheme, shouldn’t investors be worried, what with the controversies around POC as well?

kpmg-logo-thumbnailQuek: Germany is Germany, it’s a different business model over there — (POC) was fund
management. In Asia (POA) is crude oil trading. It’s totally different.

In Germany you don’t have a party like KPMG coming in and auditing etc. I’m not very
sure if they even have a first charge because it’s fund management, a totally different business model.  You don’t have assured returns to investors.

Over here we have a fixed discount to Asian buyers. It’s a totally different business model.

KiniBiz: I don’t suppose crude oil trading falls under the jurisdiction of the Securities Commission yet.

Quek: At this point of time our model is really about buying and selling physical crude
oil. It’s hard for us to have this if you put it as an investment scheme to go under SSM (Malay acronym for the Companies Commission) or the Securities Commission (SC).

Nevertheless we are doing our best to have our lawyers to work with SSM and SC to see how we can regulate this product.

KiniBiz: So you’re actively looking for regulation?

Quek: We are doing that, yes. Our lawyer is doing something (about that) right now. We
really have to understand the template because we may have this model, our model do not fit into SSM, we do not fit into SC’s.

But we need to really thoroughly understand their template so that if we change our model according to their template only then can it be regulated. We are working it.

KiniBiz: Does that mean you’re looking to tweak the model of the crude oil investment scheme into something that the SC can regulate?

Quek: That’s what we are working on.

KiniBiz: The Monetary Authority of Singapore (MAS) recently proposed new rules to cover this sort of non-conventional investment products. Are you proposing to the SC to introduce similar regulations or are you simply looking to fit into existing regulations?

Quek: MAS is coming up with a rule where such alternative investments would only be
suited for high net worth clients or accredited investors. That’s what they are
doing right now.

The last thing I want is for us to be raided by SC and Bank Negara, so we are taking a very active approach to contact all these regulators.

(After the interview Quek confirmed that they are in early communications with the SC.)