FNG Exclusive… FNG has learned that BRI Ferrier, the firm hired to oversee the liquidation of (formerly ASIC licensed) Retail FX and CFDs broker Prospero Markets in Australia, has completed its first review and Statutory Report to Creditors about Prospero, unveiling some fairly large losses at the company, but also data indicating an expected full refund to Prospero clients once all is said and done.

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. Two of the individuals prosecuted by the AFP were directly involved in Prospero Markets’ operations:

• Dean (Ding) Wang, the former signatory of the Company’s bank accounts held with CBA. Sheng Yin Wang, Prospero’s controlling shareholder, is the father of Dean Wang.
• Ye Qu, the former Director and Responsible Manager of the Company.

Interesting to note among BRI Ferrier’s findings is the rapid growth experienced at Prospero Markets, from near zero Revenues in 2020-2021 to $28.5 million in 2023. However that growth came at the expense of large losses, accumulating to around $25 million by the time Prospero was shut down in late 2023. Capital contributions of $30 million made by Prospero’s shareholders kept the firm afloat.

Also interesting is that less than half of Prospero Markets clients have lodged claims in the Liquidation to date.

A summary of the liquidator’s findings follow below.

Prospero Markets background

Prospero Markets was incorporated in 2010 as Intercapital Markets Co Pty Ltd. In 2013, the Company was renamed to Rainbow Legend Group Pty Ltd. In July 2020, the Company was again renamed to Prospero Markets Pty Ltd, being the current form of business. The Company held an AFSL allowing it to offer financial services by way of OTC foreign exchange and derivates trading.

Sheng Yin Wang was the sole shareholder of Prospero Markets Pty Ltd from June 2021 to date. The Responsible Managers of the Company were Ye Qu and Wei Hong, appointed in March 2021, and Fulai Sun, appointed in October 2021.

Prospero Markets Revenues and Losses

The business operations of Prospero Markets do not appear to have materially commenced until FY2022. Revenues increased from $582K in FY2021 to $4.8M in FY2022, and then significantly increased to around $28.5M in FY2023. With the prosecution and regulatory issues, the FY2024 revenues were down to $7.8M. The total revenues during July 2020 to April 2024 were in the order of $42M.

The Company reported total costs of around $65M, largely represented by trading costs of $39M and overhead costs of $18M during that same period. Overall, the Company incurred substantial trading losses of around $25M during its 5 years in operation (in its recent form). Those losses were funded by shareholders, who contributed share capital of approximately $30M during that same time frame.

The Company appears to have held client funds with CBA during its operations. CBA froze the client funds in October 2023 and BRI Ferrier has instructed CBA to keep those funds frozen until further notice. The Company’s assets were held with NAB and Bendigo Bank. Those funds were similarly frozen in the months leading to BRI’s appointment, and have been subsequently recovered by the liquidators. In addition, the Company held significant funds with various Liquidity Providers (mainly offshore), the bulk of which have been recovered.

Prospero Markets offshore

In October 2020, Prospero Markets LLC was incorporated in Saint Vincent and the Grenadines. It is presently unclear what formal relationship there is between the directors and shareholders of the Company and Prospero Markets LLC respectively. However, BRI’s investigations to date suggest that Prospero Markets LLC clients traded under an MT4 licence held by the Company, and the Prospero Markets LLC client funds appear to be frozen by reason of the criminal money laundering investigation referred to previously. Certain clients of Prospero Markets LLC have lodged claims in the liquidation of the Company which BRI is attempting to adjudicate.

In August 2021, a New Zealand entity was renamed to Prospero Markets Company Limited. This entity appears to be involved in the operation of Prospero Markets LLC and the Company. BRI notes that Prospero Markets Company Limited holds an MT4 licence, which the Company utilises for its clients to trade. Given the dealings between the Company, Prospero Markets Company Limited and Prospero Markets LLC (most of which are undocumented), the liquidators have had to attempt to deal with those entities and their management in administering the Company’s affairs in liquidation.

Prospero Markets client funds

BRI Ferrier reported that its preliminary investigations into the Prospero Markets’ affairs indicated that the Company had surplus net assets. That position was confirmed by the Director and management, however the records provided have been limited in some areas, and the level of assistance from the management has been lacking. BRI notes that the Director has failed to provide a ROCAP and other documentation requested, which are offences that have been reported to ASIC.

The liquidator has therefore had to make its own enquiries into the financial affairs, which has been limited by the information available. In this regard, BRI secured access to the MT4 platforms and data so it could capture the underlying data in respect of the client claims. It became apparent that a related entity Prospero Markets LLC (registered in Saint Vincent and the Grenadines) operated a similar business using the same management team. BRI’s enquiries indicate that the Prospero Markets LLC business has ceased operations, where its funds are tied up in the Chang Jiang Currency Exchange collapse (also now in Liquidation).

A number of the clients of Prospero Markets LLC have lodged claims against the Company, which BRI is currently adjudicating. The available records indicates that the client books for each business were separate, although there are numerous links by virtue of the IT infrastructure and common management. BRI’s preliminary view is that Prospero Markets LLC clients do not have a valid claim against the Company.

The liquidator’s focus has been to secure the Company’s assets, including client funds held in trust. To date, BRI said it has secured circa $4.5M in Company assets and $20M in client trust funds. There are a further $400K of Company assets held in Singapore, which BRI is pursuing recovery via legal process in that jurisdiction.

BRI has spent considerable time and resources investigating the Company’s liability position, the majority of which is represented by client trust claims. The client trust claims are estimated to be between $19.1M (based on MT4 records) and $25M (based on client proofs of debt lodged to date). BRI notes that a number of the Australian clients have lodged larger than expected claims (excess claims of $1.6M), in addition to the Prospero Markets LLC client claims of circa $4.3M. Equiries indicate that the excess Australian client claims and Prospero Market LLC client claims, may not be valid, such that the total client trust claims may be around $19.4M. Subject to relevant costs being deducted, the bulk of those client claims should be capable of being discharged from the available trust assets. Any residual client claims will be entitled to participate for an unsecured creditor dividend from the Company.

Other creditor clains

The Company’s other liabilities total between $2M to $3.1M. Those claims are represented by ASIC’s petitioning creditors costs of $150K to $275K and priority claims from former employees of around $1.1M to $1.3M. Further, there will be various ordinary unsecured creditor claims, including claims resulting from termination of contracts and leases, in the order of $750K to $1.6M.

BRI notes that the Company appears to be solvent, and therefore investigations in respect of its historical affairs have been limited. The liquidator has not identified any voidable recoveries at this time. A preliminary review of the available financial records indicates that the Company incurred around $25M in accumulated losses between FY2020 to FY2024, as noted above. Those losses are substantial for a business in the OTC derivatives industry. It is unclear what was the underlying business model, where ASIC changed the legislative framework in 2021, significantly reducing the leverage available to retail clients.

The financial statements indicate that the losses were funded by the Company’s shareholders over the years, where they contributed circa $30M to the business. Therefore, assuming that the Company can discharge all creditor claims, BRI’s preliminary view is that any further enquiries into the business model and losses incurred are an issue for the shareholders to be explored at a later point, if necessary. BRI notes that the AFP has obtained POCA orders requiring that any shareholder returns are paid to the Official Trustee at AFSA.

Timing of client refunds

BRI said it has incurred delays in the adjudication and distribution process, as less than half the clients have lodged claims in the Liquidation to date. It appears that a significant number of clients encountered challenges completing the identification verification process and submitting documentation on the Link Creditor Portal. Some of those issues appear to relate to clients being located offshore, which is irregular given the Company’s PDS and AFSL requiring clients to be Australian based.

Regardless, BRI has sought to modify its processes to overcome those documentation issues, moving to a manual verification process. The objective has been to capture as many creditors’ claims as possible, such that BRI can complete its adjudication process and form views on the overall financial position. As previously reported, the liquidator has received advice and formed the view that it needs to obtain directions from the Court as to the handling and distribution of trust funds, given the Company’s circumstances. Accordingly, BRI’s lawyers are currently in the process of finalising that application and creditors will be provided notice of key dates in due course.

Importantly, BRI will be seeking Court Orders that will allow it to adjudicate all client claims, regardless of whether some clients have lodged the necessary proof of debt documentation. The Court process is anticipated to take around 6-10 weeks, assuming there is limited opposition, and the trust funds can then be distributed to clients within 4-8 weeks thereafter. Based on the available information, BRI currently estimate that all client and creditor claims can be discharged in full from the available assets, including trust funds.

The liquidator currently anticipates that funds can be distributed as follows:

• Client trust funds can be distributed by around September to November 2024.
• Petitioning and priority (employee) creditor claims by around December 2024 to January 2025.
• Unsecured creditor claims by around March to May 2025. There are a number of compliance activities to complete, including obtaining clearance from statutory authorities, prior to distributing funds to ordinary unsecured creditors.
• The shareholder is entitled to any surplus that remains thereafter (if any). The Official Trustee at AFSA has security over any return that may be available in due course.

Overall, it is anticipated that the Liquidation may take another twelve months to complete. The timeframe is however subject to delays encountered in the abovementioned Court process, or further investigations required by the various regulatory bodies (including ASIC, AFP, AFSA and ATO).