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By Engen Tham and Carolyn Cohn
SHANGHAI, China, Aug 12 (Reuters) - As David Byrne ate breakfast at the Tongli Lakeview Hotel outside Shanghai one Sunday in April, an angry customer was waiting for him.
Byrne, 52, is a British businessman who sells investment products. The previous day, he had introduced himself to a roomful of potential customers in the hotel as the new London head of a foreign currency trading platform whose website offered very high returns.
But Tang Hongde, the man watching as Byrne lingered over his meal, wanted to talk about an earlier venture which the Briton had said he headed.
That operation, called EuroFX, had also promised fat returns on foreign exchange. Chinese law enforcement authorities now say it was a pyramid scheme, which used cash from new investors to pay older ones. One Chinese official with direct knowledge of the matter says it could also have been part of a global fraud.
So far, Chinese police records in nine provinces show, police have received at least 319 consumer complaints about EuroFX. In total, police have estimated losses of at least 455 million yuan ($70 million) and issued 23 arrest warrants for illegal fundraising by people in China. Police did not respond to requests for more information.
Some investors say those complaints are just the tip of the iceberg. A group in Shanghai has collected the details of at least 3,700 victims in China, and others in nine countries from the United States to the Philippines say they were also ensnared by EuroFX. Collectively, they claim to have lost more than $1 billion. Reuters spoke to 35 of them, and their stories reveal a trail of pain. "Many people invested the money they use to buy food," said one 50-year-old Chinese woman who herself was arrested for encouraging others to invest.
EuroFX was one of a rash of scams to emerge recently among China's millions of newly affluent. But it stands out because it played on Britishness. Of 10 suspected frauds in China that the Chinese official is handling, this is the first to involve a Western company and a Western figurehead.
Byrne had presented himself as CEO of EuroFX. He was detained and questioned by police and freed on bail but is barred from leaving China. He told Reuters in May that he was not actually in charge. He said another Briton had "full authority" over him, which the Briton denied, saying he had no involvement in EuroFX but was helping some Asian customers for an Australian. Reuters was unable to locate the Australian for comment.
The tale shows how, in a world where money flows easily between jurisdictions, thieves can hide in the gaps between local regulations. EuroFX marketed itself from addresses in London. But as long as it advertised to investors abroad, British authorities considered it beyond their jurisdiction. In China, police responded only in provinces where many victims complained.
One alleged victim was Zhang Fusheng, who says he pumped millions of dollars into EuroFX. He has been sued by others for unpaid debts after investing on their behalf. He also drew in his sister, Zhang Guiling, a 59-year old grandmother in the village of Tangshan in the country's north, who borrowed to invest. EuroFX blocked her account in 2013 and the money disappeared. Lenders came after her.
"Her son blamed her, her daughter-in-law blamed her, her husband won't talk to her, her daughter hates her," he said in March.
Last August, she took her own life. Reuters could not independently confirm if EuroFX played a role in her death.
NIGHT-TIME VIGIL
In a 2013 meeting filmed by investors, Byrne described himself as acting as CEO of EuroFX, which claimed to have special techniques to trade foreign exchange. He says now he was only a "consultant CEO" of the UK-registered company Euro Forex Investment Ltd, and that he had used the "EuroFX" name for short.
The money trail is too blurred to see who profited. Bank statements seen by Reuters show that investors paid into companies and accounts at banks in Hong Kong in 2012 and 2013. The amounts they paid in would show up on their online EuroFX account, where the balance of funds would go up every day, supposedly reflecting profit from foreign exchange trading.
To withdraw profit, investors including Zhang said, they opened accounts at banks nominated by EuroFX. Early investors were able to make withdrawals from these.
But in July 2013, EuroFX told investors it was suspending foreign exchange trading. After that, investors could not access any money. The balance of funds on their EuroFX accounts "froze" so there appeared to be no trading.
Each investor started to lodge complaints against those who had recommended they invest. In Zhang's case, the claims were civil suits; other former investors are among the 23 people whom police want to arrest. Many have fled the country.
Two of the companies that investors paid into were dissolved in 2014; their Indian directors could not be reached. The banks declined to comment. Hong Kong police did not respond.
It was only when Byrne was spotted in China in April that the Shanghai investors asked police to question him.
A group of them spent all night coordinating. They called the police to try to get him arrested. Local police, who declined to comment, visited the hotel, then left again.
The following morning, Tang was in the lobby, keeping watch. Another investor staked out the airport.
"As David was putting his suitcase in the car, I reached out and held onto his suitcase," said Tang. "I said, 'David, you can't leave, you're suspected of fraud.'"
Byrne said nothing, Tang said. He seemed calm. Eventually, police brought him in for questioning. They are now preparing evidence to submit to the prosecution, the Chinese official said. A spokesman for the British consulate in Shanghai said it was assisting a British national.
COOK, ORCHARD AND BYRNE
Chinese investors say they first heard of EuroFX in June 2012. It printed full-colour Chinese brochures, seen by Reuters, which predicted fat returns.
For an investment of $10,000, investors could expect a return of 6 percent a month. For $100,000, that climbed to 12 percent. A few months later, a separate EuroFX product offered up to 16 percent to anyone who invested $250,000.
The brochures boasted that EuroFX had 13 years' experience in foreign exchange trading.
In fact, there was no company called "EuroFX." Its brochure said EuroFX was a brand name for Euro Forex Investment Ltd. This was a dissolved company that an Australian businessman, Bryan Cook, had bought only the month before, according to Eurofinanzza, the company formation agent which arranged the transaction.
Reuters was unable to locate Cook for comment.
Byrne, a financial analyst who had run his own foreign exchange advisory business in Britain, told Reuters in July he joined the project in 2012 when a British lawyer, David Orchard, hired him to run the London arm. "All (recruitment) negotiations and paperwork were handled by Mr Orchard," said Byrne.
Asked who was his boss at Euro Forex Investment Ltd, he said: "Orchard had full authority. Everything was through him as authority."
Orchard's lawyer denied this, and there is no evidence Orchard was knowingly part of a fraud.
Orchard told Reuters in June that he knew Byrne from previous business dealings, and had bumped into him in the City of London in summer 2012 when Byrne was out of work. "We put his name forward as someone who had forex expertise who could help" by managing a London office, Orchard said, but could not remember whom he recommended Byrne to.
Orchard, who said he also knew Cook, set up other companies with "Euro Forex" in their names to help Cook's Asian clients rent offices, he said. In the end, Orchard said, the companies were not used to pay rent on the buildings because Cook's Malaysian company could pay them itself. The landlords involved declined to comment.
The corporate trail leads to a clutch of other "Euro Forex" companies in Britain and New Zealand, held in the names of company formation agents, nominee directors, or offshore shareholders. Their directors and addresses changed frequently; some were dormant or rapidly closed, and others have since changed their names.
HERON TOWER
In August 2012 Euro Forex Investment Ltd moved into London's Heron Tower, the tallest building in the City. That September it changed its registered office to Bruton Street in the Mayfair district, home to hundreds of investment funds.
Then EuroFX started to fly Chinese investors to London. In mid-November, visiting investors took photos of Byrne and Orchard in front of the EuroFX logo at the 21st-storey Heron Tower office. Orchard said he was only there to hand over the premises and did not realise the visitors were investors.
Zhang says he enjoyed one of these trips at EuroFX's expense that December. He recalls dining at fancy Chinese restaurants. "They took us to shop at department stores. They took us to a 700-year-old castle, to look at Cambridge University."
That month, Euro Forex Investment Ltd reported in company filings a 10 million pound ($13 million) capital injection.
After the London visits, Byrne spoke at dinners in Asia where local celebrities performed, videos and photos given to Reuters by the Shanghai investors show. "In Thailand, in Korea, Singapore, David (Byrne) and these other (unnamed) foreigners were always holding conferences that you could attend, free," said Zhang.
But while EuroFX was promising stellar returns, hedge funds in foreign currencies were booking annual losses of 1 percent to 2 percent on average, according to data tracker Hedge Fund Research.
"I TRUST EUROPEANS"
Tang, the clothing exporter who would later confront Byrne, was introduced to the scheme by a civil servant in Changzhou, a city in the eastern province of Jiangsu. He invested 800,000 yuan ($120,000), he said. He did not understand foreign exchange, but believed the scheme was regulated: "I trust Europeans not to lie to me."
Other Chinese investors who put money into EuroFX also told Reuters they did so because Euro Forex Investment Limited was a company registered in Britain. They assumed it was regulated by Britain's financial authorities.
It was not. The company had registered at Companies House as being active in "business support," not finance. In any case, it would only have been regulated by what is now called the Financial Conduct Authority (FCA) if it sold to customers in Britain. The FCA does not regulate UK-registered firms that operate outside the European Union, a spokeswoman for the authority said.
The UK regulator did warn in early 2013 that Euro Forex Investment may have been "providing financial services or products in the UK without our authorisation." But that warning on its website was directed only at investors in the UK. The FCA declined to specify what prompted it. It said it would normally refer any such concerns to the police. A spokeswoman for the regulator declined to say whether it had referred EuroFX.
The UK police said they later received complaints about EuroFX from ActionFraud, Britain's national reporting centre for fraud. They decided these were outside their jurisdiction. A London Metropolitan police spokeswoman said: "The decision was taken for this investigation to be conducted by the Chinese authorities as the large majority of victims in this case are resident within China."
"YOUR MONEY IS SAFE"
On July 20, 2013, EuroFX said on its website it was suspending trade in existing accounts "to comply with increasingly stringent international anti-money laundering regulations." From that day, investors could not access their funds.
In Asia, the dinners and roadshows carried on.
"There are a lot of regulatory requirements that we need to meet," Byrne told a dinner in Bangkok the following month, according to a video of the presentation since posted on YouTube.
EuroFX, he said, had "over 40,000 clients from over 100 countries,", and he only slept "about four or five hours per night ... because I need to make sure that your money is safe."
He encouraged existing investors to "top up" what he called a hedging account to access their funds. To do that, investors needed to pay in more. "Regulators from various jurisdictions have given us a 'thumbs up,'" he said, asking everyone in the room to join the gesture.
Zhang, who had invested with his sister, was a guest at that dinner.
"At the time my heart did ask itself, are they tricksters?" he said.
Zhang borrowed over $1.5 million in cash to double his original investment of the same amount. He said he believed it was the only way he could get his original funds back. In total, he said, he invested over $3 million on his own account in EuroFX, and over $2 million for others who had asked him to put their money in.
"UNFAVOURABLE TRADING"
In October 2013, Byrne stood down. He told Reuters in July he resigned because he was not given information he asked for about the project's true nature and his management suggestions were ignored. Investors' accounts remained blocked.
EuroFX announced on its website that it had merged with another firm, FXCAP, with "regional temporary offices" in six cities from Mumbai to Johannesburg. No FXCAP representative could be reached.
The merged firm, FXCAP, promised debit cards for EuroFX investors to access their funds. A few weeks later, some investors received cards, but these were prepaid cards with balances of zero, the investors said.
FXCAP/EuroFX said it would issue new cards within months, according to its website. This never happened, the investors say.
In April 2014, seven Shanghai-based investors headed to London to investigate. They visited the offices of two companies EuroFX had claimed to work with, said the leader of that group, asking to remain anonymous. The firms said they had nothing to do with the venture.
The Shanghai investors emailed Byrne. He wrote back that he had been hired for 11 months only, for which he was paid 75,000 pounds ($98,000), and that he might also be a victim of fraud. His emails were seen by Reuters. Byrne declined to comment on the record about them.
In August 2015, the merged company posted a message on its website: "Due to unfavourable trading condition in the past few months, FXCAP is filing for bankruptcy," it said, according to a screenshot made available by the investor group. Client accounts were being "audited by external accounting firm."
OVERDOSE
In the village of Tangshan in August 2015, Zhang's sister, Zhang Guiling, was struggling to repay loans she had taken out to invest. She went from door to door, borrowing money wherever she could, her brother said. As the interest bills piled up, her creditors started showing up at her home and where her husband and son worked, threatening them.
People who had known her for years started to avoid her.
She called her older sister and said she was tired of living, her sister said.
Alone in the house one day, she swallowed an overdose of medicines she had been prescribed for high blood pressure, her family said. Her husband found her body when he returned from work.
While the family didn't ask for an inquest to determine the cause of her death, Zhang feels sure EuroFX is responsible.
His problems continue. A judge dismissed one civil suit against him, ruling that Zhang was not responsible for the claimant's losses from the scheme. In another suit, he was ordered to repay 650,000 yuan ($98,000) that he borrowed on the strength of promised returns from EuroFX.
He says he does not know where he'll find the cash.
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http://www.reuters.com/investigates/special-report/china-investment-eurofx/ Video - Chinese investor rues EuroFX experience
http://reut.rs/2b394Ao INSIGHT-How company formation agents fuel fraud
http://uk.reuters.com/article/uk-regulations-agents-insight-idUKKCN0WK17W
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