The matter of Falcon's David Pinkerton makes Singapore MOF's Falcon Bank problem more complex than the Singaporeans realize, or do they?
by Ganesh Sahathevan
The Singaporean Government's stony faced silence on the matter of Falcon Bank 's branch in Singapore has been raised on a related blog, where the question was raised whether BSI like prosecutions and penalties are being held back in the name of realpolitik.
Among the transactions of interest are those involving Malaysia's PM Najib, and hundreds of millions of dollars which are believed to be still held at Falcon Bank.
While there is reason to believe those funds have been frozen, the fact remains that Falcon, unlike BSI, remains in business in Singapore and to solicit funds for investment. Heading the investment effort is Falcon's Chief Investment Officer, David Pinkerton, whose past is such that he is not likely to have been allowed to work in the financial sector in Singapore.
Speaking to The National of the UAE in May this year Pinkerton ,and that paper, gave the impression of a man who fought charges of corruption that were eventually unsubstantiated by the prosecution:
The Singaporean Government's stony faced silence on the matter of Falcon Bank 's branch in Singapore has been raised on a related blog, where the question was raised whether BSI like prosecutions and penalties are being held back in the name of realpolitik.
Among the transactions of interest are those involving Malaysia's PM Najib, and hundreds of millions of dollars which are believed to be still held at Falcon Bank.
While there is reason to believe those funds have been frozen, the fact remains that Falcon, unlike BSI, remains in business in Singapore and to solicit funds for investment. Heading the investment effort is Falcon's Chief Investment Officer, David Pinkerton, whose past is such that he is not likely to have been allowed to work in the financial sector in Singapore.
Speaking to The National of the UAE in May this year Pinkerton ,and that paper, gave the impression of a man who fought charges of corruption that were eventually unsubstantiated by the prosecution:
But there was one matter I hadn’t given him any notice of in my pre-interview agenda briefing: his 31-month battle with the US department of justice over allegations of bribery that could have sent him to prison for 10 years. The charges were dropped in 2008.
“Can I ask you about the controversy you’ve had in your career? How do you think that affects clients’ perception of you?" I eventually asked, fully expecting to be told he’d rather not talk about it.
But instead of going on the defensive, he opened up, and showed an impressive ability to take the positive out of what must have been an awful experience for him, then a senior executive with the giant US insurer AIG, and his family.
“It was a difficult period for us, to be accused of something you didn’t do. But it hasn’t had an effect on my career. In fact, some of the family offices we have as clients regard it as a feather in my cap. It shows you’ve been through something, you’re tough, you’ve got stamina," Mr Pinkerton says.
The reality however is that the charges never got tested in court because Pinkerton and his co-accused successfully raised a Statute of Limitations defense (see S.D.N.Y. Dismisses FCPA Action on Statute of Limitations).
The facts of the prosecution's case are set out in the affidavit below.Anyone who knows Singapore will agree that the mere allegation of such facts is normally sufficient for the MOF to refuse permission to manage funds, and yet, Falcon remains untouched.
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BACKGROUND
The Indictment, which was returned on May 12, 2005 and unsealed on October 6, 2005, charges Bourke, Pinkertonand Viktor Kozeny with participating in a scheme to bribe senior government officials in Azerbaijan (the HAzeri Officials") to ensure that those officials would privatize the State Oil Company of the Azerbaijan Republic ("SOCAR") (as well as other valuable state assets) and allow the defendants and others to participate in that privatization and reap
substantial profits from it. Azerbaijan was a Republic of the Soviet Union until it became a sovereign nation in 1991, and its major industries were owned by the state. (See Indictment ("Ind.") ~ 3-4.) In the mid- 1990s, the Azeri government instituted a program to privatize those industries. (!d. ~ 4.) Under the privatization program, the Azeri government issued free vouchers to all Azeri citizens, which allowed them to bid for shares of industries to be privatized. Privatization vouchers were freely tradable and were bought and sold, typically with U.S. currency. Foreigners could also participate in the privatization program, but only if they purchased government-issued "options" for each voucher they held. The Azeri government sold these options at an official price. (Id. '15.) Certain Azeri industries, such as SOCAR, were deemed strategic enterprises and could only be privatized if the Azeri president issued a special decree. (Jd. ~ 4.)1 Beginning in the summer of 1997, Kozeny directed people working for him to purchase Azeri vouchers and options on behalf oftwo companies that Kozeny controlled, Oily Rock Ltd. ("Oily Rock") and Minaret Group Ltd. ("Minaret"). (Id. ~~ 6, 25.) In August 1997, one ofthose people was arrested by Azeri authorities while making a large purchase of vouchers and while in possession of$l million USD and $1 million worth of vouchers. Immediately following that arrest, Kozeny had several meetings with the Azeri Officials in which he agreed to transfer to them twothirds of Oily Rock's vouchers and options and to give to them two-thirds of any profits Kozeny and his co-investors realized from SOCAR's privatization.2 In return for this "two-thirds transfer," the
Azeri Officials agreed to permit Kozeny and his fellow investors to acquire a controlling interest in SOCAR upon its privatization. (Id. 'l~ 28-29.) Months later, in June 1998, Oily Rock's shareholders approved an increase in Oily Rock's authorized share capital from $150 million to $450 million. The purpose of this "two-thirds share capital increase" was to provide shares to the Azeri Officials who had been given an interest in Oily Rock pursuant to the "two-thirds transfer." (See id. ~'153- 55.) In addition to these corrupt promises, the Indictment charges that several additional bribes including substantial cash payments; j ewelry and luxury items; and medical treatment, hotel accommodations, meals and shopping expenses -- were paid to ensure that Kozeny and his fellow foreign investors could reap the benefits of a privatized SOCAR. (Id. ~~ 56-62.)
Falcon Private Bank’s tenacious high flyer earns the feather in his cap
May 24, 2016 Updated: May 24, 2016 07:23 PM
One-page article
David Pinkerton is the chief investment officer of Falcon Private Bank, the Abu Dhabi-owned, Switzerland-based private banking group, and I caught up with him on a stop in his twice-yearly world tour of the global centres where the bank has clients.
We had been talking about global investment issues. Mr Pinkerton had come across as self-confident, knowledgeable and eloquent in answering questions about US interest rate policy, the economics of Brexit, the outlook for Chinese real estate and the investment, oil price implications for the Arabian Gulf economies and a stack of other important issues.
But there was one matter I hadn’t given him any notice of in my pre-interview agenda briefing: his 31-month battle with the US department of justice over allegations of bribery that could have sent him to prison for 10 years. The charges were dropped in 2008.
“Can I ask you about the controversy you’ve had in your career? How do you think that affects clients’ perception of you?" I eventually asked, fully expecting to be told he’d rather not talk about it.
But instead of going on the defensive, he opened up, and showed an impressive ability to take the positive out of what must have been an awful experience for him, then a senior executive with the giant US insurer AIG, and his family.
“It was a difficult period for us, to be accused of something you didn’t do. But it hasn’t had an effect on my career. In fact, some of the family offices we have as clients regard it as a feather in my cap. It shows you’ve been through something, you’re tough, you’ve got stamina," Mr Pinkerton says.
The case – which involved accusations of corruption brought against him by an intermediary in an Asian country – did not leave a permanent cloud on his global investment horizon. “I suppose it gives you a certain caution about emerging markets, but the fact is I survived and I’ve still got enthusiasm," he says.
In fact, the rest of our conversation was marked by a healthy scepticism on almost all investment markets, developed, emerging or frontier.
What I found refreshing about Mr Pinkerton was that he did not push any potential investment as a 100 per cent sure thing but was prepared to admit, even highlight, the possible downside in different investment scenarios. Take America. Falcon answers to the Swiss regulator still, despite being owned by Abaar Investments (itself owned by Abu Dhabi’s International Petroleum Investment Company), as well as to the Dubai financial regulator by reason of its listing in the Dubai International Financial Centre.
So it chooses not to look for investment clients in the United States. But it is, of course, interested in the US investment scene, as the biggest economy in the world and a huge asset base his global clients will wish to tap.
“US growth is proceeding slowly but surely, but the investment opportunity is getting narrower. Last year, corporate earnings growth was flat overall and outside the biggest corporates it was down around 4 per cent.
“We see some attraction in certain sectors, like biotech, health care and some parts of technology. Oil and gas services has had a tough time and though it’s looking better now it still needs consolidation," he says. Much depends on the next potential increase in interest rates by the Federal Reserve, which many commentators are predicting for next month.
“I think it will happen, but not until the July Fed meeting. If the Fed just looked at the US situation, they’d probably increase next month, but there are a number of global risks, of which Brexit is the biggest, that will probably push it into July," he says.
Was the Fed right in its timing late last year, I ask. A historic change in rates policy in December was followed by an equity market rout and another drop in the oil price.
“The critics say they’re behind the curve and there is a credibility issue, but that’s the point: the Fed is looking backwards and the equity markets are looking forward," he says. Mr Pinkerton believes the British people will probably vote to stay in the European Union at the referendum next month, mainly for economic reasons.
“People usually vote on the basis of their economic future. But you could argue that it’s in their long-term interests to vote for Brexit. The sterling devaluation that would follow would help British exporters a lot, in goods and financial services," he says.
He is currently underweight in British assets because of the Brexit threat, which also overhangs his view of European equities, where another Greek crisis could be on the cards.
Regional markets in the Arabian Gulf are driven by the oil price and by government spending, he says, and while the oil price has improved, he still thinks it will never again get back to US$100, barring a major geopolitical incident. So instead, he likes specific assets in the region’s markets, rather than the equity indexes.
“In Abu Dhabi, for example, Etisalat is a good bet on the regional market; in Dubai, some real estate and financial assets. Dubai has a great economy in some sectors, like tourism. But I get the feeling across the region that the pace of growth is going down, not up."
He warned against dramatic changes in the region’s foreign exchange structures. “I don’t believe the dirham would be able to take a depreciation or a depeg. It would compress growth and increase inflation," he says.
He and Falcon are looking closely again at Saudi Arabia, in light of the transformation strategy being pursued there and the big equity markets event, the planned initial public offering of Saudi Aramco.
“It’s obvious they want to generate liquidity and cash to help fund the new sovereign wealth fund. But they are going to need decent financials and that depends on the oil price. So I doubt they will cut production."
On the IPO itself, he thinks Aramco will probably have to be sold at a discount to existing oil companies to make it attractive to international investors, and will also have to be listed on an international market such as London or New York, as well as the Saudi Tadawul.
Falcon offers its clients a “local boutique with a global platform", MrPinkerton says, with the result that most of its high net worth customers are encouraged to diversify away from the activities that made them rich in their local markets.
“You wouldn’t recommend that a local entrepreneur gets further into oil or energy, for example." Real estate in big European and American cities remains an attractive proposition, he says.
Clients can be assured, at the very least, of his commitment. His experience in America eight years ago taught him one vital lesson: “Never give up. Always have hope. Hardship will not daunt me."
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