The downfall of Clover – a word of warning

My name is Eric St-Cyr. Many of you heard of me following the media coverage of my arrest on March 12, 2014. On Oct. 3 of the same year, I was sentenced to a term of 14 months in prison. This sentence was the result of a plea agreement I entered into with the court.  

In this plea agreement, I admitted having committed the crime of “conspiracy against the United States of America.” My sentence was unusual as the judge also requested that I write an article to discourage tax evasion and have it published in the Cayman Islands. To comply with this judgment and bring to light the events surrounding my arrest, I will share with the reader the abbreviated story of the rise and fall of Clover Investment Advisors.  

 

Clover Investment Advisors Limited  

In 2012, a Cayman corporate service provider company, Josh VanDyk, an investment advisor, and I agreed to launch a new corporation to service the increasing clientele of the service provider. Through the use of equity and stock options, the three parties received the same ownership in a new company called Clover Investment Advisors Limited. The mandate of Clover was to provide discretionary asset management and advisory services to wealthy individuals and corporations.  

From the start, the responsibilities of each partner were clear. The corporate service provider was to promote Clover’s services to its clients and provide compliance for the company; VanDyk was responsible for sales and servicing and my role consisted in managing the assets of the clients and helping VanDyk in his marketing efforts. 

It was agreed from the beginning that Clover would not accept U.S clients and contrary to what was circulated in the media, we never did. However, I must state that Clover was managing money for financial institutions that were accepting clients originating from the United States. 

The corporate service provider was slow to deliver on its commitment to provide leads for the venture. Therefore, VanDyk and I increased our marketing efforts. In March 2013, VanDyk requested that I accompany him on a roadshow to Miami. We were supposed to visit different organizations to present our services. I was reluctant to meet with people in the U.S., however, as the majority of the meetings were to be held with foreign banks and lawyers servicing non-U.S. citizens, I agreed to attend the meetings. In March 2013, we flew to Miami for two consecutive days of meetings. The last one took place at The Ritz-Carlton in South Beach.  

The individuals we met there were relationships established by VanDyk at his previous employer. Unknown to us, we met with three undercover agents of the IRS. One was impersonating an accountant and the two others his clients. From the start, I clearly stated that Clover wasn’t accepting deposits from U.S. clients. I also indicated that our company had relationships with multiple banks that were doing business with U.S. entities. 

Therefore, if after our presentation they were still interested in having their money managed by Clover, we could introduce them to an intermediary where they would open an account. The intermediary, usually a bank, would do their due diligence on them, review the source of funds and if everything met their standards, open an account under the bank’s name at Clover. 

I also explained to them that with the coming implementation of FATCA, there was a high probability that reporting to the U.S. government would take place somewhere in the future. The pseudo-clients didn’t like this. As the meeting progressed, it became clear that the assets discussed had never been declared to the tax authorities. That evening, the agents invited VanDyk and I to dinner in a posh restaurant of South Beach. As we arrived, we went to the bar to continue our discussions of the afternoon. Nothing new was mentioned to me during that meeting. At one point, one of the agents and I moved to the table as VanDyk and the two others stayed at the bar to finish their drinks. During my absence, the “clients” mentioned to VanDyk their intention to invest the sum of $2 million with Clover. They also stated that the money was originating from a bank fraud.  

As you would expect, the entire conversation was recorded. No other business was discussed during dinner. Alone with VanDyk on our way back to the hotel, I mentioned to him that I couldn’t see how we could help his friends. He said nothing about his discussion at the bar, and did not inform me of the bank fraud information. 

In the following months, the “accountant” kept communicating regularly with VanDyk, pressing him to find a solution to their needs. I refused to help the accountant four or five times. As time passed, the frustrated “clients” requested a second meeting with Clover and VanDyk agreed to meet one of them during his coming holidays in California.  

In a San Francisco restaurant, the agent and VanDyk discussed once more the source of funds. VanDyk then told the client that as long as the money wasn’t originating from terrorist activities or from a drug deal, Clover would invest the funds. He promised to do everything he could to find a partner that would accept their assets. Once again, VanDyk never shared the source of the funds with me.  

The calls from the accountant continued for a few more weeks. Under VanDyk’s insistence, I finally recommended they contact Patrick Poulin, a lawyer located in the Turks and Caicos Islands. I knew one of Poulin’s partners had done business with Americans as I had refused some of his referrals for that reason in the past. I called Poulin to inform him of the coming call from the accountant. I told him that I personally didn’t know the clients. I emphasized that the AML and due diligence was his firm’s responsibility. The only thing I asked in return for the reference was that, if possible, his firm would use Clover to manage the funds. 

The agents consulted with Poulin, and the lawyer eventually opened an account with Clover under the name of a corporation. The IRS then proceeded to wire $200,000 to Poulin who forwarded it to Clover. The money was invested in a segregated portfolio and the source of funds was declared as a loan received by the corporation from a client for investment purposes.  

The money hit Clover’s account on Dec. 23, 2013, and was invested in early January of the following year. The same month, the “accountant” and his “client” came to visit us in Cayman. During their visit, they proposed to invest an additional $1.8 million with Clover. However, before doing so, they wanted to verify the Poulin’s integrity and that of our firm. Therefore, they requested that we return the money to them. I explained once more that in our books, the money wasn’t theirs but belonged to Poulin’s corporation. Those instructions needed to come from Poulin’s firm directly. 

In the different meetings that took place that day, I made a few mistakes. In the morning, when the accountant wanted to disclose the source of the funds, I cut him off and said that the less Clover knew about the deal the better it was for his clients and for us. I recognize today that this was an error. 

The law is clear: a financial institution can’t bury its head in the sand. Later on that day, after a few drinks at a local restaurant, the client said that the funds came from a bankruptcy involving a bank. Bankruptcy to me is a civil matter, not a criminal one. However, when I woke up the morning after, I felt a discomfort toward the whole deal. I had the feeling something was wrong; that a piece of the puzzle was missing.  

I called Poulin to discuss the situation. During the call, Poulin shared with me that he had similar suspicions. After a long discussion, we both concluded that the transaction looked questionable. We agreed to return the money to the client as requested and to refuse any new funds until the client answered our queries. Poulin sent a list of questions to the “accountant” and copied me into the email. The client agreed to provide all the information we had requested during a meeting to be held in Miami.  

 

The arrest  

Poulin, VanDyk and I were arrested in Miami on March 12, 2014. For VanDyk and I, the arrest took place at The Ritz-Carlton in South Beach. After the start of the meeting, a group of officers wearing bulletproof vests and brandishing guns erupted into the room, handcuffed me and VanDyk, and brought us to separate suites in the hotel for interrogation. After reading me my rights, the agents presented the charges laid against me. I was accused of two counts of money laundering (receiving the $200,000 and sending it back) and one count of conspiracy to commit money laundering for the sum of $2 million. Each count carried a maximum sentence of 20 years.  

At 50 years old, I was facing the possibility of passing the rest of my life behind bars.  

It took me less than five minutes to realize that the charges of money laundering were just a pretext for my arrest. What the IRS was interested in was the sum they could seize from our other clients. The first request I got from the government was to provide the complete list of all my U.S. clients. To the disbelief of my captors, I had no names to give them. 

Contrary to what they thought, Clover wasn’t taking U.S. clients and, therefore, we had little knowledge of any U.S. money invested with us through the different financial institutions we were doing business with. What Clover had was banks with omnibus accounts that were in some cases accepting U.S. deposits, which I thought was perfectly legal. The agents did not believe me and requested the password for my phone and computer, which I declined to provide. Upset by my refusal, the discussion was cut short and I was brought to the Miami Federal Detention Center, a high-security facility. 

During that time, VanDyk had already started to cooperate with the U.S. government, sharing with the authorities a list of 8,000 contacts accumulated during his previous employment in Cayman and in the United States.  

I will keep the horrors of my captivity and the devastating impact of my incarceration on my family for my coming book. After three days of hell, I finally got in contact with a law firm. I hired Marcus, Neiman & Rashbaum LLP to represent me. They did an excellent job.  

Following the news that the IRS had obtained a search warrant for my phone and computer and based on our suspicion that VanDyk was working with the prosecutors, my lawyers strongly recommended that I also cooperate with the authorities. The problem, however, was that I had little to share with them. People collaborate to reduce their sentence. The more profitable your collaboration is to the U.S. government, the less time you will have to do. 

The only thing that counts is how many convictions you can provide and how much cash you can raise. The only thing I had to offer was my expertise. I proceeded to teach the IRS how Americans can legally and illegally hide their money from the tax authorities. I was amazed by how little they knew. 

But collaborating is one thing, pleading guilty is another. The prospect of a trial where VanDyk and the IRS agents would testify against me was not appealing. Could I beat the money laundering charges against me?  

There were no criminal intentions, but I did return the money, even if I had doubts. What about the conspiracy, a felony so easy to prove with the help of willing partners facing a shorter sentence for their collaboration? More than 97 percent of U.S. federal prosecutions end with a guilty verdict. Could I beat those odds? How friendly would a blue-collar jury from Virginia be to a white-collar foreigner, with a French accent, who lives on the beach in Cayman and earns a living helping people reduce their tax burden?  

If I agreed to collaborate and to plead guilty, I would face reduced charges with a maximum of five years in jail and more realistically a prison term of two years. However, if I fought and lost, my lawyers estimated that I would get 13 to 15 years in prison. I spent my life investing millions based on future probabilities: This should have been a really easy decision to make, but still it took my lawyer three months to convince me to plead guilty.  

In the end, I was lucky: I got a fair judge. He sentenced me to 14 months in a “special” prison for foreigners. VanDyk was much more blessed. He was sentenced to 30 months and saw his sentence reduced to eight months due to the quality of his cooperation with four months to be passed in a camp and four months in house arrest.  

 

The fallout for the Cayman companies  

I know really little of what has happened with my corporations in Cayman after my arrest. On the third day of detention, I agreed to buy the corporate service provider’s shares to protect their name and reputation. In return, I expected my friends to support my family in those difficult times. They didn’t. Today, as I am getting some information from past clients, I am surprised to see that Clover wasn’t liquidated right away and the money returned back to the clients. Instead, new independent administrators were named to replace me. Remember that I wasn’t accused of stealing money from clients. The crime I was accused of was to have accepted funds originating from criminal activities. It should be noted that Clover was charging a regular fee of 2 percent per annum for the management of those assets. Really strange, knowing that the going rate for money laundering is 20 percent. 

No money has ever been missing from Clover’s client accounts. Still, investors had to wait and pay high fees to recover their assets. It appears that the vultures circling the carcass of Clover had to be fed. This loss of money for people that trusted Clover saddens me and I want to use this forum to say how sorry I am that clients were hurt by the collapse of Clover. 

Now that my side of the story is public, I hope it will convince service providers in Cayman to avoid helping U.S. citizens reduce their tax liabilities. My experience shows the risks are real.  

How else do you explain that HSBC, a well-known name in Cayman, who according to the U.S. government failed to monitor $200 trillion in wire transfers, pleaded guilty to laundering billions of dollars and paid a fine of $1.9 billion, didn’t see any of its employees being prosecuted? As for Clover, the three accused received a cumulative sentence of 36 months. Their crime: conspiracy to launder $2 million. One laundered billions, the other considered laundering $2 million. Don’t look for justice; at the end it is only a question of money.  

The IRS hit me hard, taking with them my future, my house, my wealth, my country of adoption, my pseudo-friends, my career, my reputation and my honor, not to mention the pain and rejection my loved ones had to endure. Through the storm, a few people brought me rays of hope. Neighbors, friends abroad and companions, your gestures of love and support will never be forgotten.  

This is my story. As far as I am concerned, my life was collateral damage to the war the U.S. is waging against tax evaders. I remember the discussion I had with my prosecutor when I first met her. She said, “Mr. St-Cyr, I don’t believe you are a money launderer.” We live in a time where the authorities will not hesitate to cheat to catch a cheater. 

Finally, I would like to set the record straight. The media reported that during a meeting with the agents, I said that Clover would charge more to manage laundered money then it will for “clean” money. What I said was that for complex structures such as trusts or foundations, the management fee would be our standard 2 percent per annum (as I knew Clover may have to share a part of the fee with the trust company or the bank).  

However, if it was an account opened under a corporation or an individual name, Clover could provide a discount to the investor. As an old African proverb says: Until the lion has his or her own storyteller, the hunter will always have the best part of the story. 

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