Owner Merit Capital leaves after discovery of false documents

Chairman and owner Henry Gabay, a CEO and the CFO have left the Antwerp stock exchange Merit Capital. Their resignation comes after false contracts were found. Merit Capital starts an internal investigation and wants to clear its name.

The bomb was detonated at the Merit Capital stock exchange in Antwerp, which manages more than 1.5 billion euros from wealthy Belgians. Following the departure of co-CEO Paul Reynolds, Chairman and Owner Henry Gabay and CFO Amit Haria have now also retired from management and board. With that, the three key figures of the owner of Merrit Capital, the London based Duet, left the stock exchange in one fell swoop.

The departure of co-CEO Reynolds was described earlier this week as a decision for personal reasons. The fact that the chairman and the CFO are now also withdrawing shows that there is more to it. Merit Capital says that the vacant positions on the executive committee and board will be filled after consultation with the National Bank. Jan Gysels, a former KBC banker, is nominated as the new chairman.

The layoffs follow reports of bizarre transactions between Merit Capital and London fund manager H2O, which was detained by the French regulator. Merit Capital has consistently denied those transactions. The National Bank has followed the file closely. Very recently, false contracts in the name of Merit Capital were discovered. The regulator has discussed this with the board of directors of Merit Capital.

It is a framework contract to make certain transactions and various related documents. Those contracts are false as they were not authorized and not approved by Merit Capital’s board of directors. The annual accounts of H2O state 377 million euros in transactions ‘with Merit Capital’.

“Merit Capital has started an internal investigation and will take the necessary legal steps to clear its name,” said CEO Jan De Coninck, who is currently the only member of the executive committee. ‘Our name has been misused. We don’t know exactly by whom and why, but we will get to the bottom of that. ‘

To be clear: not a single euro of Merit Capital has disappeared. Nor has any suspicious transaction been made on the accounts of the brokerage house or its clients.

The contracts were about so-called repos or buy-and-sell-back operations. Simply put, these are contracts with which the parties agree to sell something and then buy it back for a similar price. With those contracts, the troubled H20 was able to keep EUR 377 million worth of doubtful assets off its funds’ balance sheet. Thanks to the repos, they were ‘temporarily parked’ at Merit Capital.

Those hidden assets would mainly be junk bonds from the controversial German financier Lars Windhorst, including debt from the lingerie company La Perla, which appears to be virtually bankrupt.

Officially it sounds at Merit Capital that the changes are coming to restore trust and enable an independent investigation. The question is who drafted the false contracts and why. People of H2O? An affiliate broker? Someone at Merit Capital or Duet? According to experts, the fact that the three people of Duet suddenly resign is a sign on the wall.

By their resignation, the three already prevent the National Bank from withdrawing their so-called Fit & Proper status in the course of the investigation. Directors and directors must undergo a thorough suitability assessment before they can be appointed. Once someone has not been declared Fit & Proper, this means the de facto end of their career in the financial sector.

Duet, a group owned by Gabay through Hong Kong holdings, bought a majority stake in Merit Capital two years ago, then dubbed the ‘blue factory’ due to the presence of liberal families in the capital.

Gabay, who lives in London but is Swiss, made international headlines this summer when he was detained in France for a while. This happened after a German arrest warrant in an investigation into dividend fraud, the so-called Cum-Ex scandal. The businessman was stopped at Toulon airport at the request of the German police. However, he was released after questioning. Gabay stated that he had nothing to do with the case and, according to Duet, he was not charged with any crime.

Several years earlier, Gabay reached a settlement in the United States. He then paid $ 1 million after an investigation by the regulator NFA about his company Duet Asset Management breaking the rules. The NFA had then found all kinds of unauthorized loans through which Duet funds granted unauthorized loans to Gabay’s personal vehicles.

The businessman, who did not plead guilty, called these constructions ‘swaps’ or ‘risk participation agreements’. According to the NFA, they favored Gabay’s personal interests rather than those of the investors.