In an article "Offshore broker's role in penny stock saga, Court papers filed by US firm shed disturbing light on stock trio debacle" by Goh Eng Yeow in The Straits Times (Singapore), it is noted:
Concerns centre on the outcome of the investigation being conducted by the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) over the odd trading activity surrounding the stock trio - Asiasons Capital, Blumont Group and LionGold Corp - before they crashed, wiping out over $8 billion in value in days.
There have been all sorts of rumours and allegations circulating in the market on how the three counters achieved spectacular price surges last year and their subsequent crash.
None of these rumours has been substantiated, but a court document filed here by United States online brokerage Interactive Brokers sheds some light.
Interactive has asked a court to freeze the assets of eight of its clients - six individuals and two companies - that lost almost $80 million in total from the stock debacle.
That court document makes for depressing reading. The allegation it contains seems to suggest how easy it is to subvert the local stock market using an offshore brokerage account.
It begs the question as to whether offshore brokers have put sufficient checks in place to stop a stock manipulator from using their trading platforms to manipulate prices in Singapore's market.
How does an offshore broker check if the accounts that are opened with it are genuine or not? And on what criteria does it extend loans on the shares pledged to it as collateral for share trading?
Would the malfeasance which Interactive purportedly uncovered ever come to light, if its erstwhile clients had not failed to make good on the massive losses which they had sustained in punting the stock trio?
Interactive describes itself as an online broker catering to well-heeled individuals and institutions. It says it does not employ any human "brokers" or "advisers". All trading is done online by customers or by independent financial advisers appointed by them.
In hindsight, this would appear to make it far easier for a person to open a trading account with Interactive Brokers than with any of the nine traditional brokerages here serving retail investors. This is because the SGX requires the client to turn up in person at the brokerage.
Interactive said it was only after the parties failed to make good their losses when the stock trio collapsed that it investigated further and found that there was something amiss.
To adhere to Singapore's regulations, its policy has been to prevent customers, whose legal residence is in Singapore, from trading Singapore-listed stocks.
But it claimed that these parties "deliberately misled Interactive and/or engaged in multiple non-disclosures when applying to open their respective... accounts".
The six individuals had listed themselves as Malaysians and given Malaysian residential and mailing addresses, while the two companies were listed as British Virgin Island-registered entities.
But further checks after the stock trio's crash suggested that "they are likely to be resident in Singapore and/or have a sufficient connection with Singapore".
Interactive noted the eight parties had appointed the same financial adviser, Algo Capital Group, which operates out of a Bishan address to trade on their behalf. They had also borrowed large sums to buy substantial stakes in Blumont, Asiasons and LionGold.
But what must surely take the cake is Interactive's belated acknowledgement that "many of the trades appear to serve no economic purpose and appear now to have been undertaken in a manner possibly to manipulate the share prices of the companies concerned".
Interactive noted that Algo often accounted for "substantial portions of the volume of total daily trades in LionGold shares, and even exceeded 80 per cent of the total trading volume on certain days".
The same trading pattern exists in Asiasons, where Algo's trading volume "was as much as 67 per cent on some days".
"(Algo) often sold a large block of shares at a given price in one or more of the (parties') accounts, then quickly re-purchased approximately the same number of shares at the same price, putting the accounts back where they started, but giving the market the appearance that the stocks were more heavily traded than they really were," it alleged.
Now, if any remisier is so brazen as to indulge in similar trading behaviour, he will surely be hauled up by the SGX's market surveillance team for questioning.
The question is that since Interactive is based offshore serving foreign customers, whose responsibility is it to ensure that it is up to scratch in keeping similar market misbehaviour at bay?
Of course, it is difficult to tell how much truth there is in Interactive's claims since its objective is to recover as much of its losses as possible.
But unless the MAS and SGX conclude their probe speedily, the uncertainties will continue to cast a pall over the market and make retail investors even more cynical about penny stocks. It is in the best interests of all to make haste on the investigation.
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