It's a small world

Two interesting articles:

Penny stock crash: John Soh accused of witness tampering

7 executives of Platinum Partners charged with US$1 bil fraud

In it the companies in the "Penny Stock Saga" (Blumont, Asiasons and LionGold) are linked to ISR and John Soh and to US-based hedge fund Platinum Partners.

It is indeed a small world in the world of finance.

Good to see that at least some enforcement is being delivered in Singapore and the US.

Remains the question: John Soh seems to be (allegedly) the mastermind in this all, what would have happened if the Malaysian authorities would have punished him more appropriately for his alleged role in the downfall of several Malaysian listed companies?

The fine of RM 6 Million seems to be woefully inadequate, at least to me.

Penny Stock Saga: were the share prices manipulated? (4)

The Singapore authorities were rather slow out of the blocks, but the pace of proceedings has quickly caught on. I have confidence they will get to the bottom of this saga, although it might take time.

Article in the Straits Times (Singapore) by Grace Leong and another article on "ValueBuddies".


"The probe into last October's penny stock rout on the Singapore Exchange (SGX) has now widened to include the chief executive of Innopac Holdings as well as units of Magnus Energy.

The Commercial Affairs Department (CAD) has asked Mr Wong Chin-Yong, CEO and executive director of Innopac Holdings, to assist with investigations in relation to offences under the Securities and Futures Act.

Meanwhile, Magnus Energy Group also announced that two subsidiaries and a former subsidiary had received notices from CAD to provide all information and data belonging to the company's executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."

"The CAD also asked ISR Capital, majority-owned by private equity firm Asiasons, to assist with the probe. It made the same request for data belonging to ISR chief executive Quah Su Yin.

Similar CAD requests were made to Innopac chief executive Wong Chin-Yong; ITE Electric chief executive Ho Cheng Leong; its chief operating officer, Mr Ang Cheng Gian; and Mr Goh Hin Calm, a non-executive and independent director.

Innopac and ITE Electric said the four men will remain in their posts as the investigation proceeds.

Magnus Energy announced on Wednesday that two subsidiaries and a former subsidiary had received CAD notices to supply information and data belonging to executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."


"What goes round comes round... no matter how long it takes..." and with that we can only agree.

Penny Stock Saga: were the share prices manipulated? (3)

Two recent developments in the "Penny Stock Saga":

Article from the Straits Times (Singapore)

Court orders CEO to pay up $1.8m debt owed to bank

THE chief executive of an investment holding company who is locked in multi-million dollar lawsuits, has been ordered by the High Court to pay up a $1.83 million debt owed to a bank.

Ms Quah Su-ling, executive director of Ipco International for more than a decade, failed in her appeal to rescind the summary judgment against her sought by the Bank of East Asia for monies owed from a share margin facility. Ms Quah had also appealed to put the proceedings on hold.
.....
Ms Quah's woes began last year with the plunge in the share prices of three listed companies: Asiasons Capital, LionGold Corp and Blumont Group.

She had invested up to $120 million in their shares.

She claimed Goldman Sachs gave her 1 1/2 hours last October to repay $61 million, which is the margin call on her trades in the companies.


Announcement by Blumont:

"The board of directors (the “Board”) of Blumont Group Ltd. (博诺有限公司) (the “Company”) wishes to announce that G1 Investments Pte Ltd (“G1 Investments”), a wholly-owned subsidiary of the Company, has received a notice dated 2 April 2014 from the Commercial Affairs Department of the Singapore Police Force (“CAD”) requiring G1 Investments’ assistance with the CAD’s investigations into an offence under the Securities and Futures Act (Chapter 289) (the “SFA”). The CAD has requested for access to, amongst others, all corporate electronic data from 1 January 2011 to-date, information technology equipment and data storage devices (if any) belonging to Mr. Neo Kim Hock, the Executive Chairman of the Board, and Mr. James Hong Gee Ho, Executive Director of the Company.

Further, the Company has been informed that Mr. Hong has been requested to assist the CAD in its
investigations into a possible infringement under the SFA..."


Looks like the net is tightening.

SGX Circuit breakers won't help small investors

A rather critical letter by Michael Dee in The Straits Times (Singapore) about the recently introduced "circuit breakers" and the Penny Stock Saga:


The Singapore Exchange's (SGX) new "circuit breakers" come 25 years too late, do not cover shares priced below 50 cents, and delay trading by only five minutes - it is 15 minutes on the New York Stock Exchange ("SGX circuit breakers to kick in next month"; last Thursday).

Other than insiders, who could possibly respond in the five-minute "cooling off" period? Yet again, the smaller investor is disadvantaged compared to remisiers, highly sophisticated players and high-frequency traders.

The circuit breakers would have had no impact on the recent penny stock fiasco beyond delaying the inevitable by a few minutes - and buying time for the big players and insiders.

Prior to their collapse, Blumont Group's price-earnings ratio was up to 500 and price-to-book value ratio was 60; Asiasons Capital's price-earnings ratio was more than 580; and LionGold Corp was virtually unprofitable, yet had a market value of up to $1.42 billion.

There were no discernible results to support these valuations, and no reaction from the SGX and Monetary Authority of Singapore (MAS) until it was too late.

Investors need, expect and deserve protection from unwarranted and manipulated price movements - both up and down. This comes from much greater transparency and regulatory rigour than what we are currently seeing from the regulators.

Investors would be better served by the SGX and MAS releasing a full report on what happened and why it happened. Only then would the scope of the issues be understood and solutions holistically designed to prevent unwarranted run-ups in share prices that attract unsuspecting buyers in "pump and dump" schemes.

Penny stocks trading as low as one-tenth of a cent are ripe for manipulation.

Thus, shares with prices below 50 cents and valuations below $50 million have no business being listed on the mainboard. A listing provides a misleading and inappropriate stature to companies that have neither earned nor deserve it.

The SGX needs an alternative exchange for these second-tier listings, with different rules to manage investor protection.

In fact, the SGX would do well to set investor protection as its No. 1 priority over commercial interests.

Penny Stock Saga: were the share prices manipulated? (2)

More news regarding this interesting case, which is very important for Singapore (SGD 8 Billion in paper value lost from the highs), but also has a heavy Malaysian component to it (many persons involved are Malaysians).

The parties being sued by Interactive Brokers are (according to this website):

Malaysian nationals:

• Neo Kim Hock
• Peter Chen Hing Woon
• Tan Boon Kiat
• Quah Su-Ling
• Lee Chai Huat
• Kuan Ah Ming

British Virgin Islands-registered companies:

• Sun Spirit Group Ltd
• Neptune Capital Group Ltd.

Singaporean listed companies involved:

• Asiasons Capital
• Blumont Group
• LionGold Corp
• Innopac Holdings 

From an article in Business Times (Singapore) written today by Grace Leong, more news regarding the answer by Quah Su-Ling and the rebuttal by Interactive Brokers (emphasis mine):


IPCO International chief executive Quah Su-Ling, who is among eight clients sued in High Court over $79 million in losses sustained by Interactive Brokers (IB) in the wake of the penny stock crash, has alleged the US online brokerage was involved in a "commission-generating scheme".

According to court documents inspected by The Business Times, Ms Quah, who is seeking to unfreeze nearly $15 million in assets belonging to her and her company Sun Spirit Group, said she does not recall signing the broker's account-opening documents or completing any forms.

The large-volume trades in the shares of Asiasons Capital, Blumont Group and LionGold Corp from her account and that of Sun Spirit's happened because Ken Tai, owner of Algo Capital and her financial advisor, had exceeded his authority over the accounts, she said.

She was rebutting allegations that she may have been involved in an "intricate pump-and-dump scheme to artificially generate trading volume" in the stock trio and to drive up their share prices before they crashed and wiped out over $8 billion in value.

In arbitration proceedings against her, the British Virgin Islands-incorporated Sun Spirit and eight other individuals and entities to recover $79 million in unpaid margin loans, Interactive Brokers flagged "suspicious trading activities through the defendants' accounts" made by Algo Capital. A hearing in relation to the freezing order was held last Friday.BT understands that judgment was reserved.

The broker alleged: "The unusual trading pattern employed by (Algo), which involved buying and selling the same stock in the same account on the same day at the same price, or closing out a large amount of shares in the morning, then repurchasing those shares in smaller lots throughout the day at set intervals, ... (gave) the market the appearance that the stocks were more heavily traded than they were.

"For instance, Algo often traded 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. Similarly, for Asiasons shares, Algo's trading volume was as much as 67 per cent on some days."

But Ms Quah, in her affidavit, said Mr Tai had purportedly told her that it was the broker that had "placed pressure on him to maintain his high-volume trading".

"Despite the fact that Ken Tai had been trading large volumes of shares in the companies for an entire year (from August 2012 to October 2013), Interactive Brokers did not see fit to flag or exercise its rights to suspend or freeze Sun Spirit's or my accounts in light of what they now allege as 'suspicious activity'."

Between October 2012 and last Oct 4, the broker allegedly made commissions amounting to $776,152 on trades done in her account, and $177,981 on Sun Spirit's account, she said.

She also claimed the broker may have violated the Securities and Futures Act by offering margin-trading services to Singapore residents in respect of SGX-listed stocks without the requisite licence from the Monetary Authority of Singapore (MAS), and was in breach of its own internal policy.

But Interactive Brokers, represented by Senior Counsel Harpreet Singh of Cavenagh Law, said Ms Quah has not produced any credible evidence to support her claims.

Nor has she explained why Mr Tai would "gratuitously implicate" himself by admitting he was in a commission-generating scheme to defraud the defendants, it said in court documents.

IB said it is "completely unaffiliated with the advisers and/or customers who trade on its platform and in no way manages or supervises customer trading or offers any input in the trading".

"It is highly improbable that a sophisticated and experienced businesswoman and investor would be so trusting of Mr Tai. ... The more plausible explanation is the defendants, all of whom were interrelated and had connections with (LionGold, Asiasons and Blumont), were fully aware of Mr Tai's actions."

In challenging Ms Quah's claims as to why she did not disclose her relationship with the other defendants, the broker said she must be "intimately aware that most brokerages would impose higher-margin requirements on customers who disclose they are insiders of a stock they are trading, or that they hold a large position in that stock, either individually or acting in concert with others."

"If there was anyone trying to circumvent the need to obtain a licence from the MAS, it would be Ms Quah and Ipco, who had incorporated Sun Spirit on the other side of the world, and then used it for investment in the (three companies') shares through its account with Interactive Brokers."

On why Ms Quah and Sun Spirit could have been involved in such unusual trading activities and yet suffered huge losses, the broker said: "They may have expected their scheme to continue to be successful, or believe that they could have sold off their positions for large gains before the share prices collapsed, but had simply waited too long."

Penny Stock Saga: were the share prices manipulated?

The first cracks seem to have appeared in the (in)famous "Penny Stock Saga", where the crash of Asiasons Capital, Blumont Group and LionGold Corp wiped out SGD 8 Billion in a just a matter of a few days.

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.