SINGAPORE (Mar 22): If there’s one story published by The Edge Singapore that I will never forget, it will probably be “Hunting for the truth” (Issue 641, Sept 1, 2014). The piece was intended to mark the first anniversary of the steep rise and sudden collapse of shares in Asiasons Capital, Blumont Group and LionGold Corp, an event that battered confidence in the local stock market and contributed to a subsequent slump in trading volumes.

The central element of that story — that John Soh Chee Wen had been identified by the authorities as the ringleader of the whole affair — garnered a significant reaction. Some were also surprised at a minor detail of the story: that Soh and former IPCO International CEO Quah Su-Ling had begun living together. A handful of companies and individuals mentioned in the story were indignant, however, and were threatening legal action within a week of the story’s being published. (Asiasons has since been renamed Attilan Group, and IPCO is now known as Renaissance United.)

In particular, officials at Blumont and LionGold challenged two points in the story, which we found to be mistakes. We had incorrectly reported that Blumont had sponsored an employment pass for Soh, and that LionGold had paid for a first-class flight for the CEO of a company that Blumont was in the process of acquiring. Both errors were corrected as quickly as possible. Blumont and LionGold were not upset about just those mistakes, though. The way they saw it, our story had made them out to be vehicles of Soh, and directly linked them to his activities. Both companies subsequently filed defamation suits against The Edge Singapore and myself.

Neither suit ever went to court, though. On Sept 29, 2016, the matter was formally dropped. Blumont announced the discontinuation of its defamation suit on Oct 18, 2016, and LionGold made a similar announcement on Nov 4, 2016.

Ironically, the story of Soh and the penny stock crash of October 2013 began to develop quickly immediately after that. On Nov 24, 2016, Soh and Quah were arrested. A third individual, Goh Hin Calm, who was interim CEO of IPCO, was arrested the same day. Soh and Quah have since been slapped with 189 and 178 charges respectively, most of which relate to the use of numerous trading accounts to manipulate shares in Asiasons, Blumont and LionGold. Goh, who has been described as the “treasurer” for their activities, was hit with six charges of abetting Soh and Quah. He has since pleaded guilty to two charges. He has been sentenced to jail terms of three years for each of those charges, which are to run concurrently. The trial of Soh and Quah begins on March 25.

Threatening letter from ISR

The experience we gained delving into the collapse of Asiasons, Blumont and LionGold, and defending ourselves against the defamation suits, served us well in our subsequent coverage of the spectacular rise and fall of shares in another company: ISR Capital.

This was one of the companies that had threatened us with legal action after our “Hunting for the truth” story was published. In a letter dated Sept 5, 2014, ISR said our story made “certain false statements” about Soh’s “purported association” with the company. The letter went on to demand a correction of the “false statements” and an apology. It was signed by Quah Su-Yin, an executive director of ISR at the time, who also happens to be Quah’s sister. ISR never actually pursued the matter, though.

We began following ISR closely in 2016, after its shares began rocketing amid strange circumstances. In a cover story titled “Connecting the dots at ISR Capital” (Issue 734, June 27, 2016), we detailed how shares in ISR took off after an Australian named David Rigoll acquired a major stake in the company and joined its board. ISR proposed to pay $40 million in new shares priced at 10 cents each for a 60% stake in Tantalum Holding (Mauritius), which owns a rare earth mining concession in Madagascar. The vendor, a company called REO Magnetic, had acquired the asset in late 2015 for just €3.7 million, from a German company that had links to Rigoll.

To support the acquisition, ISR released two valuation reports, in July and October 2016. Both reports said the concession in Madagascar was worth more than US$1 billion. Shares in ISR rose more than 4,000% during the year, and the company had a market value of well over $500 million at its peak.

Soh linked to ISR

Things began to unravel on Nov 24, 2016, the day Soh was arrested. The stock went into a tailspin. Trading was halted and then suspended. On Dec 1, 2016, Quah Su-Yin issued a statement to say that media reports had “inaccurately” linked ISR with individuals involved in the penny stock saga. “I also wish to state that in my capacity as executive director and chief executive officer (since April 29, 2011), I have not been involved in any criminal proceedings,” she stated.

On Dec 9, 2016, ISR said the Monetary Authority of Singapore (MAS) and Commercial Affairs Department were investigating an offence under the Securities and Futures Act, and that the company was required to provide access to documents related to merger and acquisition agreements, minutes to board and management committee meetings as well as corporate emails of its employees and directors. On Dec 20, 2016, during a court hearing, prosecutors said the authorities had found links between ISR and Soh while investigating the sudden fall in ISR’s share price. On Dec 31, 2016, Quah Su-Yin resigned from the company.

Meanwhile, the Singapore Exchange found fault with the two valuation reports for the rare earth mining concession in Madagascar that ISR had circulated. ISR eventually agreed to commission yet another report. This third report, by Behre Dolbear, valued the mining concession at just US$44.5 million. Amid all of this, shares in ISR slumped. The company currently has a market value of only $11.7 million.

ISR is now pressing ahead with the proposed acquisition on vastly different terms. Last October, it obtained approval from its shareholders to acquire the 60% stake in Tantalum Holding (Mauritius) for just $3 million, by issuing new shares at 0.4 cent each. On the face of it, REO Magnetic is now selling rare earth mining assets for less than it paid. However, the shareholding composition of REO Magnetic has also shifted significantly since 2016, according to a report by The Edge Singapore last November, which makes it hard for public investors to understand exactly what is happening.

Putting things right

Looking back on the penny stock case, and the ongoing twists and turns in the ISR story, I cannot help but think that they are just further signs of Singapore’s having lost its way in the development of its stock market.

I remember covering NagaCorp’s attempt to list in Singapore in 2003. An elaborate trip to Phnom Penh was organised for analysts, bankers and reporters. We inspected the company’s casino aboard a barge moored on the Mekong River, and visited the site where it was developing the NagaWorld complex. There was even an event attended by Cambodia’s Prime Minister Hun Sen, who gave a meandering two-hour-long speech.

After all that effort, MAS surprised everyone by blocking the registration of NagaCorp’s prospectus, simply stating that it would not be in the public interest. NagaCorp was listed in Hong Kong in 2006, and now has a market value of nearly HK$46 billion ($7.9 billion). Meanwhile, only a couple of years after rejecting NagaCorp, Singapore threw open its doors to the S-chips, many of which quickly became embroiled in scandal and fraud. Worse, little appears to have been done to hold promoters of those infamous S-chips to account.

Now, market watchers are lamenting weak investor interest in the local bourse, IPOs that fail to generate excitement and a steady stream of listed companies opting to go private. Some have attributed the investor apathy to regulators’ failing to properly address corporate governance lapses at companies, as well as directors and auditors’ not doing enough to look out for the interests of the investing public. Others suggest that local investors have simply grown more sophisticated, and are now investing globally.

What can be done to put things right? GIC and Temasek should perhaps farm out small amounts of money to fund management outfits with a mandate to invest in promising medium-sized companies in the local market. The authorities should also look into enabling class action lawsuits by local investors, so that they can take on the boards of companies that do not treat them fairly. And, Singapore should establish a dedicated capital markets regulator and law enforcement agency capable of dealing quickly and effectively with everything from companies that have been cooking their books to stock manipulators behind the inexplicable rise and fall of stocks such as Asiasons, Blumont, LionGold and ISR.

This story appears in The Edge Singapore (Issue 874, week of Mar 25) which is on sale now. Subscribe here

For the most vivid look into the inner workings of what prosecutors have called “the most audacious, extensive and injurious market manipulation scheme ever in Singapore”, click here to read “ Trial of alleged penny stock mastermind begins” in our 8-page special pullout that comes free with Issue 874 of The Edge Singapore which is on sale from today. For the latest updates on this developing story, visit http://dedge.news/crash