SINGAPORE (Oct 8): John Soh Chee Wen, Quah Su-Ling and Goh Hin Calm — the three individuals who have been charged for their roles in Singapore’s biggest-ever stock manipulation scandal — watched as their lawyers cross-examined a string of witnesses at their three-day pre-committal hearing four months ago. The outcome was not unexpected: The trial will indeed take place, likely in March next year.
See: Getting ready for the next chapter of the penny stock saga
Five years ago this past week, shares in Blumont Group, LionGold Corp and Asiasons Capital (renamed Attilan Group) suddenly plummeted. Within an hour into the trading day on Oct 4, 2013, the market value of the three companies had shrunk to just over $4 billion, from more than $9 billion.
The Edge Singapore reported at the time that some people in the market initially attributed the collapse to trading restrictions imposed by some large brokerage firms, and forced selling of shares belonging to individuals linked to the companies. The thinking in the market seemed to be that the counters were probably overvalued before they suddenly fell, but that they would draw investor interest once they became cheap enough.
That moment never came. In fact, all three companies are in worse financial shape than they were in October 2013. Attilan, which is currently suspended from trading, had shareholders’ equity of minus $39.2 million as at June 30. Both Blumont and LionGold are trading at a fraction of one cent. The former has a market value of $82.7 million and shareholders’ equity of less than $2.3 million; the latter has a market value of $8.6 million and shareholders’ equity of almost $17.1 million.
It is now known that shares in all three companies had probably been manipulated before they collapsed. According to the authorities, the mastermind of the whole operation was Soh, who has been held in remand for almost two years. He has been slapped with 189 charges, mostly for stock manipulation but also for cheating and witness tampering. Quah, former CEO of IPCO International and who is said to be romantically involved with Soh, has been hit with 178 charges. Goh, a former interim CEO of IPCO, faces six charges for abetting Soh and Quah. Both Quah and Goh are out on bail.
More than 180 trading accounts belonging to 59 individuals and corporate nominees are said to have been used by Soh and his accomplices in their stock manipulation operation. According to The Edge Singapore’s reporting on the case, several of the trading account holders were directors and employees of the three companies, or had other links to them while the alleged manipulation occurred.
Some of the trading account holders were also linked to at least six other companies that were investigated by the authorities. These included IPCO, ITE Electric (now called Sunrise Shares Holdings), Annica Holdings, Magnus Energy, Innopac Holdings and ISR Capital. Soh’s name is not directly tied to any of these companies. The closest formal link is that he had LionGold business cards describing him as “Adviser to Chairman”.
The massive manipulation of shares in Blumont, LionGold and Attilan and the apparent ability of Soh to mask his involvement for so long were certainly a wake-up call for Singapore’s regulators. And, it was followed by a slew of regulatory initiatives.
In February 2014, the stock market regulator in a joint review with the Monetary Authority of Singapore (MAS), announced a set of enhanced regulatory tools. Among them was the public query process, which aims to extract yet-to-be-disclosed price-sensitive information from companies that can explain the unusual trading behaviour in their stocks. Public queries also serve to alert investors to trade with care, given the unusual trading activities observed in a particular stock.
In addition, all replies to queries by the Singapore Exchange must now be approved by a company’s board. The company must state in its response to SGX that the board’s approval has been obtained. This is to establish accountability for the companies’ responses.
Separately, SGX introduced its “Trade with Caution” announcement, and subsequently enhanced it. These alerts are now issued on a case-by-case basis instead of being automatically triggered by a company’s “not aware” reply to a public query from SGX. The alerts may also contain details gathered from SGX’s review of trading activity in a particular company’s stock. Besides warning investors to be cautious, these alerts also inform the market that trading in a company’s stock could be caused by something other than corporate developments of the company.
Another regulatory enhancement is the introduction of the circuit breaker in the securities market. This applies to all Straits Times Index and MSCI Singapore Index component stocks/units and all other stocks/units with a first reference price at or exceeding 50 cents. It also covers stapled securities, funds, exchange-traded funds and exchange-traded notes.
The aim of the circuit breaker is to guard against disorderly situations in the face of rapid and unchecked market movements. It is activated when an incoming order could match an existing order in the order book at a price that is 10% above or below the reference price. Trading at such prices will cease for five minutes, but those that fall within the 10% threshold will continue trading.
The biggest change as part of SGX’s regulatory overhaul is the establishment of Singapore Exchange Regulation on Sept 15, 2017. SGX RegCo is a subsidiary of SGX set up to undertake all the front-line regulatory functions. This is to separate the regulatory functions of SGX from its commercial and operating activities.
In FY2018 ended June 30, SGX RegCo made 57 referrals to the Commercial Affairs Department (CAD) and MAS, conducted 32 inspections and issued nine notices of compliance. “Over the past year, we have worked towards our twin aims of fostering trust in and supporting the development of our markets,” CEO Tan Boon Gin says in a statement posted on SGX RegCo’s LinkedIn page.
“As with most, if not all, regulatory bodies in the financial world today, we have the task of ensuring that stakeholders uphold their obligations to the market and the investing public while maintaining a regulatory framework that encourages and develops good practice to make it easy for these obligations to be met and for the market to thrive,” he adds.
Proactive regulation needed
Most market watchers doubt these initiatives will completely insulate the local market from another stock manipulation scandal. In fact, in 2016, even as they were being investigated, Soh and his associates were apparently involved in the manipulation of shares in ISR Capital (see “Rise and fall of ISR Capital reprises penny stock saga” on Page 17).
“It may be too optimistic to expect that the additional measures implemented by the SGX in response to the penny stock saga in 2013 can fully guard against the occurrence of a future stock manipulation scandal, given the extent of human ingenuity,” says Yang Eu Jin, partner and co-head of capital markets practice at RHTLaw Taylor Wessing.
Stefanie Yuen Thio, joint managing partner at TSMP Law Corp, echoes that view. “Frankly, if someone is prepared to use sophisticated and fraudulent activities to manipulate the market, no amount of monitoring or regulatory diligence will be able to guarantee that they do not succeed,” she says.
Instead, a proactive form of regulation could be the best defence against manipulators. Yang says he welcomes the recent announcement by MAS on using machine-learning algorithms and data analysis tools to detect syndicated market manipulation. “Increasingly, the cat-and-mouse contest between regulators and would-be stock manipulators is likely to be fought in the cyber realm, and retail traders or investors may be ill-equipped to spot machine-driven manipulation, let alone be able to take evasive action,” he says.
Meanwhile, Yuen Thio says it is important for the authorities to rapidly follow up with an investigation into any sign of wrongdoing. “Speedy action on the investigative and criminal prosecution front — which is the purview of the government and not SGX — is just as important,” she says.