SINGAPORE (May 13): Esther Seet, executive director of brokerage firm Lim & Tan Securities, reckoned "on hindsight" restrictions imposed by the Singapore Exchange on stocks of Blumont Group, Asiasons Capital (now known as Attilan Group) and LionGold Corp (BAL) could have caused the 2013 penny stocks crash.

During cross-examination in the trial of the alleged masterminds of the crash on Monday, Seet agreed with Senior Counsel N. Sreenivasan (image) that an SGX designation would cause severe downward pressure on the three stocks. “Logically, any imposition of trading restrictions would definitely affect the market, because a restriction is quite negative,” said Seet.

She also agreed that confusion during that time over whether contra-trading was allowed or not, as well as the “herd mentality” of the stock market, contributed to this downward pressure.

“So the designations, plus downward pressures, plus herd mentality, would that cause the crash?” asked Sreenivasan.

“I can’t say it would cause a crash,” said Seet.

“[But] in this case, it did,” insisted Sreenivasan.

“Yes, on hindsight, it did,” admitted Seet.

According to reports, the SGX had declared BAL shares as “designated securities” on Sunday, Oct 6, 2013, after it had suspended trading of the stocks on Friday, Oct 4, 2013, amid extreme volatility. When SGX lifted the suspension on Monday, Oct 7, 2013, the prices of the Blumont and Asiasons shares plunged by more than 80%, while LionGold shares plunged by more than 70%.

Typically, SGX will impose restrictions when it opines that there has been manipulation or excessive speculation in the shares, although such restrictions were rare, agreed Seet. However, she said she did not know why SGX imposed the restrictions, and could not say who was responsible for the decision to do so.

During re-examination, Deputy Public Prosecutor Randeep Singh asked Seet if share prices had already fallen sharply prior to the SGX designation, to which she agreed that she recalled it happening.

The crash of the BAL shares and the subsequent $8 billion loss to the stock market and various financial institutions were allegedly orchestrated by businessman John Soh Chee Wen and former CEO Quah Su Ling of IPCO International, now known as Renaissance United.

Soh and Quah are accused of the manipulation of the stocks back in 2013, leading to the crash.

Soh faces 189 charges of stock manipulation, cheating and witness tampering and has been on remand since November 2016. Quah faces 178 charges of stock manipulation and cheating.

Later in the afternoon, the next witness, Hafeez Ahmad Choudry, Chief Risk Officer of Crédit lndustriel et Commercial (CIC), told the court that the French bank had revoked the lending-to-value (LTV) ratio of Blumont shares for an account belonging to Carlos Place Investment, a British Virgin Isle-registered company.

He explained that collateral pledged by Carlos Place in order to obtain margin loans were largely comprised of BAL shares, especially Blumont shares. Initially, the LTV ratio was 35% in August 2013, before CIC revoked the LTV ratio to zero in September 2013.

A LTV ratio is calculated by dividing the amount borrowed against the appraised value of a collateral asset, in percentages. For example, for stocks valued at $100,000, if the stock is deemed to meet certain ideal criteria, the LTV ratio can be as high as 50%-90% (that is, a loan of $50,000 to $90,000 can be given).

However, Choudry said, the share prices of Blumont rose rapidly during this period of time and the bank could not pinpoint a reason for the increase. He said, the Carlos Place account predominantly held Blumont shares, which increased the bank’s risk of over-exposure.

“I believe the share price was rising quite quickly from 80 cents to over $1.50 and we could not put our finger on why this share was demonstrating this behaviour, and since we couldn’t identify why, we reduced the lending margin on that security and took corrective action to prevent overexposure,” he said.

Choudry also said, CIC was not aware that Soh was giving instructions to trade in the Carlos Place account, as he was not on the list of persons with the Power of Attorney (POA) who were authorised to trade in that account.

He said, Carlos Place had appointed an external asset manager, Alethia Asset Management (AAM), to conduct trades on its behalf, and the representatives of AAM were Cheng Jo-Ee and Tan Ai Bee. Cheng, who is one of the witnesses yet to be called in the trial, is rumoured to have been Soh’s former romantic partner.

The trial continues on Tuesday before Judge Hoo Sheau Peng.

2013 Penny Stock Crash

John Soh Chee Wen is the alleged mastermind behind the penny stock crash of 2013, which prosecutors have called “the most audacious, extensive and injurious market manipulation scheme ever in Singapore”.

Together with his alleged co-conspirator and girlfriend Quah Su-Ling, Soh and his associates are alleged to have been behind the massive rise and sudden collapse of shares in Blumont Group, LionGold Corp and Asiasons Capital (now Attilan Group), which wiped out some $8 billion in market value.

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