Saturday, February 06, 2010

Fountain View's Share Manipulators Caught And Fined!

On Business Times:

  • Fountain View ex-director, ex-remisier fined

    Published: 2010/02/06

    FORMER director of Fountain View Development Bhd, Datuk Chin Chan Leong, was fined RM1.3 million or in default of 13 months' jail as well as sentenced to serve one day in prison for manipulating the share price of the company seven years ago.

    Chin pleaded guilty yesterday to the offence committed between November 18 2003 and January 20 2004 for creating a misleading appearance of active trading of Fountain View shares on Bursa Malaysia through at least 20 CDS accounts.

    These accounts were beneficially owned by the accused through the companies that Chin controlled.

    Hiew Yoke Lan, a former Avenue Securities Sdn Bhd remisier, was also fined RM1 million or 10 months default jail sentence for abetting Chin in the offence. Hiew was responsible for executing and relaying orders for the sale and purchase of the shares during the material time to various stockbroking firms.

    In a statement issued yesterday, the Securities Commission (SC) said this is the second conviction for market manipulation which it has successfully prosecuted.

    The regulator said it has been proactively pursuing this and other market misconduct cases such as manipulation, market rigging and insider trading because such activities severely undermines investor confidence and tarnishes the reputation of the Malaysian capital market.

I remember this one.

Anyway, let's have an idea on what happened. "A misleading appearance of active trading of Fountain View shares on Bursa Malaysia through at least 20 CDS accounts".

The offence was committed between November 18 2003 and January 20 2004.

From yahoo finance, these are the historical stock prices I am looking at for Fountain View.

During this period, Fountain View had a low of 1.99 and a high of 6.15!!!!

And here is the nice handy work.

Now consider this also. Fountain View has 444.940 million shares. Currently, Fountain View is suspended at 22 sen. At 22 sen, Fountain View carried a market cap of 97.8 million.

Back in Nov 2003, at a low of 1.99, Fountain View carried a market cap of 885 million.

And at the peak of this share manipulation of around 6.15, Fountain View carried a market cap of 2.73 billion!!!

Which meant that some 1.845 billion in market cap was created via the share manipulation!


The fine today is only 1.3 million!!!!!!!!!!!!

Yeah, I did blog on Fountain View before. See That Fountain View Again.

Let me side track a bit. Do you know that back on 14 Feb 2004, there was this news clip involving Fountain View.

  • Fountain View in talks to buy Kurnia Setia stake


    FOUNTAIN View Development Bhd is eyeing a stake in plantation counter Kurnia Setia Bhd. It is believed that talks between both parties have just commenced and therefore, details are not forthcoming.

    Kurnia Setia – a little known main board plantation counter with a market capitalisation of only about RM69.32 million – has some 11,522 ha of oil palm and rubber plantation, and is controlled by the Agricultural Development Board of Pahang with a 45.41 per cent stake in the company.

    It is believed that Fountain View Development is looking to increase its presence in the plantation business, especially in oil palm cultivation, capitalising on high crude palm oil (CPO) prices to boost its earnings. The company has been suffering losses since financial years 2001 and 2002.

    The financial year just ended may not bring much cheer to Fountain View Development shareholders as well.
    The company, for the nine months ended September 2003, posted a net loss of RM3.84 million on the back of RM56.32 million in sales.

    CPO prices have been on an upward trend since September last year, gaining some 35 per cent to close at RM1,892.50 on Thursday.

    “The problem is with the company's property development arm which is based in Johor. A focus on plantations will boost earnings, especially with the current high CPO prices,”
    the source says.

    Fountain View has about 11, 570 ha of plantation land, of which almost 70 per cent is cultivated with oil palm while the remaining are planted with rubber and cocoa. Previously known as Plantation and Development (Malaysia) Bhd, Fountain View was a PN4 counter.
    Under a restructuring scheme, Plantation and Development became a wholly owned subsidiary of Fountain View after a share swap, capital reduction exercise, issuing of irredeemable convertible unsecured loan stocks and debt compromise.
    News of Fountain View's interest in Kurnia Setia has yet to hit the market. Kurnia Setia shares closed at RM1.11, down three sen from its close on Wednesday. It hit its 52-week high of RM1.25 on Dec 8 last year while its low of 63 sen was on Feb 27 last year.

    Fountain View shares have risen six fold, since listing at RM1 on Nov 18 last year. The counter closed at RM5.80 on Thursday.

And this was Fountain's reply to Bursa in 2004: ARTICLE ENTITLED : "Fountain View in talks to buy Kurnia Setia Stake"

  • The Board of Directors wish to inform that the Company has never been involved in any talks to acquire a stake in Kurnia Setia Berhad and as such wish to deny the following statement :

And which company benefited from such news article? See the jump in Kurnia Setia after such news reporting:

See the jump in volume and share price for Kurnia Setia? Nice eh? The power of the press using words like 'it is believed' and 'according to sources'.

On 31st May 2005, there was this article on the Weekly Edge.

  • 31st May 2005

    Cover Story: A wake-up call for bursa malaysia
    Stories by Lim Ai Leen, M. Shanmugam & Cindy Yeap

    Banks and stockbrokers continued to cut their credit lines on selected stocks last week, sending investors scurrying for cover yet again as prices tumbled.

    In the latest line-up of stocks to bite the dust were Gula Perak Bhd and SAAG Consolidated Bhd. By last Friday, both companies had seen their value reduced to a third of what it was when the trading week began.

    It's been a month since Fountain View Development Bhd started this selldown snowball rolling, and the stock market is still suffering the effects.

    There is talk of financial executives being axed for breaching internal risk management and control procedures. "A large securities house is investigating a number of its executives for owning cars and properties beyond their means," says one market watcher.

    Retail participation is low, as spooked banks and stockbrokers review their exposure to so-called speculative counters, stop credit lines on these stocks and slash their positions. Forced selling has exarcerbated the price plunge, with few buyers willing to dip their toes in to stem the cascade.

    Market talk is that the selldown has affected quality stocks too, as these are sold to make up for losses on the speculative counters. And even though there are punters who believe that the sold-down stocks have been beaten way below their fundamental values, the herd instinct to stay away still holds strong.

    "There is still value in these companies. Unfortunately, lenders have a policy of forced selling to cut their losses. If there was measured selling, then the drop wouldn't be so drastic," observes an industry veteran.

    This state of affairs is raising questions about the integrity of the Malaysian bourse. Should market regulation be stepped up? Do these incidents reflect the poor quality of listed companies? Is the share margin financing facility to blame? Why are syndicates still loose on the stock market?

    Equity market participants are grappling with the answers, even as the stockbrokers lick their wounds over their losses and the regulators go about their business of investigating. But there's no doubt that measures must be taken quickly, before the stock market loses its credibility.

    "It's a wake-up call," says Yusli Mohamed Yusoff, CEO of Bursa Malaysia.
    No one is kidding themselves that this is a new problem. It's just that this time around, the losses have hit the institutions, and not retail investors as much. Also, the speculation has had a contagion effect on other stocks and is taking place in a damp, bear market, not a hot, bullish one.

    "This is not a new feature of the market; these guys [price manipulators] have been around the market for years," says Yusli matter-of-factly. Which raises the question of why they have.

    No quick fix is at hand. The long-term solution, it appears, lies in a whole host of issues, from fundamental analysis to brokers' risk management systems to information sharing. It also depends highly on cooperation amongst a long line of people that spans investors, intermediaries, regulators and the judiciary.

    Speculation versus manipulation
    The instinctive reaction when artifically high share prices and volumes come crashing down is to call for regulators to rid the market of manipulators. But every healthy stock market needs a good dose of speculation to generate volume and interest.

    A common refrain in financial circles is that it's a thin line between speculation and manipulation. Where does a healthy risk appetite end and an unhealthy greed for the quick buck at any expense begin? And how is the lender or investor supposed to tell the difference?

    According to Yusli, the line is drawn where collusion begins. "It's difficult for these speculators to do it [keep prices artificially high] on their own. They need the cooperation and support of other market participants," he says.

    Which means manipulation can be nipped in the bud if "everyone starts toeing the line and is that much more careful." Retail investors can refuse to buy on rumours. Lenders and stockbrokers can refuse to extend credit.

    And how is a potential investor or lender to know whether the price quoted on the exchange is reflective of a stock's value?

    Self-defence would seem to be the best offence in this case. Investors and financial intermediaries can arm themselves with more in-depth knowledge of a particular stock. And valuation tools like fundamental analysis will alert them as to whether a stock is trading at unusually high levels.

    "There has to be some form of benchmarking of share prices, which compares real-time PE (price-earnings) ratios, NTA (net tangible assets) per share and dividend yields, for example. Otherwise, people can get away with selling Protons for the price of Mercedes Benzes," remarks Datuk Ali Abdul Kadir, ex-chairman of the Securities Commission and a well-known car aficionado.

    Enforcement and prosecution
    There is little doubt that manipulators continue to prey on the local bourse and have been doing so for years. But why have their activities continued all this time, apparently unhindered?

    The regulators say they have to walk the fine line between regulating the market and interfering with its development. The intermediaries say the regulators need to be more on-the-ball and market savvy. And the lawyers say manipulation is a tough offence to prove.

    "You can't have a policeman on every corner of the street. There should be reasonable policing, and you wait for informants under the whistle-blowing provisions [Section 140 of the Securities Commision Act protects the identity of informants]. The idea is to let the market develop, but where there is manipulation, the regulator goes in with a big stick," says Ali.

    Though this stick may have more bark than bite.

    The thin line between healthy speculation and deliberate manipulation means that buyers and sellers are free to invest and divest any way they want, as long as they do not collude with each other to distort prices or volumes. Most prosecutions, says a litigation lawyer, fail when it comes to proving that a series of trades was manipulation, and not normal speculation.

    "The hardest part is to prove the mens rea, or the intention to create a false trade or manipulate prices," says the lawyer. "If someone didn't mean to create a false trade, it's a defence to the charge."

    If, however, the SC can prove that the buy and sell accounts all belong to one person via his or her nominees, then the burden of proof shifts to the defendant to show that he was not manipulating prices.

    "These syndicates are highly skilled at their game. It's tough to try and catch them with their hand in the cookie jar," says Yusli.

    Another hurdle, says the lawyer, is the general lack of understanding of securities laws and manipulative trading practices amongst the judiciary. This shortcoming may be addressed once a special court is set up.

    "... the Chief Justice has approved the SC's proposal on the establishment of a dedicated court for capital market offences, which is expected to expedite the disposal of such cases. In support of SC's commitment, the Attorney General also appointed three of the SC's senior enforcement officers as Deputy Public Prosecutors," says an SC spokesperson in an e-mail reply to The Edge.

    In the absence of hard evidence, it would seem that the exchange and the commission will rely less on the legal system, and more on warning bells and preventive measures.

    One such tool is the Bursa Malaysia query to companies regarding the unusual trading activity of their stock. The standard form, non-informative responses from these companies, which seem to be accepted by the exchange without further question, have, however, turned this exercise into a meaningless ritual.

    "We query these companies when we think there is some indication that some parties have been acting in concert. We do investigate further after the companies reply. The market should take our query at face value [that we suspect some manipulative activity], but we will do more to publicise why the company is being queried. Also, we have to be careful about unnecessarily alarming the market," explains Yusli.
    A common complaint is that the exchange and the SC are not seen to be investigating or coming down hard on these speculative companies.

    Tengku Zafrul Aziz, group managing director of Avenue Capital Resources, says: "I feel that the relevant regulators have to come in early and be stringent with any counters that they feel are being manipulated. I know this is easier said than done given the vested interests of the brokers and their clients. The monitoring mechanism must be in place so that brokers can be informed of certain 'red flag' counters."

    Ali says what's lacking is "on-the-spot fire-fighting". He also believes that the regulators could benefit from having more "market-savviness".

    Information sharing
    "It may be difficult to prove actual price manipulation, but we would like to see regulators who are more on-the-ball, who know what's happening in the market before it ends up in this sort of situation," said one stockbroker, when the Fountain View selldown started to affect other stocks a few weeks ago.

    The SC seems to be taking steps in this direction. "It has asked the brokers to submit weekly reports for counters that it specifies," says the CEO of a local stockbroker. "It wants to be proactive." This request was made at the meeting between the brokers and the SC on May 16 — a meeting convened to discuss the Fountain View affair and losses of hundreds of millions of ringgit said to have been borne by banks and stockbrokers.

    At this meeting, which the CEO described as "sobering", the SC also proposed better information sharing among the brokers, Bursa Malaysia and itself. "This could help reveal weaknesses in credit and margin-financing practices," he explains. In particular, players will be able to see what sort of credit exposure the entire market has to a specific stock.

    Margin financing
    Is slashing credit lines purely a knee-jerk reaction to the recent selldown? Or are margin financing facilities a contributing factor to plunging share prices?

    According to Yusli, margin financing in itself is not the culprit. "Margin financing is a great way for banks and stockbrokers to earn healthy profits, without having to extend these facilities to shady characters. The rules are in place. Everyone who takes in shares will have to decide how they want to conduct their business — in a volatile way or in a steady, fundamental manner," he says.

    But these internal systems and controls can be enhanced further, says Tengku Zafrul, with better information at hand. "... it's all about having adequate internal systems and controls... Different brokers have different risk appetites and will thus take different risks when it comes to margin financing. Therefore, we should let market forces dictate what risks each broker wants to take when it comes to giving lines. However, brokers would be better off if we had access to better information of the client's credit exposure relating to his securities with other brokers and with other financial institutions."

    But there are also those who think that the days of brokers relying purely on margin financing and transaction fees as main income-earners are over.

    David Chua, managing director of ECM Libra, believes that financial intermediaries should start trading up their skills. "Intermediaries need to match up to more educated and affluent investors. It's not just about providing prices; they have to improve their value-added services," he says.

    Quality of companies
    What is worrying investors now is, how many more companies out there have shareholders who prefer to make their big bucks from ramping up the share price instead of from growing the company's business?

    "It's unfair to say that this is reflective of the whole market," stresses Yusli. "There are honest people out there who want to make decent returns from investing in a sound market. But it's the few bad apples who are out to make a quick buck at everyone else's expense, without a business plan, without growing the business like normal, healthy companies. These people are taking a short cut and are looking for victims."

    The stock market abounds with stories of companies that list and tank soon after — for example, KSU Holdings Bhd and YCS Corp Bhd. Fountain View itself only listed in 2003, via a reverse takeover of Plantation and Development (M) Bhd.

    But the regulators say that the domestic listing requirements are not too blame.
    Ali believes that the listing requirements have been set high enough to separate the wheat from the chaff. "You can't reject them once they meet the rules," he says.

    "It's not so much the quality of the companies that we list but the intentions of the people behind them," observes Ali. "Unfortunately, there are those who want to make money by exiting when the company lists. I would advise them to build up the business once it's listed. The returns to the controlling shareholder comes from capital appreciation and dividends when the business grows."

    Looking ahead
    These suggestions and measures will take time to show results. In the meantime, anecdotal evidence suggests that industry professionals continue to scan the market for potential selldown candidates.

    Though, there are those who believe the shakeout is over. "It's gone past the worst now. Most of the bad apples have fallen off the tree," says the CEO of a local stockbroking firm.

    Yusli believes that market confidence will return "once everyone comes to their senses and invests in prudent fundamentals. There are still many good companies that don't participate in speculative kinds of activities."

    Savvy investors, meanwhile, are out bargain-hunting. "They threw the baby out with the bath water. There are quite a few pickings amongst these counters," says the industry veteran. He is obviously betting that market confidence will return — and soon. Hopefully, this time it stays


solomon said...

To me, it looks like a "Tom and Jerry"....wonder how many times Tom can catch hold of Jerry.

Whatever it is, manipulators please laid your hands responsibly according to the rules. On the other hands, the so called enforcement team at brokerages need to sniff their heads out at market.

What do you say Moolah?