Tan Kin Lian's Blog: Fraudalent misrepresentation and clear mis-selling

Monday, October 20, 2008

Fraudalent misrepresentation and clear mis-selling

Extrcted from:
http://comment.straitstimes.com/showthread.php?t=14234&page=3

I am a medical doctor and have been a specialist cardiologist for 18 years. As an educated, mature and risk adverse investor, I purchased $130,000 of Lehman Brother’s Minibond Series 5 from Maybank Singapore last year.

Events over the last few weeks have shown that there has been fraudulent misrepresentation and clear mis-selling of the Minibond for the following reasons:

1) The product is not at all a bond, but calling it a Minibond, marketing it as a low risk product and offering a modest return of 5% yearly was clearly intended to mislead the purchaser into thinking that it ranks as a bond in default risk.

2) By associating the product with 5 well known banks, by highlighting the good credit ratings of these banks and by linking the default of the product with a default of any of these banks, the purchaser is made to believe that the bonds are instruments supported by these banks. In fact, the banks have nothing to do with the Minibond which is created solely for the profit of Lehman Brothers and its agent Maybank Singapore.

3) By constantly referring to the ratings of the reference banks, the impression is given that the Minibond is of similar low risk and high grade, with holders protected as would any holder of bonds issued by these banks. It is only now apparent that the Minibond is an unrated structured product; purchasers are NOT holders of bonds issued by these reference banks, and are not even considered to be holders of bonds issued by Lehman Brothers.

4) The impression is given that funds invested in the Minibond will be used to purchase high quality securities that could easily be sold to safely redeem its value if the need arises. In actual fact, even the officers of Maybank do not know what the underlying securities are and an article in the Sunday Times of 19th October reported that the value of the securities in Minibond 5 have been determined to be zero.

I write in the hope that the Monetary Authority of Singapore will take the necessary action to ensure that those dishonestly misrepresenting financial products face the consequences of their action. It is in the long term interest of Singapore as a trusted financial centre that those who behave like unscrupulous traders, mis-selling and cheating purchasers be made to fully face the music. Thank You.

Yours Sincerely,

Dr Ong Hean Teik
20th October 2008

32 comments:

Anonymous said...: I agree with Dr Ong.

I am tertiary educated and a practising engineer for 14 years. I have the same misled impression of the Minibond as you described. I feel MAS should take appropriate actions and be more proactive.; October 20, 2008 8:13 AM
Anonymous said...: I am once shamed to say I am a MBA holder but be cheated by this toxic product also. Now I am happy to know I am not the only suffer.

My case is even simple. I told the RM I only wanted to invest in bonds, even not bonds funds. And he told me this is small scale bonds with many times confirmation.

As an educated people, I do not expect Singapore banks will cheat their clients. I do not know they could "sell dog meat but hang goat head". That is not taught in university.

If MAS can confirm it is cheating, they should not compensate old and un-edcated people, they should take action to correct it if they still want to attract foreigner investors. Do they want to tell the world they only want to protect old and un-educated people but not other investors?; October 20, 2008 8:34 AM
Anonymous said...: Dear Dr Ong
Well said and that is the truth of what is going on in '1st class Singapore'. We strive to be 1st everytime, but sad to say 'failed' in the processes. I saw the programme Talking Point yesterday, Get Real tonight 8.30 pm CNA. Mr Tan's comment well said in the programme. This is what I called an independant unbiased view. At this juncture, the media should get the man in the street, why get another FI/FA and give them 'free publicity', this is ridiculous. We are fully aware the processes are there but somewhere out there the FIs are not following it. Why, maybe they have 'big brother MAS' backing. Acutally it is time that all the various FI associations should merged as one and look into all these problems rather than to each its own protecting owns business interest. Consumers need immediate answers. If MAS is working behind the doors, why be secretive about it. Singaporeans through our Govt upbringing, needs answers and not 'backdoor action' with no result. We should strive to be the 1st in the world to solve the Lehman issue since we always want to be the 1st in everything.; October 20, 2008 8:52 AM
Anonymous said...: That product is NOT a BOND BUT a BOMB...
a TIME BOMB in fact !!!!!
'Minibomb' is the right word for that product !!!; October 20, 2008 9:06 AM
Anonymous said...: Instead of the Investors getting insured by the 5 % percentage from their investment, they became the INUSURERS instead and took over the credit risks from ailing banks

Not in my life can this concept sink into my head that simple aunties and uncles , blue collar jobs workers , retirees with limited funds BECAME INSURERS for BANKS !!!

what a revelation !; October 20, 2008 9:39 AM
Anonymous said...: Dear Dr Ong and all,

I shared the same sentiments with you all. I purchased $100k Minibond from Maybank as I was told this is bond invested on the 6 RE.I'm a graduate worked for 20 years in my mid 40, an IT professional. I did not appear at Hong Lim as I do not want to be captured in the media. I'm wrong in placeing too much trust in the bank, and in the authority here. We did'nt know it is toxic milk and we drank it. Our authority said go find the seller.; October 20, 2008 9:41 AM
Parka said...: I studied business in NTU. Yet I was misled.

The 4 points by Mr Ong hits a homerun on accuracy, and the predicament many of us face.

If these were highlighted as risky investment, would people be crazy enough to not spread out their investments?; October 20, 2008 9:53 AM
Anonymous said...: I agree with Dr. Ong,

Me too, an Accountant with more than 20 years invested in shares and wanted to park my spare fund after I realsied some of my shares. However, I was con into placing a "low risk" and "moderate return" of 5% interest so called High Note 5.

May I urge MAS and DBS not only take care of those vulnerable retirees but also "educated" people like us who got cheated by the RM who was representing your Bank.; October 20, 2008 9:54 AM
Anonymous said...: I have retired but I was a MNC Group Financial Controller and a Chartered Accountant. When I invested in the minibond, I was given the impression that I am investing in the bonds of the referenced entities so the investment is even safer than investing into a single company bond. I really look stupid now in front of my immediate family as they have high regards for my knowledge in the financial area and not suspecting that I can be taken in as well!

I read the advertisements, the brochures and the prospectus many times. The prospectus is not very clear but the advertisement and brochures are crystal clear but unfortunately not true. I was not given a copy of the pricing statement and I did not know that such document existed till this thing has blown up by reading Mr. Tan's blog!

Everyone's circumstances in investing and being misled may be different but I think it starts with:

1) Why the minibonds, the related advertisement, brochures and prospectus which are so misleading and unclear were approved by MAS.
2) Then come to those who were persuaded by the RM to buy the minibond which is clearly not suitable for the investors profile?

So there is mis representation and there is mis seliing. In Sunday ST, DBS was quoted that their internal RM meeting has confirmed that there is no mis selling. What about mis representation?; October 20, 2008 10:00 AM
Anonymous said...: In the case of "Secured Credit-linked Notes" as it is named, the RM has failed to really elaborate on how it is "credit-linked" and how and who it is "secured".
As regards "Exposure to", He/she too failed to elaborate how,what and who it is exposed to.
The next is the footnote which is so fundamentally important in "Each series of Notes will be secured by, amongst other assets, the Underlying Assets, which are US dolar denominated Synthetic CDO Secutites that are AA or higher as at the date of investement therein", was not elaborated as it is these CDOs the only basket of assets the money is invested in. CDO - Collaterise Debt Obligation. What is it?
It is followed by "The Notes are not principal guaranteed, Payment of interest and repayment of 100% of the principal amount at maturuity may not occur in all circumstances. In particular upon the occurence of a "Credit Event", a Mandatory Redemption Event, an Event of degault or if the Issuer exercises its Issuer Call Option in respect of a Series of Notes. In such circumstances (save for where the Issue exercises its Iuuser call Option), you could lose all or substanially all of your investment in the Notes. Please refer to the Prospectus for further details." The 'Credit Event' which goes to the root of "Exposure to the Reference Entities" was never explained.
It too mentioned that "The Notes provide exposure to ABC Bank Ltd, as one of the Reference Entities, and(with respect to the Seris X Notes only) to ABC Group Holdings Ltd, as one of the Basket Companies." Again, what is this? what is this Basket and what is in the Basket?
There are more .....
In short, the investor will never know the risk unless and until the full risk is elaborated by the well trained FA/RM and only then he/she can decide whether or not to take the risk.; October 20, 2008 10:43 AM
Anonymous said...: I'm also a post-graduate, and same as Dr Ong, I got misled by Maybank into buying Minibond 5 thinking it was a bond. I saw the Minibond advertisement in the papers, and thought it was a bond because of the name "Minibond". After I stepped into Maybank and before I commit the purchase, I specifically sought to confirm with the RM whether it was indeed a bond that pays back the full principal at maturity. The RM actually confirmed that, and I left the bank thinking I bought a bond jointly issued by the 6 reference entities!

I definitely would not have purchased the Minibond if the RM had corrected my misperception that Minibond was a bond... Sigh...; October 20, 2008 10:50 AM
Anonymous said...: I was asked during an interview with a FI that if I worked in a Bank before ? It sounds insulting that even I had worked in a Bank previously does not mean I understand the complexities of these "BOMBS" if the adviser did not reveal ! I met an accountant in Hong Lim gathering last week and he mentioned that even he has gone through the prospectus after the Lehman saga, he too does not understand the product as too many technical terms involved ! So what if we are only layman and why sell to retail investors ? Only our BIG brother MAS could answer that !; October 20, 2008 11:01 AM
Anonymous said...: If it's clearly a fraudulent misrepresentation, shouldn't the investors be entitled to full recovery of the sum and also loss of potential income? Then why should people settle just for partial return of the principal sum?; October 20, 2008 11:03 AM
Anonymous said...: If even doctors , engineers , chartered accountants , business graduates holding multiple MBA degrees are not spared from this misconceptions and misleading words

what hope will there be for a simple provision shop couple who knows little or no english and the rest of the retirees who live simple lives hoping for just a modest percentage out of their life savings ??

5 % is not much in fact but do you think they have to risked everything they own or will ever own for the blunders of misrepresentation and mis-selling??

look at them ...these structured products victims are just your 'average joes' and when I look at them , I am reminded of my father , mother , uncles , brothers and sisters

just look at their painful and worried look at this sad point of their lives !!!; October 20, 2008 11:28 AM
Anonymous said...: Again, it comes back to MAS' failure to protect the retail investors, who may not be as informed as the institutional investors.

The FIs will be too happy to sell the product as long as it's approved by MAS because they gain commission.; October 20, 2008 11:40 AM
Anonymous said...: It's a waste of time interviewing the customers when it's a clear cut of misrepresenatation and mis-selling. Are they hoping to pay lesser to those ignorant ones.

Just admit their mistakes and compensate everyone.; October 20, 2008 12:04 PM
Anonymous said...: Yes, I agree fully with 11:03AM that we should have our FULL RECOVERY OF THE SUM. Why must we compromise when the fault is clearly on the FIs who sell the deceitful products. MAS should bear all the responsibilty as well for never do a proper policing job and let these products to be sold in the first place. Who are we to be talik about prudent when MAS also seems to overlook the fraudulent of these products. I repeat, we should ask for FULL RECOVERY OF THE SUM without compromising. The fault is not on the investors, and they should not make to bear any losses.; October 20, 2008 12:08 PM
Anonymous said...: Both my wife and I are graduate working 20 years and similarly fall into the prey of this misrepresentation that minibond is a bond-like investment. Our weakness is trusting the RM too much. It is sad that the society is going to turn into something suspicious rather than trust-worthy. Sad and disappointed...; October 20, 2008 12:08 PM
Anonymous said...: Thank you Dr Tan for taking the lead for the professionals. Based on the number who signed the partition, I suspect the remaining 90% who had not are either old folks who cannot understand English or those highly educated who are too ashamed to admit they are victims too.
I received those brochures from my FI each time I received my monthly statements. A phone check to the FI, the answer is yes, they are bonds, and bonds are very low risks. So I purchased them, the rest is history.
This issue of misrepresentation had hitted people from a wide spectrum. From the profile disclosed here, it looks like your education background and age are irrelevant. It was a clever job I think. From this blog, I gather that at least 90% of the people do not understand how it works, me included even up to today. It is unfair if only the old and uneducated are compensated, if that was MAS intention. They should read through those brochures carefully and examine the words used and how it was presented, to determine whether there are any elements of misrepresentation, just to convince themselves that they need to take action. I had already found a number of that.; October 20, 2008 1:09 PM
Anonymous said...: An educated Guppy is still a Guppy. Foreign sharks and barracudas have flooded our shores. Our Guppies are delicious ikan bilis for their staple diet. Like locusts they have come, and gone. Who let them in?; October 20, 2008 1:10 PM
Tan Kin Lian said...: I congratulate Dr Ong Hean Teik for speaking in a forthright manner and for stating his name.

I encourage other people posting their views to state your full and real name. This will add weight to your opinion.

Be courageous.; October 20, 2008 1:41 PM
Anonymous said...: Mr. Tan,

first, let me thank you for your support and selfless contribution.

Instead of complaining to FIs, I think it is a good idea for us investors to share our experience through this platform. I do hope, sooner or later, MAS will hear our common voice, not only those iliterate or retirees.

I hold a PhD degree in computer Science. I am a rik-averse person (I have never bought any stocks). while many people are making money from the stock market, I thought I'd better do some conservative investment, like bond. While I was puzzling where and how to buy bond product, DBS High Note 2 attracted my attention. It was called Notes, and gives fixed coupon, sounds like bond, right?

I called DBS and they assigned me a RM. I asked her to send me the document about HN2 to have a look. She told me it was better for her to explain it to me face to face. I thought it was also fine.

She told me HN2 would invest in bond of big companies, and if there would be credit events in the reference entities, our principal would be affected. Otherwise we would get all our princial back in 3.5 or 5 years. I asked her how we would be affected by the credit events. Does it mean that DBS lent the money to these companies, we lost only the part that could not be taken back should the company go bankrupted, she confirmed it by saying yes.

within 30 minutes, all the documents was signed. She told me I was a conservative investor and then continued to recommend me some "safe" funds, saying these funds were invested only in companies with high dividends.

I had always thought my holding of HN2 was relative safe as it was bond even after the sub-prime crisis. Everytime when the statement of HN2 arraived, my hunsband asked me why I was losing money, I assured him it was just paper loss.

As it turned out, the RM's explanation was not accurate and complete at all. And she was fully aware of the fact that I had not read the pricing statement when signing the documents.

recently, I read the pricing statement again and again. I need more than one week to understand the financial jargons in it, with a lot of reference to the information from internet. and understanding of all the risks must be after-event. I absolutely cannot understand what "first-to-default" is, how CDO product works should Lehman Brothers never bankrupt. Furthermore, I would not know that I am holding CDO product.
How ridiculous.; October 20, 2008 1:45 PM
G C said...: Dear Mr. Tan,

I am a practising accountant in Malaysia. Please believe me that no matter how educated you are no one will be able to understand or could understand even you wish to, as these kind of complex investment are never can be understood. Therefore it is the duty of RM of the FIs to be more responsible to explain. The best is the regulatory should consider to ban this kind of products to be sold to the retail investors.

To honest whenever my RM approach me for introducing any kind of structured investment products I just could not understand or even the so call prospectus will never never can be understand by people like who is an accountant. So with due respect what can you expect from those retirees who are in some cases could not even read in English.

G C Tham
Licensed Accountant in KL; October 20, 2008 1:59 PM
Anonymous said...: This debacle would never arise if the retail investors did not trust the govt, MAS and FIs(checked by MAS) and in short all the victims have the utmost faith in the govt - Govt will not fail us.
Whehter or not you are educated or illiterate is immaterial as the well educated will only able to exercise his judgement after all the materialed information are elaborated. Eg, if he knows that he is paid a faction of premium the arranger/issuer which receives from the "reference entities", otherwise he is no different from the illiterate in this issue. The real benefits go to the arranger/issuer and distributors so the 5% interest is peanut compared to the papaya enjoyed by the arranger/issuers and distributors. What shocked me was the journalist (ZaoPao on 19 Oct) who knew nothing about the product wrote about the "Greed" of the retail investors resulting in this debacle. Imagine that the journalsit could be so misled to form her prejudice towards the retail investors suffered from this product, how diffucuit it is for one to understand it(the product)?; October 20, 2008 2:36 PM
Anonymous said...: the way i see it Naivety proclaimed is Naivety explained.

i think someone said somewhere.

if these products are to have soared contrarily, i really doubt anyone be interested for a 'success' luncheon, much less a Hong Lim gettogether on fine weekend eve.

Risk is a 2edge sword, wielder shouldnt look silly taking on something he or she clearly isnt ready to swing.

The only (useful) difference Education should make is not thinking u have a lot more knowledge, rather, simply knowing that u know a lot less than what is, that u could have not thought thru clearly enough.

cheers; October 20, 2008 2:46 PM
Anonymous said...: Absolutely true , Mr. Tham. I have been trying to tell the MAS here that the ordinary man in the street, the professionals or who ever they are, when it comes to financial products like complicated structured products or insurance products the consumers are to be assumed clueless and incapable of making INDEPENDENT decision without the help of the advisers. That is to say it is the responsibility of the advisers to see that the consumers get the best advice according to the profile and circumstance of the consumers. This is to ensure that advisers don't push products and if they do and even it is the cleints who ask for the products the advisers are responsible too.The advisers cannot absolve themselves by claiming that clients want it or like it or the clents love it, it is the still the responsibility of the adviser for the outcome. This is exactly the section 27 of the FAA's intention to prevent mis-selling , misrepresentation and conflict of interest.
WE must press MAS to enforce this law otherwise we will continue to have these problems from the RMs, the insurance agents and the independent advisers.
Of course , MAS is still responsible for all the products sold in the markets.

Jay; October 20, 2008 2:53 PM
Anonymous said...: No matter how educated one is, our education is only in our related field. Even an Investment Adviser or practising Accountant does not fully understand the products, its linkages and the risks involved.

The FIs have to be responsible for their actions. If they tell the investors that

1) these products carried very high risks
2) if one bank in the basket collapsed, all their investments go in smoke
3) they are actually financing CDOs

and after telling them that, the investors still continue to invest, then YES, the investors should bear the full responsibility.

The truth is that the banks know too well that if they tell them that, NO ONE will buy. The additional ~3% does not commensurate with the risk taken.

By omitting this important but damaging fact, they are in fact commiting frauds.

In all honesty, ask yourself (FI mgt and RMs), will you buy these products yourself if you are aware of the EXTREMELY HIGH RISK involved? Will you recommend them to your families, relatives and friends? The answer is NO. Then why are you deliberately pushing and selling them to the retail investors?

A criminal will not admit his crime and that is why the whole structure of law and order (police force, justice system) is in place. In this case, MAS is the authority and should step in to ensure justice is done.; October 20, 2008 4:45 PM
Betsybug said...: Anon 2.46pm said this:"if these products are to have soared contrarily, i really doubt anyone be interested for a 'success' luncheon, much less a Hong Lim gettogether on fine weekend eve."

Ah, yes another repetition of a rather hoary argument by now. What you fail to understand is that the issue is not the outcome, good or bad. The issue is how the products were structured in the first place, how it was presented to the customer, and the inordinately high level of actual risks compared with the relatively low returns involved. So, no the products don't soar - they are fixed at abt 5% pa.

Then again, perhaps you understand all too well, and this is yet another cynical attempt to divert attention from the real issues of the case.; October 20, 2008 6:01 PM
Anonymous said...: Mr. Tan,

I am Anonymous 1:45pm.
sorry I forgot toadd my realname. I am XiaoXuhong.; October 20, 2008 6:47 PM
Anonymous said...: It looked like MAS are 'awaken' that these are real toxic products and for those that have bought it is your own fault, esp. those educated ones.
Is this how they managed this?
Why can't they address this directly to FI/banks which for this case is obvious there is a mis-selling to customers regardless of their education level or even those illiterate. Basically,the FI/banks are lacking of ethical.
If this is how MAS handled the case, I will lost my confidence and feel insecure as a customer dealing with those Singapore's FI/banks in the future.; October 20, 2008 10:37 PM
Anonymous said...: I am a chartered accountant and I invest in shares but I wanted to preserve my capital on money I had made in the share market by investing in FDs or gov or strong corp bonds. My RM offered no pricing statement or prospectus and I did not know there was any other documentation other than the email she sent me describing DBS HN2 as "eg if you place an FD with OCBC or buy a OCBC bond, your money is also at risk should OCBC defaults or goes bankrupt"

Clearly the HN are not FDs or bonds related to a single entity. I regret trusting my RM.; October 22, 2008 5:14 PM
adeline said...: I heard it's not cheap to take collective action against the FI..
And the FI will not likely to compensate the non-vulnerable group.

Why does this have to happen? Why MAS slow to react? Even we are educated, if the FI want to cover up anything to get us to invest, we will not be able to ward it. We must not let the FI get away easily. MAS need to do more to regain our trust in Financial institution.; October 22, 2008 6:17 PM

Monday, October 20, 2008

Fraudalent misrepresentation and clear mis-selling

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