Tan Kin Lian's Blog: Onus of proof

Sunday, October 19, 2008

Onus of proof

An investor spoke to me at Speaker's Corner last night. He said that under the "Insider Trading Act", the onus of proof is now required for the accused to prove his innocence. (Note: I am not clear if this is actually the legal situation. I hope that a legal expert can confirm the situation).

He suggested that the same approach should be adopted for the mis-representation. It is clear that the credit linked notes are not suitable for the risk averse investors. He suggested that the financial insitution should be required to produce the evidence, from their records, that they have carried out the proper assessment. The financial insitution and/or its representatives cannot rely on the signed forms and disclaimers to justify their action.

I wonder if this approach can be adopted by MAS? It will help many of the vulnerable investors from the difficult task of lodging their complaint.

14 comments:

Anonymous said...: http://singaporemind.blogspot.com/2008/10/mis-selling-burden-of-proof.html

what he says makes some sense, especially points 2 and 3.

its alot cheaper and alot faster(which might help the cheaper part) to do it in an aggregate manner than in a individual manner. by cheaper i don't mean for any one side, just total costs.

you could also take a look at today's(19th oct) sunday times about how people sell gym memberships.

even a 30 year old master's holder will buy crap when surrounded by 4 other people telling him to do so, just to make it all stop.; October 19, 2008 7:19 PM
Anonymous said...: lets say, if the RM doesnt know a thing about the level of risk that underlies an investment product, but tells the customer its good and safe, would that be a lie?

and if money were involved, would that be fraud?

maybe some of those 30 year old MBAs that bought some of these failed products ought to learn more about caveat emptor.

but if the customer were a illiterate 75 year old , then would the seller be persecuted criminally?; October 19, 2008 7:27 PM
Anonymous said...: Singapore must look at the bigger picture. $600 million is an amount all these banks can well afford to lose, especially after milking the Singapore consumers with low deposit rates and high bank charges, and all sorts of transaction fees during the nation's meteoric economic expansion. In fact, I have all along suspected the banks deliberately maintain a low deposit interest rate in order to motivate/lure these gullible souls to venture into high risk structured deposits, structured products, equity linked notes, currency bets and unit trusts. The choice of words used, in this instance, the Mini-bonds, or is it "Mini-bombs" ?, makes me wonder if this is an elaborate scheme to milk the innocent and ignorant.

Personally, I am of the opinion that both the banks and the MAS are guilty of failure to exercise due diligence in protecting customers' interest, thereby doing a great disservice to the affected victims of the Great American Ponzi Scheme. The notion "buyer beware", as put forward in a letter by Steve K Ngo in Today newspaper (afternoon edition) Voices Page 20 on Tuesday 14-October-2008 does not hold water. Firstly, he may be a substantial share holder of the banks, much like our sovereign wealth funds GIC and Temasek Holdings (Can anybody verify if there are any conflict of interests here?). Secondly, this concept is primitive, and does not provide the aggrieved consumers the right for redress. Furthermore, it does not encourage corporate and social responsibility in Singapore, and this is what we do not want to see happening in our country.

Our national pledge have these words, " ... based on justice and equality ... ", it is about time we practise what we have preached, Singaporeans. Besides, we are a compassionate people after all, as evident from our past donations to the Indian Ocean tsunami tragedy, China earthquake victims, Myanmar cyclone natural disaster victims etc.

The hallmarks of any great bank include credibility and trust. Where the western banks have failed, including the likes of AIG, Citigroup, UBS, Credit Suisse and Societe Generale; we shall prevail and extend our market share by putting our customers' interest FIRST.

It is now payback time. The Government must now yield a heavy hand and severely punish the sinners in this financial debacle. It must get the banks to repay 100 percent of the customer's loss, and not a cent less. It must make the banks see blood and experience maximum pain and agony. By doing so, it would make the banks do serious business the next time round. They would not dare play the field and test the limits of our tolerance towards shady financial transactions.

Singapore is different. It would show the world it is ready to be the new leader in the global financial services arena. It would outclass Hongkong and Tokyo to be the financial capital of Asia. Along the way, the Government can also add a few more votes into its ballot box for the coming general elections.

By RTA,; October 19, 2008 7:38 PM
Anonymous said...: Mr. Tan,
If you intend to start another petition for mass complaint, can your draft on the investors situation be more general. Example, some bought through the RM where as some bought through the advertisement vis the FI?; October 19, 2008 7:40 PM
Anonymous said...: Come on , guys I have professors, PhDs seeking my opinion whenever they want to invest. Are these people not educated? Sure, they are very educated but in their own disciplines.When it comes to investing they are as clueless as the man in the street.It is humility. The real investors are humble. They don't try to act smart because they know they will be losers if they have this attitude.
The RMs are supposed to be EXPERTS. If they are not they have no business to be advising people on investment. I know they are NOT because they have only qualifications like the insurance agents. They only need to pass those elementary stuff provided in CMFAS modules. This is something hard to understand that MAS thinks these examns cam turn a layman into financial experts over night.
Some customers are better 'educated' than them.
Unless you have tertiary knowledge and expereince you will not be able to grasp even some, only some of these derivatives stuff. it is NOT easy even for a CFA.

cfa; October 19, 2008 8:18 PM
Anonymous said...: Hello RTA,

Singapore have been waiting and following others all along on this issue. How can you outclass them (especially Hong Kong) if you are not prepared to taking bold and decisive action, but adopt a wait and see attitude and being kiasu and kiasi?. Such attitude don't win votes OK?; October 19, 2008 8:58 PM
Unknown said...: The situation with Lehman Brothers minibonds is not unlike China's milk powder scandal in that both involve toxic products.

Chinese premier Wen Jiabao has said his government must assume some responsibility for the milk powder scandal. "We feel that although problems occurred at the company, the government also has a responsibility," Wen told the magazine Science.

"The important steps in making milk products -- production of raw milk, collection, transportation, processing and making formula -- all need to have clear standards and testing requirements."

Similarly, MAS has a responsibility in ensuring the safety of financial products marketed to consumers. I hope MAS does the right thing as demonstrated by the Chinese government - by taking up part of responsibility and ensure that only appropriate products are marketed to consumers in the future.; October 19, 2008 9:04 PM
Anonymous said...: Frankly speaking, I am considering withdrawing my money from DBS if they deny their Relationship Managers did not do anything wrong. On Sunday Time(19th Oct 08), the DBS’s head of consumer banking group, Mr.Raja said he felt comforted when his relationship managers told him that they did not mislead their consumers. Hey who would admit to any wrongdoing? I am also amazed at their slow response. You mean they did not monitor the situation carefully and only depend on the credit rating to evaluate the product? By selling these toxic products to the retirees even after knowing their profile is plain unethical. How can I put my money with this bank with no integrity? How could they in the first place recommend this toxic products knowing their consumers are old and depending on their savings.

I am a Singaporean and I have always been proud as a Singaporean for our clean and efficient government. I even praised our government in front of my foreign friend. However this time, I am ashamed of our MAS slow response. I am sad and angry with this debacle even though I did not invest. How could the national bank misled these retirees who have contributed to our country's growth? These RMs should feel ashamed of themselves.; October 19, 2008 9:06 PM
Anonymous said...: 9.06 PM, I'm also ashamed when my customers from malaysia asked me. Because in the past, I always praised this government, clean, efficient, care for the people, safe place to park your money, etc, etc. Some of my customers are CEO, VP from MNC. Some of them have private property in S'pore. But now, see what happened? I have to avoid seeing them until this issue is resolved fairly. Fairly means to those misled investors and not from the standpoint of MAS and the government.; October 19, 2008 10:20 PM
Anonymous said...: It is so obvious that banks will only be too happy to 'believe' all their RMs in order to 'protect' the banks themselves! In addition, no RM will dare to admit to their management that they mis-sold the product!!! Also, they will be 'finished' in the financial sector if they ever admit their wrong-doing.; October 19, 2008 10:26 PM
C H Yak said...: Hi Mr Tan

I think the statement made by that investor is not correct.

The basic legal position is always this :-
(i)Common Law assumes the accused party is innocent until proven guilty. (Be it an individual or a corporate entity).

(ii) The onus of proof is always on the alleging party first (In a court case, the Plaintiff). Hence, it is important that claims be lodged first with the pertitent facts recorded for alleging mis-selling or mis-representaion, and as you advised a statutory declaration will carry more weight (because a lawyer would have drafted it). In a court case, all these statements could be admitted and abduced as evidence in a List of Documents under the first affidavit... There could be supplementary affidavit and possibly also be an affidavit-of-evidence-in-chief. Witnesses to be called will also have to file their own affidavits.

(iii) Step by step the accused party (Defendant) has to file similar legal papers. First his Defence in the first affidavit with Defendant's List of Documents. There could be supplementary affidavit and also be an affidavit-of-evidence-in-chief. Defendant witnesses to be called will also have to file their own affidavits.

In the above procedures both sides will abduced evidence to prove / defend their own case as Plaintiff or Defendant.

(iv) Then, the hearing starts and the Plaintiff , Defendant and their witnesses would be cross-examined.

(iv) Finally counsels (lawyers) from both side will make their submissions and replies.

(v) Court decides on judgement and award.

Arbitration and mediation follows similar lines but the process is simplified in respect of legal documentation and procedures...also venue and timimg of hearing...as long as both sides accept the procedures and the arbitrator / mediator.

I am not a legally trained expert but has some para-legal knowledge and experience in contractual matters. The basic procedures are the same.

If I am not wrong, MAS has mentioned the legalistic approach will not be taken. But I feel the basic approach to ensure fairness to both sides will not deviate in essence from the above.; October 19, 2008 10:29 PM
Anonymous said...: Frankly I think the FI wld have protected themselves with the risk disclosure form they require each of the investors to sign prior to any investment. So I think this route is fairly tough to take and it would make the investors take a more passive approach to the 'fight'.

DT; October 19, 2008 10:30 PM
Anonymous said...: Mr.Tan,

You are a good person. Don't worry, I am sure you will be blessed by the heaven/universe. We Singaporeans are behind you! If the govt dare do anything to you, they will lose the respect of Singaporeans. Normally, I do not bother much about politics, but this debacle raised my concerns as a Singaporean. This time, we will see if the govt really care for us Singaporeans or the greedy banks.; October 20, 2008 12:08 AM
CK said...: It was discussed that the structure of the Minibonds are beyond reasonable understanding even the educated ones.

RMs, especially the younger fresh grads are as 'educated' as u & me on what these minibombs are made up of.

They too, like u & me, trusted the communication & training they recv'd from the bank and conveyed the 'good news' to customers.

I have friends in the banks and I can bear witness that these RMs were as excited as the uncles & aunties when those minibonds were still fresh from the oven.

My point is, give your RM a benefit of your doubt until proven otherwise; they may be as angry with the bank as you are now.; October 21, 2008 8:12 PM