Tan Kin Lian's Blog: Section 199 of the Securities and Futures Act

Sunday, October 05, 2008

Section 199 of the Securities and Futures Act

Read this blog for the actual wordings of section 199 of the Securities and Futures Act.
http://tankinlian.blogspot.com/2008/10/securities-and-futures-act.html

The Act defines "securities" to mean any unit in a collective investment scheme. I consider a structured product to fall under this definition.

Section 199 stats that no person shall make a make a statement, or disseminate information, that is false or misleading in a material particular and is likely to induce other persons to subscribe for securities, if he knows or ought reasonably to have known that the statement or information is false or misleading in a material particular.

The structured product are so complex that the representative (i.e. relationship manager) may not be aware that the statement they are making (i.e that the product has low risk and is like a bond) is false or misleading.

However, the financial institution that employs the representative "knows or ought reasonably to have known" that the statement or information is false or misleading. It is their duty to be aware about the nature of the product when they train the reprsentative to sell the product to the retail investors.

In my view, the financial institution has breached section 199 of the Act.

I hope that the MAS or Attorney General will take up this matter on behalf of the thousands of investors who have been given false and misleading information to invest in the structured products.

I hope that the MAS or Attorney General can negotiate an out-of-court settlement where the distributor shall buy back the product from the retail investors for 50% to 80% of the invested sum. A higher percentage should be given to the elderly and illiterate investors who were misled into the investment.

By buying back the structured product at the negotiated value, the distributor can reduce its loss from the recovery of any residual value arising from the liquidation of the assets of the structured product.

17 comments:

Anonymous said...: Mr Tan,

Why fight for buy back at only 50-80% of the invested sum? It should be buy back at no loss to the investors, like what the US Attorney did for investors who were also misled by the FIs. There is a precedent which can be cited.
And also shouldn't the agreement of investors on the % buyback be sought before petitioning the AG?
And also why higher % for the elderly? How to define elderly? We also cannot generalise that all elderly are poor and uneducated.; October 05, 2008 7:36 PM
Anonymous said...: Thank you Mr. Tan. Very happy you have helped to widen our case against the FIs. Hopefully, many more upright RMs & independent minded lawyers can step forward to help. If we succeeded in overcome this episode, I believe sgp financial hub & the people will be more financially savy & matured. Thanks again for your pointers. Hope you can speak on this on Saturday. It is going to be the biggest gathering at Hong Lim Square short history.; October 05, 2008 7:51 PM
symmetrix said...: Mr Tan KL,

Beautiful shot. Like Moses (the "Chosen One") you will lead the hapless investors (the Jewish slaves in historical times) through the financial minefield (similar to parting of the Red Sea) to their righteous place (the Land of Milk and Honey).

- Lingam; October 05, 2008 8:22 PM
Anonymous said...: Hi Mr. Tan,

I admire your gut to fight for the innocent investors who were "cheated" in buying CLS. However, I feel that it is going to be tough to prove that the FIs did indeed mislead the investors who had all signed many supporting documents. Instead we should follow the American approach to sue Lehman Brothers which, in my mind, is the BIGGEST liar in the world. They have taken investors' money worldwide before filing for bankcrupcy. The FIs here are just salespersons who took commissions from selling these toxic products.

JK; October 05, 2008 8:39 PM
hongjun said...: I feel both sides need to be responsible. Your 50/80% buyback looks reasonable.

Hope it can work out.

hongjun; October 05, 2008 9:05 PM
Anonymous said...: If there are upright relationship officers from FI willing to testify for investors, we should have a strong case if we go to court.

- lye; October 05, 2008 10:51 PM
Anonymous said...: No offence Mr Tan, but it is not clear under the law that structured products definitely fall under 'collective investment scheme', which typically refers to unit trusts or mutual funds.

Even if you turn out to be right, it will be challenging to prove that the financial institution knows or ought reasonably to have known that the statement (made by the reps) is false or misleading, unless there is documented evidence of what the rep has said or represented to the clients. If it is the rep's words against the clients', it will be difficult to prove the breach.; October 05, 2008 11:28 PM
Tan Kin Lian said...: Hi 11:28 PM

The Act defines many categories of financial products that are covered. I think that the structured product is a collective investment scheme, as it is similar to a mutual fund. The Act defines the products that are excluded, and the structured product does not fall within this excluded list.

The financial institution ought to know that the statements given to the reps about the product are incomplete and misleading, as they does not explain clearly the risk of the "credit event". This is why the reps are giving the wrong information.

I think that there is a good case to be made on this count, as many people are indeed deceived into the wrong investment.

I have asked a lawyer to look at my arguments. I can ask a more senior lawyer.; October 05, 2008 11:35 PM
Tan Kin Lian said...: Hi 7.36 PM

I spoke to a few investors. They are happy to get an offer of 50% to 80%, but they think that the financial institutions will not agree to make this offer.

Those who want 100% does not have to accept this offer (assuming that it is made to them). They can take the fight in court.; October 05, 2008 11:38 PM
Anonymous said...: Mr Tan,
I think it is more and more likely legal route is the only choice. For that, we need to be able to contact all investors and know what is the amount each has to pay. How do we dig out all the investors contact information?

-lye; October 06, 2008 1:08 AM
ym said...: get back 50% to 80% of the loss sounds ok.. i guess some means-testing will be reasonable; October 06, 2008 1:20 AM
Anonymous said...: Asking the banks to buy back these toxic and useless minibonds may cause the banks to collapse. When they collapse and file for bankruptcy, many more depositors will even lose their deposits and FDs. In these cases, I think the needs of the depositors outweigh the needs of the minibonds holders for the simple reason that the needs of the many outweigh the needs of the few.
I think this is the reason why MAS is not acting aggressively on this. Goh CT as chairman of MAS probably sees the bigger picture to ensure more good years for Singaporeans. The losses by the minibond holders are peanuts compared to the potential loss if the banks collapses and 90% of depositors lose their money and affect the Singapore economy. This is a bigger danger to the Singapore than the minibond holders as they probably make up less than 1% of the population.; October 06, 2008 3:55 AM
Tan Kin Lian said...: Hi 3:55 AM

Buying back the structured products from the investors will NOT cause the banks to collapse. It will make a small dent in their profits, so their shreholders will earn a smaller dividend.

It is wrong to expect the 1% to lose their hard earned savings through mis-selling.; October 06, 2008 7:25 AM
Anonymous said...: I think this would be the best solution. I only hope the banks can be pressurised into this solution.

In the current situation it is almost impossible to expect as 100% return of capital. In fact if they were to sell off the underlying securities right now as per the book, it would be worth very little as the market is currently very depressed.

From the authorities comments, we were told to accept our fate because "such is life".

We need to co-operate as a group to at least salvage some or our capital. We are fortunate to have Mr Tan helping us. Otherwise we really have no way to find recourse.

KSH; October 06, 2008 7:47 AM
Anonymous said...: FYI, DBS quarterly profits is about US$500m, e.g.
Oct-Dec 07 US$491m
Oct-Dec 06 US$596m

Compensating HN5 investors will NOT bankrupt DBS.; October 06, 2008 10:10 AM
Unknown said...: Besides the misleading minibond brochure, I have received from OCBC Securities a correspondence from Lehman regarding the nature of underlying securities issued 12 July 2007.

Here is an extracts...

For Distributor’s Internal Use Only – Not for Public Distribution
12 July 2007

Minibond Limited Series 2 Collateral Downgrade

As you have been informed, the Underlying Securities for Minibond Limited Series 2
were downgraded from AA to A+, Rating Watch Negative by Fitch Ratings (Fitch). We
would like to provide you with some background on the downgrade and the reference
portfolio, and an FAQ to respond to your customers’ queries.

A Downgrade is not a Credit Event

Please be aware that a downgrade does not constitute a credit event in respect of the
Underlying Securities. There have been no credit events in respect of the reference
portfolio of the Underlying Securities. Further, the ratings performance of the reference
portfolio of the Underlying Securities will have no effect on the principal or coupon
payments of the Series 2 Notes unless credit events occur in respect of the reference
portfolio, as explained further below.

No Linkage to Subprime Mortgage Assets

There has been a lot of news recently about the poor performance of subprime mortgages
in the U.S. market. That poor performance has impacted mortgage-backed securities
(MBS) backed by these mortgages and certain asset-backed securities collateralized debt
obligations (ABS CDOs) backed by those MBS. The Underlying Securities are not
linked to subprime mortgages, MBS or ABS CDOs. The reference portfolio of the
Underlying Securities consists of 135 corporate and sovereign credits, not mortgages,
MBS or ABS CDOs. Also, there are no monoline subprime lenders (such as New
Century Financial Corp., which has filed for bankruptcy) in the reference portfolio of the
Underlying Securities.

THE KEY QUESTIONS ARE
IS IT TRUE THAT THE UNDERLYING SECURITIES NOT LINKED TO SUBPRIME MORTGAGES, MBS, ABS CDOs?

ARE THEY REALLY 135 CORPORATE AND SOVEREIGN CREDITS?

IF THE ABOVE STATEMENT IS TRUE, IT WOULD WORTHWHILE FOR A WHITE KNIGHT TO BE FOUND TO TAKE OVER LEHMEN ROLES!; October 06, 2008 1:49 PM
Anonymous said...: By compensating HN% investors will surely mean no more good bonuses for the foreign talent management who have answered the calls by our govt to come and make Singapore a great financial hub. This will demotivate them to work harder for Singapore. This is going against the vision of our govt for more good years and Swiss standard of living which our MAS chairman has outlined for decades and on the shoulders of these CEOs to achieve for us.; October 06, 2008 1:58 PM