This letter has been sent to Straits Times, Today and Zaobao.
Eight town councils have invested a combined sum of about $16 million in the credit-linked notes, including the minibonds, pinnacle notes, high notes and jubilee notes. Some of these notes are worthless. Others have lost a large part of their value.
The funds of these town councils belong to the residents who pay the conservancy charges. The town councils have the fiduciary duty to invest these funds carefully.
I suggest that the town councils explain if, when making the investment, they were aware that the credit linked notes carry the risk of the entire loss of the principal on a credit event involving any one of 5 to 8 reference entities, and the additional risks of the defaults of a certain number of 100 to 150 underlying assets, cormprising of collateralised debt obligations, subprime mortgages and other risky products?
Were the town councils aware that the risks of these credit linked notes are many times of the risk of default of a single entity? Does the return of around 5% commensurate with this high risk?
Were the town councils misled by the financial adviser who sold the notes or by the mis-representation contained in the sales materials or prospectus. If this is the case, I suggest that the town councils should take a legal case against the distributor for their negligence or bad advice and to seek fair compensation for their losses.
As the sums involved are quite large, the town councils should take the appropriate action to discharge their fiduciary duty to the residents.
If the town councils succeed in their action, the outcome will indirectly benefit over 10,000 helpless individuals who were also misled into investing in these credit linked notes.
Tan Kin Lian
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