Friday, August 07, 2009

Suing the Wrong Party

The situation in Singapore is very sad. The investors have to take an expensive and uncertain class action to sue the distributors of the credit-linked notes. Although the distributors were, in my opinion, negligent in selling the notes to the investors, they earned only a modest commission (maybe 3%) from the transaction.

A better solution is for the distributors to collaborate with the investors to sue the issuers of the credit linked notes. The issuers were the party that benefited most through the creation of these notes. They were also responsible for writing the prospectus in a manner to hide the true nature of the structured product, hence misleading not only the investors but the distributors as well.

The distributors had a fiduciary duty to their customers. It is only right that they should do all they can to help their customers. In this regard, the action of Great Eastern Life should be applauded. The other financial institutions should emulate this good example to do what is fair and right for their customers.

If the distributors, being financial institutions, buy over the credit linked notes for 50% of the invested sum (plus 50% of the ultimate proceeds), they will have the financial and legal means to sue the issuers to recover any damages that were caused by their action. The distributors can also decide on the best action to recover and protect the value of the underlying assets. In contrast, there is no way that the individual investors can take any of these actions.

Another possible action is for the government authority to take the appropriate action on behalf of the consumers. This was done in many countries, most notably in New York State and other parts of USA. Hong Kong is also adopting a similar approach, although done at a somewhat late stage.

I hope that the financial institutions and the government authority can take this action now. Better late than never.

Tan Kin Lian





14 comments:

Anonymous said...

MAS need to take the lead in this instead of simply sending the victims back to the FI's as if it is none of their problem. If something sensible is done collectively and get some real results, the credibility of the FI's and MAS might be restored to some extend.

Anonymous said...

It should have done last year.
This was what HK was doing.

No point bullying the small flies and the poor people.

Anonymous said...

Suing the FIs for the wrong doing by the RMs is legitimate and right way to do. No point suing the RMs. They don't have the money to pay you. The FIs will recover the money from the RMs and this is master and slave affair. So suing the RMs is the right approach.

Anonymous said...

ya do the right thing

Anonymous said...

Yes, MAS need to take lead and do its duty. Lehman Singapore in our own backyard played a major role in these toxic minibond, but nothing done against them! Seize the millions in their account and return to investors!!

Anonymous said...

FIs are "protected" by "big brother" bcos they provide employments to "PRs and foreigners" so suing the RMs is the only most sensible thing to do now as a "S'pore citizen" investor being mis-sold.

Anonymous said...

DBS has posted a profit of 21% and yet not willing to compensate their customers.

symmetrix said...

TKL,

Both your suggestions are good and I hope at least one of them takes off. But looking at how sg behaved over the last couple of decades or so, I don't think the govt is going to help the situation. I hope to be proven wrong.

And look at the FIs. Do they really care about their customers' welfare? They have their own interests to protect. I don't see the FIs nor the govt having the integrity and moral conviction to protect the consumers in this saga. This is sad.

Contrast this with the approach GEL has taken and the difference is as clear as night versus day.

Anonymous said...

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Learn freedom of speech from Thailand !

Anonymous said...

Why worry about FI's only make 3% commission in the sale of the toxic products? Some brokering houses only compensate 1 % to the investors. Assuming there are some residual values in the surrendered notes, the compensation by brokerong houses are less than 1 %. By taking the FI's to courts, it will help to raise the banking and financial standards in Singapore.

Anonymous said...

"The FIs will recover the money from the RMs and this is master and slave affair."

Isn't it nonsense to believe that FI is ignorant that RM is mis-selling the product to risk-adverse investors especially such large scale operation ? Needless to say, it is more that FI is closing eyes to RMs as long as they makes money.

This really reminds me of Mrs Peanut where she claim she did not approve Durai's salary but yet the board of directors insist that they inform her.

Anonymous said...

To anonymous August 08, 2009 10:31 PM
Anonymous said...
DBS has posted a profit of 21% and yet not willing to compensate their customers.

Rex comments as follows: this is chicken and egg thing. DBS can't compensate customers otherwise it might not be able to have a profit to post and nothing to boast, slumped to the lowest of the big 3 banks. DBS post profit precisely because DBS ignore substantial compensation.

rex

Anonymous said...

There are some hard facts that not any one of us can understand:
1.Lehman B has more than 300m of assets frozen
in S'pore,but MAS and distributors do not
take initiative move to recover it for the
investors.
2.MAS has done an investigation on the mis-
selling of FIs and yet refused to bring those
offenders to task in court.Worst of all, MAS
openly said FIs were not liable for the crime.
3.MAS covered up the FFA offenders and refused
to reveal the name list of the culprits, and
asked the victims to fight for their own
battle.Then what is the purpose of having an
investigation?
4.The lost of 600m to the cheating syndicates
as if nothing as compare to the reputation of
FIs being tarnished.This kind of logic and
argument really makes himself a laughing
stock in the financial world.
5.SG govt and FIs totally deny the merit and
wisdom of HK and GEL buy out models , hoping
that the whole issue will be forgotten in the
near future.Do you think so?
Shortsightedness and obstinacy will come along
with complacency and disaster.I hope our over-
paid officers could put some thought on it.

Anonymous said...

MAS had washed its hand off the Minibond Saga, even though its investigations
had uncovered many wrong doings by the FIs on the sales of the Minibond Series. Barring the FIs from sales of structured products for a period of time made a mockery of justice. After all sale of the financial products is dead for now. MAS is more protective of the FIs than the ordinary Singaporeans

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