DBS High Notes

Published November 4, 2011

DBS High Notes investors disappointed with court ruling By MICHELLE QUAH (SINGAPORE) The 220 investors who collectively lost $18 million when the DBS High Notes 5 structured product went belly up in 2008 have expressed their disappointment in the Court of Appeal's decision on Wednesday to dismiss their claim against DBS Bank. 'We are disappointed that the court appears to have resolved this inconsistency and based its decision by relying on documents that did not involve us, that did not form part of our contract with DBS and which we never saw until after the hearing of the appeal,' the investors said in a statement yesterday. 'Nonetheless, given that there are no other avenues of recourse, we have no choice but to accept the decision. We have tried our best to recover some of the life savings that so many of our group members have lost and are sad that we have been unsuccessful,' they added. At the heart of the investors' claim was that the credit event redemption amount (CERA) to be paid out to them, in the event that Lehman defaulted, was defined differently in four different instances in the DBS High Notes 5 pricing statement, thereby rendering the notes void for uncertainty. The Court of Appeal agreed there were inconsistencies between the four definitions of CERA in the pricing statement and directed DBS to produce the product's reference notes. The court found that the definition there was the same as the third CERA description in the pricing statement. 'The result was that owing to Lehman's bankruptcy, the CERA payable to HN5 holders on their investment was indeed zero,' the Court of Appeal ruled. It agreed with an earlier High Court ruling that the DBS High Notes 5 contract was not void for uncertainty and dismissed the investors' appeal with costs. The 21 investors, who brought the lawsuit against DBS on behalf of 199 others, were represented by Siraj Omar of Premier Law LLC. DBS was represented by Senior Counsel Davinder Singh and Una Khng of Drew & Napier. Some 9,900 people here have lost most, if not all, of their investments totalling about $520 million in Lehman-linked products, such as the DBS High Notes, Minibonds, Merrill Lynch Jubilee Series 3 LinkEarner Notes and Morgan Stanley Pinnacle Series 9 and 10 Notes, distributed by DBS and other financial institutions.

BT
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My Thots....

Losing money an a high note.
Lost monies in the DBS High Notes 5 structured product, lost in the verdict;  possibly,  have to pay for the high flying lawyers that DBS hired to win the case.


Legally, DBS won.
In terms of Goodwill, I wonder.....

Would anybody trust the RMs pushing financial products at the counters, anymore?

Daka

Published October 20, 2011

Two former Daka directors jailed as SGX effort pays off Raymond Chow and Mah Pat Y accused of falsifying financial records By MICHELLE QUAH (SINGAPORE) Two former executives of Daka Designs, a company once listed in Singapore, have been convicted in Hong Kong on charges of defrauding their shareholders and the Singapore Exchange (SGX) between early 2003 and May 2005 - and sentenced to jail. The company's ex-CEO Raymond Chow and former executive chairman Mah Pat Y were sentenced to three years two months' jail, and two years' jail, respectively. Both men are also disqualified from serving as directors on the board of any Hong Kong company for five years. Such a disqualification also makes them unfit to serve as directors on any Singapore board. The two men - along with a third, Daka's former chief financial officer Kevin Leung - were arrested by Hong Kong's Independent Commission Against Corruption (ICAC) in October 2007 and charged in September 2009. Leung has yet to be convicted. The actions against them took place in Hong Kong as Daka and the three men are based in the special administrative region. The SGX has worked closely with ICAC and the Corrupt Practices Investigation Bureau (CPIB) in Singapore over this case, and one of its officers testified at the hearing in Hong Kong. Lorraine Chay, vice-president, Risk Management and Regulation, at SGX, said: 'Having been actively involved in the investigation and assisting as a prosecution witness in the Hong Kong Court, I am very pleased that the efforts have resulted in the successful prosecution against former directors of Daka Designs. SGX will continue to actively work with enforcement agencies to protect the integrity of our marketplace.' Yeo Lian Sim, SGX's chief regulatory officer, said: 'All the effort has been worthwhile to bring the wrongdoers to justice. SGX takes a stern view of fraudulent behaviour in listed companies and will do our utmost against it, assisting regulatory authorities.' The three men were accused of having 'dishonestly falsified' financial records, such as goods receipt acknowledgements and delivery notes of its subsidiary Briga Group (Macao Commercial Offshore) Company Ltd. They were said to have inflated the turnover and profit figures by over HK$8.9 million (S$1.44 million), according to ICAC. These inflated numbers were in 'dishonestly compiled and published documents' such as the annual report for the financial year ended March 31, 2004. 'It is alleged that the defendants had misled existing and potential shareholders of Daka Designs and SGX as to the true financial position of the company, and prevented SGX from taking any action against the company for its failure,' ICAC had said in a statement. Trouble began brewing at Daka not long after the company went public in July 2004. In late 2005, the SGX called for a special audit on Daka following two profit warnings from the company. When Daka blocked access to its records, the SGX slapped a trading halt in January 2006; the exchange subsequently hardened that into a trading suspension after special auditor KPMG, commissioned by the SGX to look into Daka's affairs, found serious irregularities in the company's finances. The suspension was never lifted. The issue was then turned over to Singapore's Commercial Affairs Department. In 2007, Daka sold its entire business to its parent Daka Direct and, as a listed shell company, tried to engineer a couple of reverse takeovers that failed. Chow, Mah and Leung ceased to be involved in the management of the company, and ceased to hold any interest in the shareholding of the company, from April 2007. Daka, which was renamed Carats in 2007, was eventually delisted a year later as the SGX denied an extension of the deadline for it to secure a new business.

BT

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My Thots.....

One down, more to go......
How about Beauty China, another from-HK managed biz, with very similar circumstances?

MIIF

Biz Trusts with wrong incentive structure.

http://www.macquarie.com/mgl/miif/investor-centre/management-fees

Base Fee
In effect, by doing share purchase.....
They are trying to nudge A up and bring C down, have been unsuccessful at D and know that they can't raise B becos the cost of equity is so much higher than the cost of debt at the ridiculous price MIIF (discount to NAV) is trading at.

Performance Fee
The only way they can bring the share price up is by share purchase.
In effect, it is a value trap.


My Thots....
As a fund manager, their track record on "Buys" and "Sells" is weak.
Check out their acquisition and divestments of Arqiva and CAC.
In one fell swoop, they negated all the profits made since IPO.
The acquisition and divestments were made to comply with the wishes and decisions made by fellow co-investors ( or some higher ups in the MacQ structure?)  who have their own calculations and motivations.

As a FoF (fund of fund), the basic U would expect from such an investment fund  is that they will buy when prices are down and sell when prices are up. They did the exact reverse.
Having sold in a distressed mkt, U would expect them to have better acquisitions in mind. Instead, they got stuck with cash they do not seem to be able to make better use of for the past yrs.
Failed to do due diligence when buying Miaoli windfarm : i.e. they bought a windfarm w/o much wind.
Somehow, the Big M name did not live to its reputation and the whole biz model of the M Group failed to deliver when under savage attack by Jim Chanos and his gang.

Management of MIIF should put shareholders first, not their siblings in the MacQ Group.
MIIF is one big lesson for me.
Divested, about breakeven, slightly underwater.
Needs plenty of patience and a bouyant equity mkt to recover.

Pinnacle Notes

http://www.businesstimes.com.sg/sub/news/story/0,4574,460282,00.html? Published October 13, 2011

NEWS ANALYSIS

Pinnacle Notes case in New York may be a game changer By GRACE LEONG (SINGAPORE) These are interesting times for those burnt by products linked to failed US investment bank Lehman Brothers. In the two years since 10 local distributors were penalised for having mis-sold such products, at least one lawsuit has been brought in the Singapore High Court by investors alleging they were misled into thinking these were low-risk investments. That case, a test case brought by five investors who were part of a group of 165 investors with more than S$20 million in Lehman Minibonds, wasn't successful in recovering losses from the entities that issued and distributed the Lehman notes. The investors dropped their suit in May. But a class action lawsuit filed in New York by law firm Kirby McInerney LLP on behalf of a group of Singapore investors of Pinnacle Performance Ltd series 1,2,3,5,6,7,9 and 10 notes may prove a game changer. What makes the Pinnacle Notes case unique is that it doesn't target the distributors that sold the allegedly rigged investment products. Instead, it targets the entities it says engaged in 'undisclosed self-dealing' when they allegedly created and approved products that were 'designed to fail' so that every dollar the investors lost was gained by the bank. Morgan Stanley is accused of placing the Singapore investors' funds, about US$154.7 million, in synthetic CDOs (collateralised debt obligations) of its making, where the bank itself was allegedly a counterparty on underlying swap agreements. These underlying assets were then allegedly collateralised by sub-prime mortgages and Icelandic banks that failed. When those assets went belly up, all the money allegedly went to the bank in New York, the suit said. US District Judge Leonard Sand, in a recent federal court hearing in Manhattan, acknowledged the investors' lawyers face an uphill battle. 'As I understand the gist of plaintiff's claim, it is that Morgan Stanley, in the creation of these notes, did so with an intent that they would fail. Of course, that is a very hard thing to prove. That is the sort of thing which is proved by documents, created and preserved documents which would indicate that, or by testimony of usually a disgruntled ex-employee,' he said in court transcripts obtained by The Business Times. This case is pivotal. If fraud is indeed proven to have been committed by Morgan Stanley and its affiliates, the Monetary Authority of Singapore (MAS) may have good cause to take another look. MAS banned 10 distributors from selling structured notes. It had jurisdiction over them, but not over the creators of the products. If, however, the arrangers and issuers are proven to have deliberately created the toxic products, then that's a whole other ballgame. The local distributors that had to shell out millions of dollars in compensation to investors may look closer at possible actions against the product's issuers or arrangers. At least one distributor, Hong Leong Finance, is already trying its luck. It has got hold of some documents it hopes will explain the failure of Pinnacle Notes series 9 and 10, and help determine if it has a viable claim against Morgan Stanley Asia (Singapore). The Pinnacle Notes case also highlights whether Singapore investors need statutory protection from boilerplate clauses found in many investment products sold here, particularly complex derivatives that are typically very hard to understand, but that apparently give legal immunity to their arrangers and issuers. Morgan Stanley lawyer Bruce Angiolillo cited one such clause in the bank's defence. 'The economic interests of Morgan Stanley and/or its subsidiaries and affiliates in each such capacity may be adverse to the interests of the noteholders and potential and actual conflicts of interest may arise from the different roles played by Morgan Stanley and its subsidiaries and affiliates. As a result, noteholders will be exposed not only to the credit risk of Morgan Stanley and/or its subsidiaries and affiliates but also to the operational risks arising from the lack of independence of Morgan Stanley. . .' Simply put, it's like selling a knife to a child, and making the child sign a statement saying it fully understands how dangerous the knife can be, and that exempts the adult from liability. Such boilerplate clauses are insufficient, especially if it's proven that the Pinnacle Notes are 'fraudulent products specifically designed to fleece the plaintiffs of their money, and they did so by misrepresenting the terms and conditions of the notes', Andrew McNeela, the investors' lawyer, argued. But whether such issues get to see the light of day hangs on whether the case proceeds in New York. Morgan Stanley has so far refused to comment on whether there was a plan to create securities that would fail. It also denied any ties between the New York parent company and the Asian affiliates it claimed put together and sold the securities in the region. 'The Morgan Stanley entity most directly involved was Morgan Stanley Singapore, which is in Singapore, which arranged the transaction. They put it together,' Mr Angiolillo said. 'This is all about a Singapore dispute, a Singapore transaction, Singapore plaintiffs and Singapore sellers.' But Mr McNeela disagreed. 'The witnesses we need to establish the fraud, to put the lie to what they said in their offering materials, they are located most likely New York, based on where the synthetic CDOs were made, and in England with MS International, because that is the entity that engaged in the self-dealing.' And while Morgan Stanley raised questions over whether a US class action judgment in a securities fraud matter would be recognised in Singapore, the bank's own foreign law expert Tan Cheng Han had testified to the contrary in an unrelated fraud case in New York. In his declaration in the other case, Mr Tan, who is dean and professor of law at the National University of Singapore, said he believes it is 'highly probable that a Singapore court will recognise and enforce a judgment issued by a court in the United States'. This fight in New York will be closely watched in Asia.

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My Thots.....

The Mom & Pop retail investors were at the unfortunate end of a long food chain.
Tracing back the food chain is necessary and useful, to prevent the culprits from repeating such "scams".
But doing in different jurisdictions with cross border issues makes the process ardous and painstaking.
Glad that HLF and the others have the courage to pursue the case in the US Courts.