http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=B9JBGSP78WP8&linkid=3e7f0a20-5c7e-451d-aff0-65d68033f226&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
11 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com
Hong Kong lacks a legal tool that is available to people in the US and Australia, as well as certain European jurisdictions – that of the class action lawsuit. A class action lawsuit is one where a large number of people collectively bring a claim to court. One advantage is that a single class action lawsuit aggregates a large number of individual claims into one representational lawsuit. It can save time and money.
The situation stemming from the bankruptcy of Lehman Brothers is a case in point. Some 43,000 local people have invested in Lehman products, mostly minibonds. The court system cannot possibly handle thousands, or even hundreds, of cases.
There are also many small investors who cannot afford to go to court, or the size of their investments simply does not justify the legal expenses involved in a court case.
Being able to take a class action lawsuit makes a huge difference. It enables individuals, who only stand to recover a small amount, to act together and assert their legal rights. Often, an individual cannot take legal action because the costs would be greater than the amount he or she could recover.
Hong Kong has never allowed class action lawsuits, primarily because it is almost always done on a contingency fee basis. That is to say, lawyers do not get paid if they lose and get a percentage if they win.
In principle, there is nothing wrong with this system. The fact that lawyers do not get paid if they lose means that even individuals without deep pockets can afford to be part of a class action lawsuit, because there is no outlay of money involved. If they lose the case, they haven’t lost any additional funds and, if they win, it is a windfall that they could not have expected otherwise.
Another criticism sometimes made is that class actions combined with conditional fees result in greater litigiousness. But this may simply reflect the fact that more people have access to legal justice as a result of this avenue being opened.
The fact that lawyers aren’t paid if they lose means that they are much more likely to pick only cases that they believe have merit. It should not result in many frivolous cases, because the lawyers themselves would stand to lose.
Critics also point to the fact that, in US style class action lawsuits, huge amounts of money is sometimes awarded by judges to the plaintiffs.
But this, like the contingency fee system, is something that can be governed by legislation. Surely, legal minds in Hong Kong’s Department of Justice, the Financial Services Bureau and the legislature are capable of devising legislation that will enable Hong Kong to benefit from class action lawsuits and, at the same time, minimise what are considered to be the unsatisfactory features of such actions.
While class action lawsuits have not been widely adopted in Europe, it is interesting to note that certain countries have found this a useful tool in the area of consumer protection. In Austria, for example, consumer organisations have in recent years brought claims on behalf of hundreds or even thousands of people, resulting in a significant reduction in overall costs.
In France, the law allows an association to represent the collective interests of consumers. But, in a lawsuit, each claimant must be individually named, which is not the case with class action cases in the US.
The bankruptcy of Lehman Brothers has already resulted in class action lawsuits in America, one by investors who purchased Lehman Preferred Series “J” stock shares and one by former employees who claim that – contrary to the law – they had not received payment for 60 days.
In Hong Kong, a class action lawsuit would most likely be against one of the banks that distributed Lehman products. There have been so many claims of “misselling” that thousands might benefit – if only such lawsuits were allowed here.
Monday, November 10, 2008
SCMP:Two investors reach settlement with bank before court case
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=S33X9O24V0U1&linkid=7aac9ac7-b998-4329-ab61-9627f56aa246&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
11 Nov 2008
Amy Nip
Two investors in Lehman Brothers derivatives who filed a case seeking refunds reached settlements with Wing Lung Bank yesterday, saying they will dismiss their suit after they receive compensation.
They were among the five investors who filed lawsuits on Thursday with the Small Claims Tribunal against Wing Lung Bank, Citic Ka Wah Bank and Mevas Bank. The cases are to be heard on December 29.
One of the investors, a 71-year-old surnamed Ting, said he was satisfied with the settlement, but refused to reveal details. He said his confidence in banks had been restored and that he would continue to use Wing Lung Bank’s services.
In 2004, Mr Ting invested HK$ 40,000 in Lehman Brotherslinked minibonds. He said the bank’s staff had misled him into thinking minibonds were like fixed deposits, and were backed by “sound and famous companies in the world”.
Meanwhile, other investors reached settlements with the Bank of China. Most of them were more than 65 years old and had invested tens of thousands of dollars in more than HK$1million worth of Lehman-related derivatives.
The Hong Kong Association of Banks’ taskforce on Lehman derivative products published full-page advertisements in several newspapers, restating that it would give priority to cases involving customers aged 65 or older.
“We will continue to file cases with the Small Claims Tribunal and District Courts,” said Democratic Party legislator Kam Nai-wai, who has been helping investors pursue their cases. The party will file up to 10 cases this week.
He said banks were too passive in reaching settlementsand legal action would speed up the process.
Democratic Sha Tin district councillor Michael Yung Ming-chau, who had assisted Mr Ting, said it would be a win-win situation for investors and banks if they could settle before facing each other in court. “ Banks shouldn’t deal with the cases only after they see [plaintiff’s] lawyers.”
11 Nov 2008
Amy Nip
Two investors in Lehman Brothers derivatives who filed a case seeking refunds reached settlements with Wing Lung Bank yesterday, saying they will dismiss their suit after they receive compensation.
They were among the five investors who filed lawsuits on Thursday with the Small Claims Tribunal against Wing Lung Bank, Citic Ka Wah Bank and Mevas Bank. The cases are to be heard on December 29.
One of the investors, a 71-year-old surnamed Ting, said he was satisfied with the settlement, but refused to reveal details. He said his confidence in banks had been restored and that he would continue to use Wing Lung Bank’s services.
In 2004, Mr Ting invested HK$ 40,000 in Lehman Brotherslinked minibonds. He said the bank’s staff had misled him into thinking minibonds were like fixed deposits, and were backed by “sound and famous companies in the world”.
Meanwhile, other investors reached settlements with the Bank of China. Most of them were more than 65 years old and had invested tens of thousands of dollars in more than HK$1million worth of Lehman-related derivatives.
The Hong Kong Association of Banks’ taskforce on Lehman derivative products published full-page advertisements in several newspapers, restating that it would give priority to cases involving customers aged 65 or older.
“We will continue to file cases with the Small Claims Tribunal and District Courts,” said Democratic Party legislator Kam Nai-wai, who has been helping investors pursue their cases. The party will file up to 10 cases this week.
He said banks were too passive in reaching settlementsand legal action would speed up the process.
Democratic Sha Tin district councillor Michael Yung Ming-chau, who had assisted Mr Ting, said it would be a win-win situation for investors and banks if they could settle before facing each other in court. “ Banks shouldn’t deal with the cases only after they see [plaintiff’s] lawyers.”
SCMP:Legco likely to pass bill on minibond investigation
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=S33X9O24V0U1&linkid=992866db-c5c3-452b-8569-ab7277217713&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
11 Nov 2008
Ambrose Leung Fanny W. Y. Fung
Lawmakers look likely to pass a resolution tomorrow invoking their special powers to investigate the Lehman Brothers saga, as intense lobbying from small investors increased the pressure on them.
The marked softening of the Democratic Alliance for the Betterment and Progress of Hong Kong, whose support would ensure the resolution’s safe passage, seemed to increase the likelihood the step would be taken, with some officials privately admitting that the inquiry was a foregone conclusion.
But bankers – who would probably be summoned before a Legco subcommittee if lawmakers passed the resolution – made a last-ditch effort to prevent that step.
In a letter to his Legco colleagues, finance sector lawmaker David Li Kwok-po warned that banks’ efforts to buy back minibonds and other investment products from affected investors could be hindered if the Legco’s Powers and Privileges Ordinance were invoked.
“Bringing the wide powers of the ordinance to bear and subjecting the banks to what amounts to unlimited power to demand documents and the appearance of bank mangers before the subcommittee will only draw resources away,” Dr Li said.
Other bankers voiced similar concerns in a full-page advertisement posted in local newspapers yesterday.
Saying many minibond holders seeking compensation had actually “ entered into contracts with full knowledge of the risk involved”, Dr Li warned that Hong Kong’s status as an international financial centre could also be damaged if foreign banks’ confidential commercial information surfaced during a Legco inquiry.
But with a majority of directly elected lawmakers supporting the move, and the required margin of support from functional constituency legislators just one or two votes away, it appeared likely that bankers’ hopes would be dashed after what was expected to be a lengthy debate tomorrow.
At present, the pan-democrats and trade unionists, plus the three Liberal Party members and some independents support the resolution.
The decision by the DAB will be crucial.
DAB leaders conceded that most the investors wanted a special inquiry. That came after about 200 people who had bought Lehman Brothersrelated investment products protested at the party’s headquarters, urging the party to support the resolution.
They chanted slogans and displayed placards, with three women in the crowd kneeling in front of party vice- chairwoman Ann Chiang Lai-wan to beg for help.
After receiving 1,850 signatures from the investors, DAB chairman Tam Yiu-chung told them that the party had to handle the matter cautiously, taking into consideration the progress achieved in recent days and whether such an investigation would prolong the compensation process.
The party will decide how its nine lawmakers will vote tonight.
Some independent lawmakers who have yet to make up their minds have also shown signs of supporting the resolution.
“I am inclined to support the victims. They have lost all of their savings. What else can legislators do to help them?” said Heung Yee Kuk leader Lau Wong-fat, who declined to say how he would vote.
Meanwhile, a government source said “the battle has already been lost” and further lobbying would be pointless because the DAB was likely to back the resolution.
“It is not the end of the world. The government has nothing to hide.”
Civic Party leader Audrey Eu Yuet- mee, who launched a mass e-mail campaign for the investors to petition lawmakers in support of the resolution, dismissed bankers’ concerns that invoking Legco’s special investigative powers would slow down the compensation process.
Minibonds are not corporate bonds, but consist of high-risk creditlinked derivatives. They are sold as a proxy investment in well- known firms.
11 Nov 2008
Ambrose Leung Fanny W. Y. Fung
Lawmakers look likely to pass a resolution tomorrow invoking their special powers to investigate the Lehman Brothers saga, as intense lobbying from small investors increased the pressure on them.
The marked softening of the Democratic Alliance for the Betterment and Progress of Hong Kong, whose support would ensure the resolution’s safe passage, seemed to increase the likelihood the step would be taken, with some officials privately admitting that the inquiry was a foregone conclusion.
But bankers – who would probably be summoned before a Legco subcommittee if lawmakers passed the resolution – made a last-ditch effort to prevent that step.
In a letter to his Legco colleagues, finance sector lawmaker David Li Kwok-po warned that banks’ efforts to buy back minibonds and other investment products from affected investors could be hindered if the Legco’s Powers and Privileges Ordinance were invoked.
“Bringing the wide powers of the ordinance to bear and subjecting the banks to what amounts to unlimited power to demand documents and the appearance of bank mangers before the subcommittee will only draw resources away,” Dr Li said.
Other bankers voiced similar concerns in a full-page advertisement posted in local newspapers yesterday.
Saying many minibond holders seeking compensation had actually “ entered into contracts with full knowledge of the risk involved”, Dr Li warned that Hong Kong’s status as an international financial centre could also be damaged if foreign banks’ confidential commercial information surfaced during a Legco inquiry.
But with a majority of directly elected lawmakers supporting the move, and the required margin of support from functional constituency legislators just one or two votes away, it appeared likely that bankers’ hopes would be dashed after what was expected to be a lengthy debate tomorrow.
At present, the pan-democrats and trade unionists, plus the three Liberal Party members and some independents support the resolution.
The decision by the DAB will be crucial.
DAB leaders conceded that most the investors wanted a special inquiry. That came after about 200 people who had bought Lehman Brothersrelated investment products protested at the party’s headquarters, urging the party to support the resolution.
They chanted slogans and displayed placards, with three women in the crowd kneeling in front of party vice- chairwoman Ann Chiang Lai-wan to beg for help.
After receiving 1,850 signatures from the investors, DAB chairman Tam Yiu-chung told them that the party had to handle the matter cautiously, taking into consideration the progress achieved in recent days and whether such an investigation would prolong the compensation process.
The party will decide how its nine lawmakers will vote tonight.
Some independent lawmakers who have yet to make up their minds have also shown signs of supporting the resolution.
“I am inclined to support the victims. They have lost all of their savings. What else can legislators do to help them?” said Heung Yee Kuk leader Lau Wong-fat, who declined to say how he would vote.
Meanwhile, a government source said “the battle has already been lost” and further lobbying would be pointless because the DAB was likely to back the resolution.
“It is not the end of the world. The government has nothing to hide.”
Civic Party leader Audrey Eu Yuet- mee, who launched a mass e-mail campaign for the investors to petition lawmakers in support of the resolution, dismissed bankers’ concerns that invoking Legco’s special investigative powers would slow down the compensation process.
Minibonds are not corporate bonds, but consist of high-risk creditlinked derivatives. They are sold as a proxy investment in well- known firms.
New Paper: Structured Products: "What banks don't say about buybacks"
By Larry Haverkamp
BANKS sold us billions of dollars of risky structured products called 'linked notes' for short. They came with big risks, which have led to big losses.
For example:
DBS High Notes 5 are now worthless. Loss: $103 million.
Merrill Lynch Jubilee 3 are worthless. Loss: $28 million.
DBS High Notes 2 sell for 22 cents on the dollar. Loss: $55 million.
Lehman Brothers Minibonds are in limbo. Loss: unknown.
There are more.
Sales have been in the billions over the past 10 years. Banks admit to mis-selling to the elderly and uneducated. But the problem is bigger. Mis-selling extended to everyone since the prospectus mis-stated costs and risks.
Costs
Issuing banks have never disclosed their charges for linked notes. Is this serious enough to require a full refund to all investors?
A precedent exists. In the US and Europe, global banks were required to repurchase $80 billion of auction-rate notes and pay $750 million in fines. Even now, the issuing banks refuse to disclose their charges. They say the law doesn't require them to.
DBS told me: 'Pls understand that certain (pieces of) information, especially re remuneration payouts or the detailed breakdown of how a product is being calculated, are proprietary information. Where required under regulatory or statutory guidelines, we will disclose the necessary.'
Risks
Two risks are not disclosed in the prospectus.
First, default of a 'reference entity' causes the structured product to become worthless. Prospectuses show that risk is less than 1per cent for each entity. Linked notes' first-to-default structure, however, makes the risks additive. For DBS High Notes 5, it adds up to 8 per cent. No one knew the risk was so high. The prospectus never mentioned it.
Second, many linked notes are invested in AA-rated collateralised debt obligations (CDOs), which the prospectus describes as safe.
It says: 'A borrower rated 'AA' has very strong capacity to meet its financial commitments. It differs from the highest rated borrowers only in a small degree.'
While this is true for regular bonds, it is not for CDOs. Ratings are not comparable because CDOs are much riskier.
For example, the default rate of regular bonds ranked Baa by Moody's is only 2.2 per cent. CDO bonds with the same Baa ranking have a default rate of 24 per cent. Only now are we seeing effects of the high risks. Many CDOs have been downgraded. Some are near default.
It explains why banks repurchase structured products at a discount. DBS pays only 22 cents on the dollar to buy back its High Notes 2.
Is this fair? It is hard to say since investors have very little information about the underlying bonds and CDOs.
Hong Kong investors have been more aggressive. In a protest outside DBS headquarters on Oct 20, a sign in Chinese read: 'Product has poison. Asking and reprimanding DBS.' DBS gave in. It distributed a list of the CDOs for each structured product AND had a bank officer explain it.
Singapore investors also have a right to this data. DBS confirmed this when it told me: '...The list of CDOs for the respective Notes are available to clients if they asked for them.' The problem is most investors don't know what to ask for or how to interpret the list. If banks truly wanted investors to know, they could explain on their websites how they arrived at the structured product's value.
Otherwise, there is no way to know if banks are taking advantage of their information monopoly to buy back these investments at too steep a discount. Take High Notes 2. DBS buys them from investors at 22 cents on the dollar. Assuming no defaults, it can simply wait until maturity in 2011 and then redeem at 100 cents on the dollar. For the bank, it is a 350 per cent profit.
BANKS sold us billions of dollars of risky structured products called 'linked notes' for short. They came with big risks, which have led to big losses.
For example:
DBS High Notes 5 are now worthless. Loss: $103 million.
Merrill Lynch Jubilee 3 are worthless. Loss: $28 million.
DBS High Notes 2 sell for 22 cents on the dollar. Loss: $55 million.
Lehman Brothers Minibonds are in limbo. Loss: unknown.
There are more.
Sales have been in the billions over the past 10 years. Banks admit to mis-selling to the elderly and uneducated. But the problem is bigger. Mis-selling extended to everyone since the prospectus mis-stated costs and risks.
Costs
Issuing banks have never disclosed their charges for linked notes. Is this serious enough to require a full refund to all investors?
A precedent exists. In the US and Europe, global banks were required to repurchase $80 billion of auction-rate notes and pay $750 million in fines. Even now, the issuing banks refuse to disclose their charges. They say the law doesn't require them to.
DBS told me: 'Pls understand that certain (pieces of) information, especially re remuneration payouts or the detailed breakdown of how a product is being calculated, are proprietary information. Where required under regulatory or statutory guidelines, we will disclose the necessary.'
Risks
Two risks are not disclosed in the prospectus.
First, default of a 'reference entity' causes the structured product to become worthless. Prospectuses show that risk is less than 1per cent for each entity. Linked notes' first-to-default structure, however, makes the risks additive. For DBS High Notes 5, it adds up to 8 per cent. No one knew the risk was so high. The prospectus never mentioned it.
Second, many linked notes are invested in AA-rated collateralised debt obligations (CDOs), which the prospectus describes as safe.
It says: 'A borrower rated 'AA' has very strong capacity to meet its financial commitments. It differs from the highest rated borrowers only in a small degree.'
While this is true for regular bonds, it is not for CDOs. Ratings are not comparable because CDOs are much riskier.
For example, the default rate of regular bonds ranked Baa by Moody's is only 2.2 per cent. CDO bonds with the same Baa ranking have a default rate of 24 per cent. Only now are we seeing effects of the high risks. Many CDOs have been downgraded. Some are near default.
It explains why banks repurchase structured products at a discount. DBS pays only 22 cents on the dollar to buy back its High Notes 2.
Is this fair? It is hard to say since investors have very little information about the underlying bonds and CDOs.
Hong Kong investors have been more aggressive. In a protest outside DBS headquarters on Oct 20, a sign in Chinese read: 'Product has poison. Asking and reprimanding DBS.' DBS gave in. It distributed a list of the CDOs for each structured product AND had a bank officer explain it.
Singapore investors also have a right to this data. DBS confirmed this when it told me: '...The list of CDOs for the respective Notes are available to clients if they asked for them.' The problem is most investors don't know what to ask for or how to interpret the list. If banks truly wanted investors to know, they could explain on their websites how they arrived at the structured product's value.
Otherwise, there is no way to know if banks are taking advantage of their information monopoly to buy back these investments at too steep a discount. Take High Notes 2. DBS buys them from investors at 22 cents on the dollar. Assuming no defaults, it can simply wait until maturity in 2011 and then redeem at 100 cents on the dollar. For the bank, it is a 350 per cent profit.
CBS Videos on derivatives, etc
Dear Mr. Tan,
Here are some links to CBS videos (10-15 mins) on derivatives, CDS, etc. They are eye openers to lay people. These derivatives are more like scams to defraud the investing public. We need to persist to get the authorities to get to the bottom of the matter. Hope you can help in this matter.
Video 1: Derivatives (July 1995)
http://www.cbsnews.com/video/watch/?id=4501762n
Video 2: Credit Default Swaps (Oct. 26, 2008)
http://www.cbsnews.com/video/watch/?id=4546583n
Video 3: Wall Street Shadow Markets (Oct. 5, 2008)
http://www.cbsnews.com/video/watch/?id=4502673n
Report 1: The Bet That Blew Up Wall Street http://www.cbsnews.com/stories/2008/10/26/60minutes/main4546199.shtml
Report 2: A Look At Wall Street's Shadow Market
http://www.cbsnews.com/stories/2008/10/05/60minutes/main4502454.shtml
Here are some links to CBS videos (10-15 mins) on derivatives, CDS, etc. They are eye openers to lay people. These derivatives are more like scams to defraud the investing public. We need to persist to get the authorities to get to the bottom of the matter. Hope you can help in this matter.
Video 1: Derivatives (July 1995)
http://www.cbsnews.com/video/watch/?id=4501762n
Video 2: Credit Default Swaps (Oct. 26, 2008)
http://www.cbsnews.com/video/watch/?id=4546583n
Video 3: Wall Street Shadow Markets (Oct. 5, 2008)
http://www.cbsnews.com/video/watch/?id=4502673n
Report 1: The Bet That Blew Up Wall Street http://www.cbsnews.com/stories/2008/10/26/60minutes/main4546199.shtml
Report 2: A Look At Wall Street's Shadow Market
http://www.cbsnews.com/stories/2008/10/05/60minutes/main4502454.shtml
Obama's Speech at Election Night
Please click here to see President-elect Obama's
speech on Election Night:
http://my.barackobama.com/page/community/post/stateupdates/gGx3Kc
Barack Obama and Joe Biden are hopeful about the opportunities and
clear-eyed about the challenges our nation faces. They look forward to
working with all Americans, regardless of who they voted for, in the great
project of American renewal. Enlisting the energy and ingenuity of the
American people is the only way we will create the changes that so many
people want to see, so we hope you'll be involved.
speech on Election Night:
http://my.barackobama.com/page/community/post/stateupdates/gGx3Kc
Barack Obama and Joe Biden are hopeful about the opportunities and
clear-eyed about the challenges our nation faces. They look forward to
working with all Americans, regardless of who they voted for, in the great
project of American renewal. Enlisting the energy and ingenuity of the
American people is the only way we will create the changes that so many
people want to see, so we hope you'll be involved.
Did the RM explain "first to default" ?
Dear Mr Tan,
Thank you for taking the time and effort to help the unfortunate minibond investors.
I am disheartened to find out that some of our banks have "thrown out" many cases. Perhaps the "vulnerable" investors could not effectively submit a proper case. Perhaps they could not effectively present the argument that they were misled by the Managers (Relationship) of the banks.
The argument I am presenting is based on the structure of the minibond product, not the companies (i.e, Lehman Brothers) underlying it.
In such cases whereby the minibond investors attempted to demostrate that they had been misled in buying high risk would likely be countered by bank's argument like "Have our sale staffs explain the risks to you?", "The rating of the companies behind minibonds has been AAA, AAB, therefore this is a very safe investment". Indeed, the staffs might have taken efforts to explain the risks but what were the exact risks explained? Who is to argue a rating of AAA and AAB is not safe? And who is to argue a 100+ year old investment bank has no firm foundation? As such, when banks present such facts, how can one not deduce that the minibond is a safe investment?
The case of the minibond is not a case on the companies behind the structured product sold. The high risk was the structure / architecture / design of the minibond itself. This is the risk: FIRST TO DEFAULT BASIS. This means any of the eight underlying entitles fails, the minibond will be terminated and investor receives zero payout in the worst case scenario. This is the reason why it is a risky investment.
So what can the minibond investors do now? Perhaps what they can do now is to answer these 2 questions:
> Had the Relationship Manager explained clearly the risks due to the structure / architecture / design of the minibond?
> Had the Relationship Manager fully and clearly explained the worst case scenario?
If the answers to both questions are "No", the investor may possibly have a better case. The "higher" risk came from the structure / architecture / design of the minibond and not the underlying companies.
Mr Tan, much has been discussed about the fate of the minibond and their investors, I do have a question. What happened to the $500 million dollars (cold hard cash) invested in the minibond?
Regards,
REPLY
The financial institutions are only interested to find any excuse to reject the claim, so as to avoid paying any compensation.
The Monetary Authority of Singapore has asked them to treat their customers fairly. Unfortunately, MAS has not provided specific guidelines and leave it to the discretion of the financial institutions. The outcome is to be expected.
Thank you for taking the time and effort to help the unfortunate minibond investors.
I am disheartened to find out that some of our banks have "thrown out" many cases. Perhaps the "vulnerable" investors could not effectively submit a proper case. Perhaps they could not effectively present the argument that they were misled by the Managers (Relationship) of the banks.
The argument I am presenting is based on the structure of the minibond product, not the companies (i.e, Lehman Brothers) underlying it.
In such cases whereby the minibond investors attempted to demostrate that they had been misled in buying high risk would likely be countered by bank's argument like "Have our sale staffs explain the risks to you?", "The rating of the companies behind minibonds has been AAA, AAB, therefore this is a very safe investment". Indeed, the staffs might have taken efforts to explain the risks but what were the exact risks explained? Who is to argue a rating of AAA and AAB is not safe? And who is to argue a 100+ year old investment bank has no firm foundation? As such, when banks present such facts, how can one not deduce that the minibond is a safe investment?
The case of the minibond is not a case on the companies behind the structured product sold. The high risk was the structure / architecture / design of the minibond itself. This is the risk: FIRST TO DEFAULT BASIS. This means any of the eight underlying entitles fails, the minibond will be terminated and investor receives zero payout in the worst case scenario. This is the reason why it is a risky investment.
So what can the minibond investors do now? Perhaps what they can do now is to answer these 2 questions:
> Had the Relationship Manager explained clearly the risks due to the structure / architecture / design of the minibond?
> Had the Relationship Manager fully and clearly explained the worst case scenario?
If the answers to both questions are "No", the investor may possibly have a better case. The "higher" risk came from the structure / architecture / design of the minibond and not the underlying companies.
Mr Tan, much has been discussed about the fate of the minibond and their investors, I do have a question. What happened to the $500 million dollars (cold hard cash) invested in the minibond?
Regards,
REPLY
The financial institutions are only interested to find any excuse to reject the claim, so as to avoid paying any compensation.
The Monetary Authority of Singapore has asked them to treat their customers fairly. Unfortunately, MAS has not provided specific guidelines and leave it to the discretion of the financial institutions. The outcome is to be expected.
Sued for misleading investors
Nov 10, 2008
Suit against Lehman, UBS seeks an order certifying it as a class-action.
LEHMAN Brothers Holdings Inc's Chief Executive Officer Richard Fuld and UBS AG's US brokerage were accused in a lawsuit of misleading investors who bought Lehman's 'principal protected notes' before its September bankruptcy.
The complaint, filed on Nov 6 in federal court in Manhattan, claims Mr Fuld and 10 other past and current Lehman directors deceived investors about the risks of buying notes that are now almost worthless, Bloomberg news reported on Monday.
The suit seeks unspecified damages and an order certifying it as a class-action, or group lawsuit, on behalf of other investors.
Sales documents for the securities 'contained untrue statements of material fact and omitted other material facts', according to the complaint filed by Girard Gibbs LLP in San Francisco.
Lehman didn't disclose that repayment of the debt might be threatened by 'exposure to losses from its real estate and mortgage portfolio', and UBS Financial Services should have 'diligently' investigated the disclosures before helping sell the notes, the complaint said.
Mr George Sard, a spokesman for Mr Fuld, didn't respond to a message seeking comment.
Suit against Lehman, UBS seeks an order certifying it as a class-action.
LEHMAN Brothers Holdings Inc's Chief Executive Officer Richard Fuld and UBS AG's US brokerage were accused in a lawsuit of misleading investors who bought Lehman's 'principal protected notes' before its September bankruptcy.
The complaint, filed on Nov 6 in federal court in Manhattan, claims Mr Fuld and 10 other past and current Lehman directors deceived investors about the risks of buying notes that are now almost worthless, Bloomberg news reported on Monday.
The suit seeks unspecified damages and an order certifying it as a class-action, or group lawsuit, on behalf of other investors.
Sales documents for the securities 'contained untrue statements of material fact and omitted other material facts', according to the complaint filed by Girard Gibbs LLP in San Francisco.
Lehman didn't disclose that repayment of the debt might be threatened by 'exposure to losses from its real estate and mortgage portfolio', and UBS Financial Services should have 'diligently' investigated the disclosures before helping sell the notes, the complaint said.
Mr George Sard, a spokesman for Mr Fuld, didn't respond to a message seeking comment.
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