US Lawyers Visiting Hong Kong

Patrick Daniels, the leading counsel of the proposed class action towards HSBC, has come to HK in the last two days. He explained several important points for the case:

1) HSBC is not considered to be the defendant simply because it is the trustee. Actually, according to the minibond programme prospectus, it's shown that issuer of the minibonds (i.e. Pacific International Finance Limited), is WHOLLY owned by HSBC Cayman, and its directors are also supplied by HSBC.

2) Mr. Daniels is therefore looking into the role and responsibility of HSBC in designing, creating and operating the product, which should not be called as "bonds" as they are highly complicated deriviatives and not suitable for retail investors.

3) Class action can be commenced whenever potential clients agree on it. HK investors are still meeting and discussing whether to launch it or not, and seeking for leading plaintiffs at the same time.

HK Banks set up legal fund

Dec 18, 2008

http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_315885.html

HONG KONG - HONG KONG banks that sold financial products backed by collapsed firm Lehman Brothers will provide HK$100 million (S$18.6 million) for a potential US legal battle on behalf of investors.

The 18 banks will put up the cash to challenge claims by Lehman's US lawyers that any proceeds from a proposed buy-back scheme would have to be first turned over to liquidators and not investors, the Hong Kong Association of Banks said.

'The distributors (banks) are prepared to provide finance to the trustee of up to US$100 million to assist it in the performance of its duty to protect the interests of investors,' the association said in a statement released late on Wednesday.

The move is the latest twist in the saga over compensation for thousands of Hong Kong investors who bought the so-called minibonds on the understanding their money was safe.

The collapse of Lehman Brothers in September meant the value of their investments dropped dramatically, which sparked protests across the city from investors who say they were missold the products.

The financial hub's government and the banks who sold the products then proposed for the banks to buy back the minibonds at market value, a process that was meant to begin this month.

But a unit of HSBC in the United States, which is acting as the trustee for the Hong Kong banks in the liquidation, has been told the move to compensate the investors here could be illegal under US law, the statement said.

The local banks have therefore 'decided to continue the buyback only after these legal issues have been clarified and addressed and the market value can be determined unless, in the meantime, the minibonds are redeemed early as a result of action taken by the trustee,' the statement said.

More than 40,000 Hong Kong investors - including many retirees - had put a total of HK$15.7 billion of their savings into minibonds and other complex products backed by Lehman Brothers. 

Buying a property - get a property report

I went to StreetSine (http://www.streetsine.com/) to search for a new property in the city area (district 1, 2, and 3) for a friend. I found a few suitable condominiums with reasonable prices. I was able to see the price trend and identify a few properties listed for sale. I transferred the details into MyOrganiser (provided by StreetSine).

I send messages to the agent handling these properties. Two agents called me. They were only interested to ask for my offer price. They were not able to provide details about the properties.

StreetSine told me that they will be providing a comprehensive report about a specific property for a modest fee (maybe $35). It contains a lot of detailed information about recent transactions, price trends, nearby comparable properties, amenities, etc. This is worth investing, so that I can make the right decision.

I wish to encourage property agents to make use of this comprehensive property report. When you respond to a potential buyer, ask for the e-mail address and mail the report to the buyer. This will put you ahead of all the other property agents and show that you are able to handle the potential buyer in a professional manner. You will get more business by acting in the right professional way.

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Investors of failed structured products to know outcome of complaints by mid—Jan

Channel NewsAsia - Thursday, December 18
http://sg.news.yahoo.com/cna/20081217/tap-963-lehman-minibond-investors-know-o-231650b.html

SINGAPORE : The Monetary Authority of Singapore (MAS) on Wednesday said investors who have bought failed structured products will know the outcome of their complaints by the middle of January.
Investors had alleged that distributors had mis—sold the products and misrepresented the risks.

Minibond investor Ismail Deen was told last week that his complaint is still being looked into. He is one of nearly 5,000 investors who have complained to 10 financial institutions (FIs).

Like Mr Ismail, most investors of DBS High Notes 5, Lehman Minibonds and the Jubilee Series notes will get some answers by mid—January. Final checks are being done on some complaints.

Shane Tregillis, deputy managing director, Market Conduct Group, MAS, said: "That is to take into account the recommendations of the independent persons and to make sure they have taken into account any investigation findings, and also to check for consistency."

MAS said 9—in—10 complainants have been interviewed.

FIs have also decided on 80 per cent of the cases, but have yet to inform investors. For clear—cut cases though, investors have already been told of the outcome.
The central bank has been working with financial institutions in the past 10 weeks.
Mr Tregillis said: "We have been visiting, checking ourselves just to ensure the process, looking at the teams... the FIs have put in place in recent weeks, some of them are up to 100 people."

MAS said the FIs will review the complaints in a non—legalistic manner and it will be based on principles of fairness. However, they are expected to take legal defence if the investors decide to take them to court.

The central bank also said investors should be prepared to bear responsibility for their investment decisions. — CNA/ms

Encourage bank relationship managers to do the right thing by confessing to mis-selling

Written by Ng E-Jay (sent by e-mail to Tan Kin Lian)
18 Dec 2008

Mr Tan Kin Lian has revealed on his blog that he was approached by a bank relationship manager who wishes to confess to giving wrong information to investors of failed credit linked notes due to his ignorance about the risks of the product.

According to Mr Tan, this relationship manager has agreed to sign a statement, and will be approaching other relationship managers who are in a similar position to do likewise.

This relationship manager should be applauded for doing the right thing.

However, Mr Tan Kin Lian also revealed that the bank had, in Mr Tan’s words, “put pressure on him (the RM) by stating that he would be held personally responsible to compensate the customers, if he admitted to giving the wrong information.”
Such a threat by the bank is in clear contravention of the Financial Adviser’s Act (Chapter 110).

Under the Financial Adviser’s Act, the Financial Adviser (in this case, the bank) is responsible for the conduct of the Representative (the relationship manager) in respect of providing financial advisory services. If the Representative has mis-sold a product, whether out of ignorance or willfully, the Financial Adviser must take responsibility for it, and also decide whether or not to take action against the Representative. In the case of criminal activity, the Financial Adviser is obliged to lodge a police report, or give an explanation to MAS why a police report is not lodged. These rules are found in the Financial Adviser’s Regulations, which is subsidiary legislation enacted by MAS in support of the Financial Adviser’s Act.
A wrongful act cannot be covered up by telling the Representative to keep quiet about it. That would be outright fraud, the most serious offence under the Financial Adviser’s Act.

Furthermore, Section 68(1) of the Financial Adviser’s Act states that “A person is not excused from disclosing information to the (Monetary Authority of Singapore), pursuant to a requirement made of him under this Part, on the ground that the disclosure of the information might tend to incriminate him.”
Hence, it is not only morally right for the relationship manager to disclose that he has mis-sold a product, he is in fact required to do so under the Act.
We should encourage all Represenatives in similar situations to do the right thing by confessing to mis-selling the structured products and credit linked notes.
In my opinion, MAS should issue a blanket amnesty for all Representatives who mis-sold the credit linked notes due to ignorance. This would encourage more of them to come forward.

It is also very clear to anyone who is an industry practitioner that banks have high sales quotas for their relationship managers and exert tremendous pressure on them to meet those sales quotas.

Furthermore, the Financial Adviser’s Regulations make it clear that Representatives should only sell products in which they have competence. Since the Lehman-linked structured products deal heavily in arcane instruments like Credit Default Swaps (CDS) and Collaterialized Debt Obligations (CDO), it is not likely that the majority of Representatives would have the competence of explaining these underlying instruments to clients and appropriately advising them on the risks involved.
It is the banks and other financial institutions which should take full responsibility for the structured products fiasco.

MAS Ensures Progress in Complaints Resolution

Singapore, 17 December 2008...

http://www.mas.gov.sg/news_room/press_releases/2008/MAS_ensures_progress_in_complaints_resolution.html

MAS today provided an update on steps taken to ensure that the 10 financial institutions (FIs) that sold DBS High Notes 5, Lehman Minibond programme notes and Merrill Lynch Jubilee Series 3 LinkEarner notes deal with investors’ complaints in a rigorous and fair manner.

2 Over the last 10 weeks, MAS has been working closely with the independent persons (IPs) who were appointed to oversee the complaints handling and resolution process to ensure that the FIs make good progress in handling and resolving their customers’ complaints. MAS’ investigations are also progressing.

MAS review of process and assessment framework
3 In consultation with the IPs, MAS conducted on-site visits to assess the handling and review of complaints, including observing the internal review panels in action. Following these visits, a few FIs were asked to increase their resources, including engaging external firms to supplement internal staff where necessary.

4 We are working with the IPs to ensure that each FI has a robust assessment framework to identify indicators of potential mis-selling and offer fair financial settlement where appropriate. The IPs have provided feedback to MAS on how the FIs have applied the framework across a sample of actual cases. We are also ensuring that the assessment framework is consistent across FIs.

MAS’ investigations and regulatory actions
5 MAS is also looking at FI-wide issues, such as the selling practices and policies within each FI, as part of its formal investigations. The investigations cover, among other matters, the FI’s due diligence into the structured notes, the procedures used at the point of sale, including how the FI ensured that the notes were sold to clients whose investment objectives and risk tolerance matched the risk profile of the notes, and the training and supervision of relationship managers. As part of these investigations, MAS is requiring each FI to produce documents relevant to these matters and is interviewing senior management.

6 MAS has worked with the IPs to ensure that any potential FI-wide issues identified in the course of investigations have been incorporated into the assessment of individual complaints. Where issues have been identified, we will take into account the extent to which the FI accepts responsibility and deals with complaints rigorously and fairly before deciding on the appropriate regulatory measures or sanctions to be taken.

Progress of complaints’ handling and compensation
7 As of 14 December 2008, the 10 FIs have received 4,978 formal complaints: 815 for the DBS High Notes 5, 4001 for the Lehman Brothers Minibond programme notes, and 162 for the Merrill Lynch Jubilee Series 3 LinkEarner notes. All the FIs now have teams working long hours to meet the MAS’ review targets. In some cases, these teams comprise 100 to 120 case officers. Consistent with MAS’ expressed views, the FIs have agreed to review complaints based on principles of fairness rather than taking the strict legal position that they would if the matter went to court.

8 Over 90% of the complainants have been interviewed and FIs’ internal review panels have come to provisional decisions on approximately 80% of these cases. Most FIs are resolving complaints according to MAS’ timeline. Others need to put in more effort to catch up. MAS and the relevant IPs are monitoring their progress closely.

9 Based on the current case load, the FIs have informed MAS that they aim to complete the reviews for all except the more complex cases by no later than end January 2009. Some clear-cut decisions have already been communicated to investors.

10 Shane Tregillis, Deputy Managing Director, Market Conduct Group, MAS, said, “We have asked the FIs to conduct some final due diligence on the remaining complaints to ensure that they have taken into account the IPs’ recommendations, likely issues arising from any MAS’ investigation findings and to check for general consistency in the application of the complaints resolution framework. This is expected to take a few more weeks. Although these steps will extend the current timetable for communication to investors by a few weeks, we believe that the final outcome will better serve investors’ interests. Accordingly, most investors can expect to hear from their FI on the outcome of the review of their complaint starting mid January 2009.”

11 However, from a review of a sample of cases, it seems clear that some complainants should be prepared to take responsibility for their investment decisions. MAS will provide a further update on the complaints resolution process at the end of January. Mr Tregillis added, ”We are working closely with the independent parties to ensure that all of them meet our requirements in reviewing and resolving complaints. MAS will continue to oversee the process to ensure all customers’ complaints are resolved rigorously and fairly.”

Bank RM has courage and integrity

FOR TOP PRIORITY ATTENTION

A RM of a bank called me. He is willing to come forward to sign a statement that he has been giving the wrong information about the credit-linked notes to the bank customers, due to his ignorance. He will be contacting other RMs to come forward and make a similar statement.

He told me that his bank had put pressure on him by stating that he would be held personally responsible to compensate the customers, if he admitted to giving the wrong information. He said that, when he sold the notes to the customers, he was not aware about the actual risks of the notes, due to the complexity of the structure and the poor training given to the RMs.

I told this RM that the bank does not have the right to hold him financially responsible for the honest mistake, especially as most of the other RMs were also poorly trained about these notes. It would be wrong for the bank to expect the RMs to tell a lie now to cover up for the mistakes.

I will arrange for these RMs to get legal advice and to make a statutory declaration about the actual statements and assurances that they gave to the customers about the notes.

I wish to call other RMs to step foward and be ready to make this statement. Please act honestly and with courage, and do what is right and fair. If you are willing to make this statement, send an e-mail to kinlian@gmail.com. I will get a large group of RMs to make this statement, so that you will not be standing alone.

Offer of compensation

Some investors are getting offers from the distributor (financial institution) to compensate at 30% of the invested sum. They are given a deadline to accept the offer. If they do not accept, the offer expires and they get a rejection letter from the distributor.

They ask my views on whether to accept this offer. It is difficult for me to give this advice. My view is that a fair offer is 50% of the amount of loss (i.e. difference between the invested sum and the current market value).

Some investors feel that 50% is inadequate and wish to fight for a higher compensation. Other investors feel that they should accept the offer of 30%, as this is the best under the circumstances.

What is your view? Please reply to this survey:
http://www.surveymonkey.com/s.aspx?sm=_2b2e2PBMeL_2bR3lqPs9dmcBQ_3d_3d

SCMP:Lehman claims' bill HK$257m

http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=2E5GL07SZNL8&linkid=37439ce3-e661-4035-8255-27b3f638efea&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d

17 Dec 2008
Joyce Man Joyce Man and Paggie Leung

Seventeen banks have so far paid a total of HK$257 million to settle 616 claims brought by Hong Kong investors in financial derivatives which lost much or all of their value when US investment bank Lehman Brothers collapsed three months ago.

The figures were disclosed yesterday by the Hong Kong Monetary Authority, which said banks were in the process of settling a further 1,000 claims involving investments of HK$429 million.

The authority did not disclose the amounts involved in individual settlements.

Last week, Democratic Party lawmaker Albert Ho Chun-yan said banks had paid HK$ 30 million in compensation to about 60 investors in financial products issued or guaranteed by Lehman Brothers.

The police commercial crimes bureau has received more than 5,000 complaints from investors.

The bureau had taken statements from 2,566 of the 5,184 complainants, the Democratic Party said after party lawmaker Kam Nai-wai met the head of the bureau, Chief Superintendent Chan Yiu-kwok, yesterday.

The bureau was seeking legal advice on whether any crimes may have been committed, Mr Kam said.

He expressed dissatisfaction with the speed with which the bureau was handling the cases, and claimed many of them had obvious evidence of criminality.

Some 43,700 Hongkongers invested HK$15.7 billion in derivatives linked to Lehman Brothers, which sought bankruptcy protection amid the global credit meltdown. Most bought minibonds – high-risk, credit-linked products which derived part of their value from the performance of complex underlying assets.

Many of those who bought minibonds claim bank staff mis-sold them as low-risk investments in wellknown companies.

The Monetary Authority has received nearly 20,000 complaints about Lehman Brothers-related products. It has referred more than 200 to the Securities and Futures Commission for investigation of possible misconduct by banks. It is still investigating another 3,700-plus complaints and is seeking more information about a further 11,072.