Opinion from Queen's Counsel

In December, I asked a lawyer to approach a Queen's Counsel for an opinion about the legality of the prospectus used for the credit linked notes.

The Queen's Counsel indicated an extremely high fee for the legal opinion. As this fee was many times more than the initial budget, I decided not to pursue this matter. I informed the group leaders about this decision.

Investors who wish to pursue the class action can contact the group leaders indicated in this blog. Please get an update from the group leader directly.

I have arranged with a lawyer to provide assistance to investors who wish to pursue the matter through FIDREC or the subordinate court on an individual basis. This is an alternative to the class action. Those who wish to make consider this option can send an e-mail to me at kinlian@gmail.com.

Tan Kin Lian

Thoughts For The Week: Tyranny

Contributed by Ho Chew Seng

"The modern conservative is engaged in one of man's oldest exercises in moral philosophy: that is the search for a superior moral justification for selfishness." : John Kenneth Galbraith

"Of all forms of tyranny the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of plutocracy" : John Pierpont Morgan

Erosion of ethics and honesty

Previously, we can trust business to be ethical and honest. The standard of ethics has deteriorated much in recent years. Many oraganisations think about profits and do not hesitate to cheat their customers.

I received a cheque in payment of providing a service. I did not bank in the check and it expired after six months. 

I sent an email to ask for a replacement cheque. I did not get any reply. I sent a hard copy letter by post. I did not get any reply. I did not get the replacement cheque. Another six months had passed.

I suspect that the accounts staff of this large and respected organisation probably felt that it was all right for the company to write back the forfeited amount as its profits. This is a very sad state of affairs.

Tan Kin Lian

The Standard:Yam yields on minibonds

The Hong Kong Monetary Authority has given way to legislators' demands to show them a censored part of a report investigating Lehman Brothers minibonds.

HKMA chief executive Joseph Yam Chi-kwong, who had previously refused to disclose the sealed findings citing the public interest, agreed on Monday night to present the findings to legislators for discussion, according to Raymond Ho Chung-tai.

Ho, who represents the engineering sector, expects lawmakers to discuss the matter on Friday at a closed-door meeting, with the next hearing taking place on Tuesday.

Yam, who testified at a Legco hearing for the first time yesterday, said the HKMA bears a strong responsibility to handle problems caused by the minibonds saga even though it issued warnings before the Lehman collapse.

In response to legislators such as Emily Lau Wai-hing, who accused Yam of ``falling asleep'' when handling complaints about the sale of minibonds, he said the HKMA is doing its best. But the search for justice would take time.

``Our heart goes to investors and we really want to help them,'' Yam said at the three-hour hearing.

``We will not be softhearted when we handle the complaints as they will affect our banking system. We are in a hurry to complete them.''

Almost 300 investors protested outside Legco yesterday, accusing Yam of turning a blind eye to questionable selling practices behind the derivatives.

The territory's de facto central bank aims to complete handling 70 percent of the more than 20,000 complaints it has received by March next year.

More than 6,000 cases have been settled or nearly settled, according to Yam.

From the end of 2007 to early 2008, eight banks adjusted ratings of credit linked products _ including minibonds _ to ``high-risk'' among 16 banks being investigated, Yam said.

In answer to a question by Ronny Tong Ka-wah, Yam suggested the term minibond may be misleading.

He had read minibond prospectuses, which referred to the derivatives as bonds.

But Yam reiterated that the Securities and Futures Commission is responsible for approving securities products and the HKMA has no right to give opinions when they are approved.

SCMP:HKMA chief to disclose full report at closed-door Legco meeting

The Hong Kong Monetary Authority chief has finally agreed to disclose its full report on the sale of Lehman Brothers-related products, but only to the Legislative Council subcommittee investigating the saga.

"We have been asking Joseph Yam [Chi-kwong] to give us the omitted parts of his review report, which was submitted to the financial secretary at the end of last year," Raymond Ho Chung-tai, chairman of the subcommittee set up to study the minibonds debacle, said yesterday. "He wrote back to us yesterday afternoon saying he would be willing to give us the whole report under closed-door conditions and explaining why he is seeking public interest immunity."

Both the HKMA and the Securities and Futures Commission prepared reports on the lessons learned and issues they identified during an investigation into complaints about the Lehman Brothers-related products at the request of Finance Secretary John Tsang Chun-wah. But some parts of the reports were not disclosed because the banking and securities regulators said their investigations would be affected by doing so.

The closed-door meeting on the report will be held as early as Friday, Mr Ho said. Asked if the subcommittee would make the non-disclosed part public, he said lawmakers would decide on this.

REUTERS:HKMA says it gave risk warnings before minibond failure

HONG KONG, April 14 (Reuters) - Hong Kong's central bank chief on Tuesday said he had warned investors about the risks of buying derivatives long before Lehman Brothers collapsed, but revealed that Lehman minibonds had been ranked "high risk" by only half of the 16 banks investigated.

More than 40,000 Hong Kongers ploughed nearly US$2.5 billion into failed structured products, known as minibonds, offered by U.S. investment bank Lehman Brothers, which collapsed last September.

Hong Kong Monetary Authority Chief Executive Joseph Yam, answering questions on the sale of Lehman minibonds in the Legislative Council, said he had issued several warnings in the media from the middle of 2006 about the risks of investing in derivatives products. By June 2008, banks in the city were no longer offering the Lehman products, he said.

"In terms of forewarning of risk, I think we have done enough," Yam said. Investors, however, claim they were misled over the sale of the products, which were called "minibonds" but were actually complex derviatives products, and have demanded full compensation.

Yam admitted that in late 2007 three banks distributing the bonds had ranked them as "low-risk" investment products and another five banks were selling them as "medium risk".

That was partly because the products were less risky before the credit crisis spread in 2008, Yam said.

"The risk for CDOs (collateralised debt obligations) suddenly shot up," Yam said. "We warned the market ... It did not mean banks were wrong, it was just that banks did not respond in a timely manner."

Only two distributors, Sun Hung Kai Financial and KGI Asia Ltd, have agreed to compensate Lehman minibond investors so far.

A spokeswoman for Bank of China (Hong Kong) declined comment on media reports that the bank, the largest distributor of the Lehman products, was in advanced talks with the Securities and Futures Commission about compensating investors.

The HKMA and the Securities and Futures Commission have separately made recommendations on how to better protect investors, including forcing banks to separate their deposit-taking and retail investment businesses from the end of September at the latest.

Investors in Singapore and Indonesia have also lost money on the products.

SCMP:Monetary chief defends actions in minibond saga I'm not shirking role: Joseph Yam

Monetary Authority chief Joseph Yam Chi-kwong stressed yesterday that the Securities and Futures Commission should be responsible for monitoring the disclosure of information on financial products.

"I'm not shirking responsibility," Mr Yam said. "The division of labour is very clear the HKMA does not have the power" to review the commission's work, he told a Legislative Council public hearing on the minibond saga.

While he conceded that the authority was responsible for regulating banks on the sale of structured products, he said: "My colleagues and I have done what we can do and we have fulfilled our responsibilities to get the job done to the best especially the job of regulating banks on the selling of structural products."

He was the second official to testify before the Legco subcommittee on Lehman Brothers-related financial products, after Chan Ka-keung, secretary for financial services and the treasury.

More then 48,000 investors in Hong Kong bought HK$20 billion worth of Lehman minibonds and structured products. Minibonds are not corporate bonds but consist of high-risk credit-linked derivatives that are marketed as a proxy investment in well-known companies.

Mr Yam was asked if the regulator had failed to protect investors by allowing high-risk financial products such as minibonds to be sold to ordinary investors.

He said the disclosure of information about financial products was beyond the responsibilities of the authority; the SFC, however, should be accountable. He also said that banks and brokers, rather than the regulators, should be responsible for assessing the risk of financial products.

Still, Mr Yam said the authority requested that banks raise the risk level of derivatives such as minibonds after it found in 2007 that only half of the 16 banks it investigated ranked those products as high-risk.

Mr Yam said he had repeatedly warned the public about the risk of buying derivatives products from the middle of 2006. Local banks were no longer offering Lehman minibonds by June last year.

He revealed that from April 2003 - when the Securities Ordinance came into effect - until Lehman Brothers' collapse in September last year, the authority had found 178 suspected cases of the mis-selling of financial products by banks. Of the 33 cases that have been closed, in nine cases banks were found guilty and were penalised.

Democratic Party lawmaker Emily Lau Wai-hing said the process was too slow and the authority had only finished investigating about 6,000 of more than 20,000 complaints related to Lehman products.

Mr Yam said the watchdog would recruit more staff, but some people found investigative work "disgusting". He expected to have dealt with 70 per cent of complaints by next March. About 300 investors who bought Lehman-related products protested outside Legco before the meeting yesterday. They said the regulators should be blamed for letting banks sell high-risk products.

China Daily:HKMA in defense over minibonds

HONG KONG: Chief Executive of the Hong Kong Monetary Authority (HKMA) Joseph Yam Chi-kwong admitted the government body is duty-bound in the Lehman Brothers' minibond saga, but it did enough in warning the market and monitoring banking businesses.

Yam was the second official, after Secretary for Financial Services and the Treasury Chan Ka-keung, testifying in the Legislative Council (LegCo) subcommittee's hearing which probed issues related to the investment products sold by the global financial services firm.

Lawmakers criticized the HKMA for its incapacity in monitoring the sales of structural products.

"I started to warn the market about the high risk brought by derivative instruments since mid-2006. Banks were given guidance on selling derivatives...I think the risk warning was quite enough," Yam said in his first testimony.

Lehman Brothers collapsed on September 14, 2008. Its minibonds cost nearly 50,000 Hong Kong investors billions of dollars.

He agreed that minibonds were complicated and the name misled people into thinking that the products were bond.

Yam said it was the responsibility of banks but not monitoring bodies to explain the nature and risk of products to investors, though he did frequently communicate with the financial secretary and financial services chief on market fluctuation.

The authority to examine and approve investment products lies in the Securities and Futures Commission (SFC), and the HKMA has no power to re-check its work, he added. The SFC is also responsible for determining if the disclosure of a product's information is enough.

Facing criticism from lawmakers, Yam emphasized he was not shirking the responsibility of the minibond incident.

"In monitoring banks' activities, including the sale of mortgage-linked products, I and my colleagues have done what we can within our authority," he responded.

Responding to charges that HKMA's benchmark was too lenient when eight-mortgage linked products could be rated low-risk and medium-risk, Yam shrugged off the allegation, noting that investment risks rose sharply with the onset of the global economic crisis.

Yam noted that the SFC (Securities and Futures Commission) failed to require lenders to re-evaluate risks entailed in their products once the market changed.

He added that in response to HKMA intervention some lenders did raise risk evaluations to high. Some lenders also stopped recommending high-risk products to investors. Yam told lawmakers HKMA referred 178 alleged illegal sales to the investigating committee between April 2003 and September 2008. Yam admitted the HKMA has limited power in investigation and punishment, otherwise the probe into the minibond debacle could be speeded up.

However, he rejected allegations that the investigation was too slow.

Around 6,000 of the 20,000 complaints have been handled since last year, while 6000 cases have reached settlement with banks. Yam expected to complete investigation of 70 percent of complaints by next March.

Over 200 people are deployed to deal with the complaints. Yam said it is not easy to hire new staff and training takes time.

"But I guarantee that our heart lies with the investors. We want to help them," he added the authority would not tolerate any illegal behaviors but will handle it in an impartial manner.

Yam will be summoned again to the fifth hearing next Tuesday. Yet subcommittee chairman Raymond Ho Chung-tai did not predict how many times Yam will testify.

Around 200 minibond investors protested outside the LegCo during Yam's stay yesterday morning. They accused the HKMA of not being able to keep an eye on the investment products.

Peter Chan, chairman of the Alliance of Lehman Brothers Victims, requested Yam to resign as he never apologized for the incident.