Dear Mr. Tan,
I refer to the plight of a small group of investors who uses their CPF funds, namely the SRS retirement fund, to purchase Lehman Brothers minibonds.
I am sure many of these investors were literate in stocks but not sophisticated
enough to understand the instruments used in a complex structure like minibonds especially back in early 2006. In those days when subprime and CDO problems have not surfaced, only Lehman Brothers and maybe the distributors knew how good a product Minibonds are.
And i know several of these investors keeping the sadness and hatred to themselves. Maybe they were literate and they believed in the brochure and had not read further. Some i heard are government servants and they dont want to voice their feelings. I wonder why citizens in First World countries should hide their feelings.
Back in the early launch of the minibonds I and II, retirement funds were allowed to be invested. Shortly thereafter all later series of minibonds were not
allowed to be invested with retirement funds.
Most of these investors receive mailers (like that attached) from the distributors in their letter box. Some of them receive it month after month . Looking at the brochure itself you can tell the strong powerful entities are in bold. The small prints if there is, will refer you to refer somewhere else (you got to get) from the distributors where they will elaborate on the "junk" CDO. The brochure also shows the investor sitting safely on the shoulder of a strong gaint. Isnt all these misleading.
One investor told me, after looking at the quality of the reference entities of the brochure and since he has not invested in bonds before(when most of his investments are in risker stocks), he decided to use his long term old age retirement funds (SRS) to buy some safe bonds. Yes altho he did this all on his own accord but knowing SRS is allowed for minibonds , he was more confident of the product and immediately sign up to purchase the bonds. His intention and objective of using retirement funds are definitely safe and security and long term.
This is definetely not appropriate to allow retirement SRS funds to be invested in something unsafe that can have $0 value. Something totally not right to call quality bonds when they are not bonds at all . A brochure that shows you sitting on the shoulder of a safe strong gaint. That is all totally misleading.
I think a caring government ought to debate on whether this group of investors who are educated but prefered something safe with retirement funds but was misled by the brochure and have kept quiet because they are afraid the government is not happy if they were to voice their opinion. I think we should ask why retirement funds was allowed for bonds I and II and why they were removed for subsequent minibonds and who should bear this responsibility.
Miss W
Tuesday, November 4, 2008
Tunis, 5 to 8 November
I will be in Tunis from 5 to 8 November. During this time, America will elect a new President. I may not be able to access internet conveniently.
Dr Lan Luh Luh – your further clarification is required.
Posted at request of Richard Woo
Firstly, it is heartening to note that Dr Lan is cognizant, from her own experience [she “talked to some of them on many previous occasions”], that “quite a number” of the financial managers [RMs?] had no understanding of the products they were selling. A good start for you, Dr Lan.
But we do not know how many RMs she had spoken to, on those “many previous occasions”, and whether they were the same persons or different persons. “Some” here can mean two or three only and if Dr Lan had spoken to only two or three people, it would not be accurate to say “quite a number of them did not even understand…” Furthermore, an extrapolation from the past may not be an accurate reflection of the present; the ones she spoke to may not be the ones who are doing the selling today; the latter may be more knowledgeable or better educated.
Secondly, Dr Lan commented: “Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.” There is no question that mis-selling has occurred, with regard to the so-called structured products linked to Lehman Brothers. Would Dr Lan agree with this statement, taking into account that several distributors have begun making restitution for having mis-sold?
Would Dr Lan also agree that when these products were being flogged to the public, the distributors made no distinction as to whom the products should be sold? In other words they were selling to every Tan, Lim and Chua, male or female, elderly or young, educated or illiterate? Would she agree that some of the sales measures, including promotion advertising material, adopted by some, if not all, distributors were clearly out of sync with the inherent risks of the products? Would she agree that these products were high-risk investments?
I refer now to the last paragraph of Dr Lan’s clarification: “Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.”
The last sentence seems to be the lynchpin of the entire paragraph. So, am I right in saying that Dr Lan is not excluding the right of “normal investors” to seek restitution for mis-selling, provided they can prove that they had been mis-sold, through misleading adverts and other misrepresentations made by the RM? Would Dr Lan discount the possibility that any distributor having mis-sold to A could also have mis-sold to B, or X or Y?
Finally, Dr Lan, [1] how do you define “normal investors”? and [2] whether there is anything in law that distinguishes “normal investors” from other investors?
BTW, to all those who have mistakenly assumed Dr Lan as a male, Dr Lan is a “she”.
Richard Woo
Firstly, it is heartening to note that Dr Lan is cognizant, from her own experience [she “talked to some of them on many previous occasions”], that “quite a number” of the financial managers [RMs?] had no understanding of the products they were selling. A good start for you, Dr Lan.
But we do not know how many RMs she had spoken to, on those “many previous occasions”, and whether they were the same persons or different persons. “Some” here can mean two or three only and if Dr Lan had spoken to only two or three people, it would not be accurate to say “quite a number of them did not even understand…” Furthermore, an extrapolation from the past may not be an accurate reflection of the present; the ones she spoke to may not be the ones who are doing the selling today; the latter may be more knowledgeable or better educated.
Secondly, Dr Lan commented: “Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.” There is no question that mis-selling has occurred, with regard to the so-called structured products linked to Lehman Brothers. Would Dr Lan agree with this statement, taking into account that several distributors have begun making restitution for having mis-sold?
Would Dr Lan also agree that when these products were being flogged to the public, the distributors made no distinction as to whom the products should be sold? In other words they were selling to every Tan, Lim and Chua, male or female, elderly or young, educated or illiterate? Would she agree that some of the sales measures, including promotion advertising material, adopted by some, if not all, distributors were clearly out of sync with the inherent risks of the products? Would she agree that these products were high-risk investments?
I refer now to the last paragraph of Dr Lan’s clarification: “Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.”
The last sentence seems to be the lynchpin of the entire paragraph. So, am I right in saying that Dr Lan is not excluding the right of “normal investors” to seek restitution for mis-selling, provided they can prove that they had been mis-sold, through misleading adverts and other misrepresentations made by the RM? Would Dr Lan discount the possibility that any distributor having mis-sold to A could also have mis-sold to B, or X or Y?
Finally, Dr Lan, [1] how do you define “normal investors”? and [2] whether there is anything in law that distinguishes “normal investors” from other investors?
BTW, to all those who have mistakenly assumed Dr Lan as a male, Dr Lan is a “she”.
Richard Woo
SCMP: Regulators have let down investors badly
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=6DE4R4MQKSI5&linkid=2476115f-8279-4017-a03e-d00ea406b4cd&pdaffid=8HM4kDzWViwfc7AqkYlqIQ%3d%3d
4 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com
Chief Executive Donald Tsang Yamkuen talked in his policy address of Hong Kong’s position as an international financial centre and spoke of “ optimising the supervisory framework” as though it were already very good. Alas, one can tell from the protests outside banks in recent weeks by investors complaining about being lured into unsound investments that the supervisory framework is far from satisfactory. In this connection, Premier Wen Jiabao
was much closer to the mark when he called on the Hong Kong government to “seriously learn the lessons” from the financial crisis and “analyse the problems with the structure of Hong Kong’s economy and regulation of its financial system”.
More than 43,000 people have lost money from investing in Lehman minibonds. Mr Tsang said that the Monetary Authority and the Securities and Futures Commission “will examine how to further strengthen the regulatory regime and enhance investor protection”. That is shutting the stable door after the horse has bolted. If banks had been under much tighter supervision, these tragedies could have been avoided.
The SFC, like its counterparts elsewhere, has a code of conduct for banks and other licensed or registered institutions. Its first general principle states that institutions should “act honestly, fairly, and in the best interests of its clients”. Can Hong Kong’s banks say, hand on heart, that they have acted in the best interests of their customers when persuading them to buy a risky product that investors did not understand?
One of the commonest complaints is that investors did not know what they were getting into because banks did not make adequate disclosure. This is in direct violation of General Principle Five, which says an institution “should make adequate disclosure of relevant material information in its dealings with its clients”.
Paragraph 5.3 is specifically about derivative products. This says that whoever provides “services to a client in derivative products” should make sure that “the client understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in the products”. Would Hong Kong be in this mess if the banks had abided by this provision?
General Principle Six warns against conflicts of interest. But in a system where banks pay their relationship officers bonuses for making a sale, these employees have a clear conflict between their own interests and those of their clients. What should be done?
According to General Principle Nine, “the senior management” should “bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures”.
The minibonds issue shows that banks sell risky products to retail customers not meant for them. Under the code, sophisticated financial instruments should only be sold to “professional investors”, a term that is carefully defined. This is a problem the SFC doesn’t seem to be sufficiently aware of. Its chief executive, Martin Wheatley, has been quoted as saying that investors should have ensured they knew what they were buying. If the responsibility is on the investor, what is the point of having a regulatory body?
Under the SFC’s code, a bank needs first to satisfy itself as to whether a client’s financial situation, investment experience and investment objectives make it appropriate to recommend a particular product. Such requirements are waived in the case of a “professional investor”.
Mr Wheatley seems to assume that all bank clients are professional investors. That is not the case. It is why the SFC’s code says banks cannot treat anyone as a professional investor unless he or she agrees in writing to be treated that way, and the client can withdraw from that status at any time. It seems that no one is regulating our regulators.
4 Nov 2008
Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com
Chief Executive Donald Tsang Yamkuen talked in his policy address of Hong Kong’s position as an international financial centre and spoke of “ optimising the supervisory framework” as though it were already very good. Alas, one can tell from the protests outside banks in recent weeks by investors complaining about being lured into unsound investments that the supervisory framework is far from satisfactory. In this connection, Premier Wen Jiabao
was much closer to the mark when he called on the Hong Kong government to “seriously learn the lessons” from the financial crisis and “analyse the problems with the structure of Hong Kong’s economy and regulation of its financial system”.
More than 43,000 people have lost money from investing in Lehman minibonds. Mr Tsang said that the Monetary Authority and the Securities and Futures Commission “will examine how to further strengthen the regulatory regime and enhance investor protection”. That is shutting the stable door after the horse has bolted. If banks had been under much tighter supervision, these tragedies could have been avoided.
The SFC, like its counterparts elsewhere, has a code of conduct for banks and other licensed or registered institutions. Its first general principle states that institutions should “act honestly, fairly, and in the best interests of its clients”. Can Hong Kong’s banks say, hand on heart, that they have acted in the best interests of their customers when persuading them to buy a risky product that investors did not understand?
One of the commonest complaints is that investors did not know what they were getting into because banks did not make adequate disclosure. This is in direct violation of General Principle Five, which says an institution “should make adequate disclosure of relevant material information in its dealings with its clients”.
Paragraph 5.3 is specifically about derivative products. This says that whoever provides “services to a client in derivative products” should make sure that “the client understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses of trading in the products”. Would Hong Kong be in this mess if the banks had abided by this provision?
General Principle Six warns against conflicts of interest. But in a system where banks pay their relationship officers bonuses for making a sale, these employees have a clear conflict between their own interests and those of their clients. What should be done?
According to General Principle Nine, “the senior management” should “bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures”.
The minibonds issue shows that banks sell risky products to retail customers not meant for them. Under the code, sophisticated financial instruments should only be sold to “professional investors”, a term that is carefully defined. This is a problem the SFC doesn’t seem to be sufficiently aware of. Its chief executive, Martin Wheatley, has been quoted as saying that investors should have ensured they knew what they were buying. If the responsibility is on the investor, what is the point of having a regulatory body?
Under the SFC’s code, a bank needs first to satisfy itself as to whether a client’s financial situation, investment experience and investment objectives make it appropriate to recommend a particular product. Such requirements are waived in the case of a “professional investor”.
Mr Wheatley seems to assume that all bank clients are professional investors. That is not the case. It is why the SFC’s code says banks cannot treat anyone as a professional investor unless he or she agrees in writing to be treated that way, and the client can withdraw from that status at any time. It seems that no one is regulating our regulators.
Monday, November 3, 2008
10,000 SACRIFICIAL LAMBS
Sent to me by RW
Is it worth sacrificing 10,000 loyal and trusting customers in order to remain in the good books of greedy Wall Street "investment" banks ?
Instead of fighting for the rights of 10,000 individuals with limited resources, why are we still defending the "mighty" investment banks shamefully bailed out with Billions, actually, Trillions of taxpayer funds all over the world, and yet, some commentators are saying these 10,000 victims should receive nothing ( except for a few "wayang" vulnerable cases ) ?
Is trying to compete to be THE financial hub, when the financial industry is in ruins, causing untold pain on individuals and pension funds, perpetrated by these discredited "investment" banks, holding back the authorities from acting, when in the US, law enforcement agencies have compelled these "investment" banks to COMPLETELY return all money to victims ?
Would moral hazard be NOT an issue anymore as no one in the right mind will touch any financial product ever again ?
Recipe for a toxic financial product ?
Buy cheap sub-prime mortagages. Chop them up. Toss in junk bonds. Blend together for 10 minutes. Chop the mess into smaller, digestable lots. Mix with some respectable names. Ask the Ratings Agencies to dress them up with AAA+ grade. Give them "high" sounding names, like mini-"Bonds" ( Lehman ), "Pinnacles" ( Morgan Stanley ), "High" Notes ( DBS ), "Jubilee" ( Merill Lynch ), etc from "trusted" institutions.
Why have US Law Enforcement Agencies ( FBI, SEC, US Attorneys for Manhattan, Brooklyn and New York State Attorney General , etc ) successfully prosecuted and are presently prosecuting Wall Street investment banks and their ex-top executives, and compel the COMPLETE return of all victims' money ?
RW
http://www.nytimes.com/2008/02/02/business/02legal.html?scp=1&sq=Massachusetts%20+%20Merrill%20Lynch&st=cse
By ERIC DASHPublished: August 21, 2008
Three major investment banks — Merrill Lynch, Goldman Sachs and Deutsche Bank — will soon buy back at least $12.5 billion in auction-rate securities and pay $162.5 million in fines as part of separate settlements reached Thursday with state regulators.
In earlier settlements, Citigroup, JPMorgan Chase, Morgan Stanley, UBS and Wachovia agreed to buy back $35 billion of the securities and pay more than $360 million in fines. Several other firms, including Bank of America, are negotiating deals.
Is it worth sacrificing 10,000 loyal and trusting customers in order to remain in the good books of greedy Wall Street "investment" banks ?
Instead of fighting for the rights of 10,000 individuals with limited resources, why are we still defending the "mighty" investment banks shamefully bailed out with Billions, actually, Trillions of taxpayer funds all over the world, and yet, some commentators are saying these 10,000 victims should receive nothing ( except for a few "wayang" vulnerable cases ) ?
Is trying to compete to be THE financial hub, when the financial industry is in ruins, causing untold pain on individuals and pension funds, perpetrated by these discredited "investment" banks, holding back the authorities from acting, when in the US, law enforcement agencies have compelled these "investment" banks to COMPLETELY return all money to victims ?
Would moral hazard be NOT an issue anymore as no one in the right mind will touch any financial product ever again ?
Recipe for a toxic financial product ?
Buy cheap sub-prime mortagages. Chop them up. Toss in junk bonds. Blend together for 10 minutes. Chop the mess into smaller, digestable lots. Mix with some respectable names. Ask the Ratings Agencies to dress them up with AAA+ grade. Give them "high" sounding names, like mini-"Bonds" ( Lehman ), "Pinnacles" ( Morgan Stanley ), "High" Notes ( DBS ), "Jubilee" ( Merill Lynch ), etc from "trusted" institutions.
Why have US Law Enforcement Agencies ( FBI, SEC, US Attorneys for Manhattan, Brooklyn and New York State Attorney General , etc ) successfully prosecuted and are presently prosecuting Wall Street investment banks and their ex-top executives, and compel the COMPLETE return of all victims' money ?
RW
http://www.nytimes.com/2008/02/02/business/02legal.html?scp=1&sq=Massachusetts%20+%20Merrill%20Lynch&st=cse
By ERIC DASHPublished: August 21, 2008
Three major investment banks — Merrill Lynch, Goldman Sachs and Deutsche Bank — will soon buy back at least $12.5 billion in auction-rate securities and pay $162.5 million in fines as part of separate settlements reached Thursday with state regulators.
In earlier settlements, Citigroup, JPMorgan Chase, Morgan Stanley, UBS and Wachovia agreed to buy back $35 billion of the securities and pay more than $360 million in fines. Several other firms, including Bank of America, are negotiating deals.
Market Discipline and Caveat Emptor
Read the message
http://www.mas.gov.sg/news_room/statements/2002/Address_by_DPM_at_MAS_Staff_Seminar_2002__29_Oct_2002.html
Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor
22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.
23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.
24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
http://www.mas.gov.sg/news_room/statements/2002/Address_by_DPM_at_MAS_Staff_Seminar_2002__29_Oct_2002.html
Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor
22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.
23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.
24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
Open Forum with OCBC Bank/Securities
MESSAGE
We would like to invite all investors who have invested in the Lehman Brothers Minibonds, Merrill Lynch Jubilee and Morgan Stanley Pinnacle Notes through OCBC Bank/Securities, to participate in an open forum with OCBC.
This invitation is open to investors regardless of whether you have or have not attended an interview with OCBC. We are going to request for Mr Hwang Soo Jin, the independent party appointed by the Monetary Authority of Singapore to oversee OCBC complaints process, to be present at the forum, as we are keen to share our concerns with him.
We have set an agenda for the forum and are extending this invitation to gather as many investors as possible. We believe that with more investors attending this forum, OCBC cannot ignore our request and will consider more seriously the appeal of all affected investors.
Please submit your name (with some proof that you have invested in one of the above-mentioned notes through OCBC Bank/Securities), your email address and contact number to Miss WM , OSPLmailbox@gmail.com by 7 November 2008.
The date for this forum is not yet confirmed, as we have to arrange this with OCBC. You will be advised when this arrangement is finalised.
Melvin
On behalf of the
OCBC Bank/Securities Investors' Group
We would like to invite all investors who have invested in the Lehman Brothers Minibonds, Merrill Lynch Jubilee and Morgan Stanley Pinnacle Notes through OCBC Bank/Securities, to participate in an open forum with OCBC.
This invitation is open to investors regardless of whether you have or have not attended an interview with OCBC. We are going to request for Mr Hwang Soo Jin, the independent party appointed by the Monetary Authority of Singapore to oversee OCBC complaints process, to be present at the forum, as we are keen to share our concerns with him.
We have set an agenda for the forum and are extending this invitation to gather as many investors as possible. We believe that with more investors attending this forum, OCBC cannot ignore our request and will consider more seriously the appeal of all affected investors.
Please submit your name (with some proof that you have invested in one of the above-mentioned notes through OCBC Bank/Securities), your email address and contact number to Miss WM , OSPLmailbox@gmail.com by 7 November 2008.
The date for this forum is not yet confirmed, as we have to arrange this with OCBC. You will be advised when this arrangement is finalised.
Melvin
On behalf of the
OCBC Bank/Securities Investors' Group
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