Singapore says audacious penny stock scheme cheated Goldman

A view of the central business district in Singapore. (Photo:REUTERS/Edgar Su)

By Joyce Koh and Melissa Cheok

(Bloomberg) —
The masterminds of Singapore’s “most audacious” market manipulation scheme cheated Goldman Sachs International and Interactive Brokers LLC as part of a plan that resulted in the 2013 penny-stock crash, prosecutors said as a trial began against the two alleged perpetrators.

Malaysian businessman John Soh Chee Wen faces 189 charges while Quah Su-Ling, former chief executive officer of Ipco International Ltd., faces 178 charges for orchestrating the fraud, Singapore prosecutors said as the trial started Monday. Soh and Quah pleaded not guilty to the charges.

“This is a prosecution for the most serious case of stock market manipulation in Singapore,” Deputy Public Prosecutor Peter Koy said in an opening statement which lasted almost two hours. Soh and Quah, aided by a third person, artificially inflated the liquidity and manipulated the price of shares in three companies listed on the Singapore stock exchange, Koy said. The two were accused of conducting trades through accounts that were opened with 20 financial institutions, including foreign and local brokerages and private banks.

Among the charges are six each for deceiving Goldman and Interactive Brokers to extend margin financing and deliver payment of more than S$232 million ($172 million) for the purchase of securities, according to a statement from the prosecutors. Goldman Sachs International is a unit of Goldman Sachs Group Inc.

The trial is the culmination of years of investigation into a stock market rout that has been blamed for falling trading volumes in the city. The stock-trading irregularities related to Blumont Group Ltd., LionGold Corp. and Asiasons Capital Ltd., which has been renamed Attilan Group Ltd., saw the stocks surge by at least 800 percent over nine months before they plunged during three days in October 2013. The rout spurred brokers to clamp down on margin lending and has dented trading sentiment.

Singapore meted out its first jail sentence for the penny-stock rout last week, with the prosecutor calling the crash the result of the “most audacious, extensive and injurious market manipulation scheme ever” in the city state.

Goh Hin Calm, who was Ipco interim CEO, was sentenced to 36 months imprisonment in a Singapore court Wednesday. Goh, who earlier pleaded guilty to two of six charges under the Securities and Futures Act, helped two others in perpetuating the scheme, prosecutors said last week.

The crash wiped S$8 billion off the value of shares of three companies in October 2013. For his part, Soh said in a 2016 interview that the crash in the shares of the mining companies was due to a “collection of ad hoc events” triggered by an unexplained phenomenon.

The three companies have said they don’t know what caused the sudden declines. Banks and brokers have sued their clients and others to recover at least $230 million from the stock rout.

Soh and Quah used accounts held at firms including UOB Kay Hian Pte, AmFraser Securities Pte, Goldman Sachs, Credit Suisse Group AG, Interactive Brokers and Saxo Bank A/S, prosecutors said. The financial institutions will give evidence that they didn’t know Soh and Quah were instructing trades in the accounts, according to the prosecution.

Goldman and Interactive Brokers were deceived into accepting shares of the three companies as collateral in extending financing, not knowing that the market for those shares was false, according to Monday’s prosecution statement. The financing was used for margin trading to manipulate the shares, the prosecutor said, describing the process as a “vicious cycle of deception, cheating, and market manipulation.”

The trial is expected to last at least until November.

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