Witness admits brokerage did not conduct internal investigation into accounts despite CAD, MAS probe

Amala Balakrishner

Updated 22 October 2019 at 6:44 am

SINGAPORE (Oct 22): Maybank Kim Eng Securities did not conduct internal investigations into accounts under broker Ong Kah Chye, even after receiving probes from the Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS), a representative of the brokerage admitted in court on Tuesday.

These accounts under Ong are believed to have been part of a web of trading accounts used by alleged masterminds John Soh Chee Wen and Quah Su-Ling to manipulate shares in Blumont Group, LionGold Corp and Asiasons Capital (now Attilan Group) in the 2013 penny stock crash.

Prosecution witness Kwek Thiam Buck, head of the retail brokerage trade support department at MBKE, said under cross-examination on Tuesday that the brokerage firm only knew of the severity of Ong’s involvement upon hearing from state prosecutors.

“There was no basis to investigate until or unless we have evidence that the account was in misuse,” Kwek said. As head of MBKE’s client services margin department between 2014 and April 26 this year, he oversaw the cash equities, margin financing and client services departments.

Kwek added that MBKE wanted to err on the side of caution and did not want to jeopardise the authorities’ investigations. As such, he claimed that MBKE had “held back on internal investigations,” even though the law enforcement agencies had not directed them to do so.

Further, Kwek noted that “there was no basis” for MBKE to conduct internal investigations as the brokerage often received queries from the authorities.

He added that the brokerage would only dig deeper when there was evidence of involvement in unauthorised activities or malpractice.

To this, Soh defence counsel, led by senior counsel N Sreenivasan of K&L Gates Straits Law, declared that Kwek’s testimony was “hypocritical”.

“[MBKE] did not bother about this,” Sreenivasan suggested.

Earlier, during examination-in-chief by deputy public prosecutor David Koh, Kwek stressed that account holders may “only apply for trading accounts for themselves and not behalf of any other person or third party”.

He elaborated that this is so the bank verifies the creditworthiness and background of the client to assess if he could be involved in money laundering or terrorist financing activities.

The practice is also to “make the account holder liable for all the trades made” in order to facilitate the recovery of losses, he added.

While this means that the account holder is the only one that can give trading instructions, Kwek added that written third-party authorisation may be given. He went on to say that such authorisations are processed immediately for immediate family members. In other cases, the processing is done personally by the trading representative, Kwek said.

In addition, Kwek emphasised that the brokerage is firmly against nominee trading.

In Soh’s situation, where instructions were given to trading representatives without the proper third-party authorisation, Kwek said he would issue a warning and reprimand the trading representative to stop such trades.

Earlier in the day, the court had also heard about the importance of third-party authorisation when Choo Lee Lee, an associate director at UOB Kay Hian’s Credit Control Department, returned to the stand.

In response to questions by Quah’s lawyer, Philip Fong of Eversheds Harry Elias, Choo revealed that the brokerage firm earns higher commissions from contra trading.

However, she added that the amount of benefits gained is dependent on the risk level and limiting amount available to the credit holder.

Contra trading occurs when the same shares are bought and sold without payment being made. But after a transaction, investors are given three days – known as the contra period – to transfer the cash to the brokerage as payment for the shares.

Such method of trading is said to have been favoured by Soh and Quah as part of their alleged market manipulation scheme.

Choo noted that the brokerage conducts extensive credit assessments before allowing clients to perform such trades. And even if they are deemed to be credit worthy, a client is “only given as much credit as he is assessed to be worthy of,” Choo added.

While the bank is not concerned with who advises clients on the trades performed through their accounts, Choo stressed that it is the responsibility of trading representatives to get third-party authorisation from their clients.

The trial resumes at 10.30am on Wednesday.

What the 2013 Penny Stock Crash trial is about

John Soh Chee Wen is the alleged mastermind behind the penny stock crash of 2013, which prosecutors have called “the most audacious, extensive and injurious market manipulation scheme ever in Singapore”.

Together with his alleged co-conspirator and girlfriend Quah Su-Ling, Soh and his associates are alleged to have been behind the massive rise and sudden collapse of shares in Blumont Group, LionGold Corp and Asiasons Capital (now Attilan Group), which wiped out some $8 billion in market value.

Subscribers can click here to read our 8-page special pullout on the penny stock crash trial.

Don’t miss out on these highlights in the penny stock saga so far:

Second tranche of witnesses (starting Oct 1, 2019)

First tranche of witnesses (March 11, 2019 to May 24, 2019)