Bill Hwang, founder of Tiger Asia Management LLC. Photo: Bloomberg
Jake's View
by Jake Van Der Kamp
Jake's View
by Jake Van Der Kamp

Tiger Asia: no trial, just tribulation

If a truly equitable compensation arrangement was virtually impossible in the Hontex case, how much more difficult is it over Tiger Asia?

Yes, I also find it a little wearisome to keep raising this Tiger Asia case, but when a regulatory agency, which we have ourselves set up, takes it on itself to undermine our civil liberties, well, let's be weary in a good cause.

First, however, let's review what happened in the Hontex case as the Securities and Futures Commission prides itself on this as its big success story in getting compensation for investors who have suffered from misdeeds in the market.

Hontex made false claims about turnover, earnings and cash holdings in its prospectus in 2009, for which the SFC had the stock suspended in March 2010, three months after trading had begun and after the price on the market had swung between HK$1.93 and K$2.63.

After a good deal of legal to-and-fro, all parties agreed more than two years later that the company would make a HK$1.03 billion share repurchase scheme at HK$2.06 a share, which sounds all very well except that it entirely ignores the question of who exactly was bought out of the stock.

Let's take the case of someone who subscribed to the new issue at HK$2.15 a share because he thought the earnings record attractive and then sold out near the low of HK$1.93 because the post-listing performance was poor. He was not compensated for this loss although he was a direct victim of false statements in the prospectus. The compensation was only paid to shareholders when the stock was suspended.

Or take the case of someone who subscribed at HK$2.15 and who was still holding the stock when it was suspended. Anxious to get some money out over a two year period of non-trading, he quietly asked his broker for an off market bid and accepted a price of, let's say, HK$1.50.

We now have an honest but swindled investor who has taken an even bigger loss while a broker who never even glanced at the prospectus turns a profit of 56 cents a share on an SFC-orchestrated buyback.

You think it didn't happen? Think again. A financial market will always come into existence where an opportunity beckons. It is not supposed to happen but a two-year freeze is a strong inducement.

In fact, it is entirely possible that an anonymous market maker in this grey market kept close tabs on SFC thinking about the Hontex case, which may have included some apparently innocuous conversations. How would you like that for inside information? I think it very well could have happened.

The SFC had a great idea - let's force investment thieves to make exact compensation to their victims. Unfortunately, it is just not workable. A better deterrent to a fraudulent prospectus would be to lay criminal charges. None were laid in the Hontex case.

But let us bring this back to Tiger Asia. If a truly equitable compensation arrangement was virtually impossible in the Hontex case, how much more difficult would it be to arrange one for the exact counter-parties in a short sale of a stock four years ago when that stock has continued to trade throughout? Who were these people, what did each pay and how much did each really "lose"? The intricacies are endless.

If the SFC tries it, I am sure an unofficial market would soon arise to set a price on the different scenarios, which would quickly make a mockery of the exercise.

The way out of this conundrum, of course, would be for the SFC to drop the compensation idea and instead bring insider dealing charges against Tiger Asia directors for selling a stock on the basis of information that was expected to make them buy that stock.

There is only one problem here. You have to be utterly credulous to call this dealing on inside information.


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This article appeared in the South China Morning Post print edition as: Tiger Asia: no trial, just tribulation