Marking the beginning of a new approach in combating market manipulation, the Securities Commission (SC) has initiated a milestone civil enforcement action against eight foreign parties and two Malaysians in relation to the manipulation, market rigging and fraud of Iris Corporation Berhad (Iris) shares.
In addition, the SC sanctioned two stockbroking companies and two dealer’s representatives involved in the case.
Civil enforcement action
The two Malaysians named in the civil suit are Dato’ Tan Mong Sing and Low Thiam Hock.
Meanwhile, the foreign defendants comprise the following five companies and three individuals:
- Aeneas Capital Management, L.P.
- Priam Holdings Limited
- Aeneas Evolution Portfolio, Ltd.
- Aeneas Portfolio Company, L.P.
- Acadian Worldwide Inc.
- Thomas R. Grossman (Managing Partner, Investment Manager and Portfolio Manager of Aeneas Capital Management, L.P.)
- Richard Benjamin Cohen ( Research Analyst cum Malaysian Investments Trader of Aeneas Capital Management, L.P.)
- John Suglia ( Principal and Chief Operating Officer of Aeneas Capital Management, L.P.)
The civil enforcement approach enables the SC to seek various reliefs from the High Court including injunctions, compensation, restitution and declaratory orders.
In relation to the Iris share manipulation, the SC, in its civil suit filed on 27 March 2008 at the Kuala Lumpur High Court, is seeking:
- declaration that all the defendants conspired to manipulate the market and share price of Iris, and defrauded investors;
- declaration that all profits earned by the defendants are held in constructive trust for the benefit of the affected investors;
- orders that all the assets and properties of each of the defendants be traced and followed, and then paid to the SC for the purpose of compensating the affected investors;
- permanent injunction to restrain each of the defendants from trading in Iris shares;
- permanent injunction to restrain each of the defendants from trading in any counter on Bursa Malaysia or MESDAQ; and
- general and exemplary damages
In addition to the civil suit against the named defendants, the SC has imposed administrative sanctions against MIDF Amanah Investment Bank Berhad on 17 December 2007, and PM Securities Sdn Bhd on 1 February 2008.
Both PM Securities and MIDF Amanah Investment Bank were fined RM400,000.00 and RM200,000.00 respectively, and suspended from submitting any application to register new dealer’s representatives for six months.
Administrative sanctions were also imposed against two dealer’s representatives from Avenue Securities Sdn Bhd namely Lee Hooi Li and PatrickTaylor to revoke and to suspend their dealer’s representatives licences respectively.
Lee was found to have used five accounts without authorisation of the account holders when transacting in Iris shares. Meanwhile Taylor was found to have failed to perform his duties efficiently, honestly and fairly in carrying out his supervisory responsibility over Lee.
Additionally, a dealer’s representative from PM Securities Sdn Bhd, Lim Joo Lang, was suspended by Bursa Malaysia in July 2007. Lim was barred from trading for a period of nine months and fined RM10,000.00 for various breaches of Bursa Securities rules in relation to the trading of Iris shares.
SC’s investigation into the manipulation of Iris shares
The SC initiated formal investigation after Iris was declared a designated counter on 11 May 2006.
From September 2005 to May 2006, the price of Iris shares rose by 17 times from RM0.08 to a closing high of RM1.36 per share on the back of very strong demand with an average of 200 million shares being traded daily.
The SC’s investigation found that the manipulation was carried out through a complex layering of the origination of the orders and transactions via foreign intermediaries in several jurisdictions.
The investigation further revealed that the defendants had collectively used numerous trading accounts which contributed to the strong demand for Iris shares during the material period. The foreign defendants and their representatives worked closely with the Malaysian defendants in creating an artificial demand for Iris shares.
The SC was able to unravel the defendants’ activities through painstaking and careful analysis of trading data of more than 100 trading accounts at 15 local and 16 foreign brokers, records of various communication modes between the perpetrators including more than 200,000 e-mail messages, and recording of statements from witnesses locally and overseas.
In pursuing its investigation, the SC worked closely with its foreign counterparts namely the US Securities and Exchange Commission (SEC), Hong Kong Securities and Futures Commission (HKSFC), Monetary Authority Singapore (MAS), Financial Services Authority UK (FSA), BVI Financial Services Commission (BVIFSC) and Cayman Island Monetary Authority (CIMA).
The Statement of Claim pertaining to this civil suit is available for viewing here (pdf – 336KB)