Alternative Views: Takeaways from John Soh’s fall

This article first appeared in Forum, The Edge Malaysia Weekly, on January 9, 2023 - January 15, 2023.
Alternative Views: Takeaways from John Soh’s fall
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Stock manipulation is probably the most common of white-collar crimes. It happens on a daily basis in various forms. The objective is to manipulate the price of stocks with a view to deceiving normal investors.

For instance, when prices of certain stocks move up on the last trading day of the year, the intention is to see that the benchmark index finishes on a high note. It is a form of manipulation. A higher close of the index gives the false view that the market is buoyant.

When prices of certain stocks are deliberately closed at a certain level every day, it is sometimes due to the actions of some shareholders who want to prevent a margin call. This is another form of manipulation.

Usually, the scale of manipulation is small, involving one or two companies, and the unusual volume traded happens over a few hours or days.

There are some instances of large-scale manipulation involving more than two stocks and that take place over a few months. Seasoned observers will recognise it when they see abnormal volumes and price movements of several stocks.

Such large-scale manipulation over a period of time affects the credibility of the stock exchange and the regulators. When it takes place over several months, it ends up causing financial stress on retail players and sometimes, the stress extends to the brokerages that allow financing.

That is what happened in Singapore in 2013. The Singapore penny stock fiasco, as it was dubbed, was a large-scale stock manipulation that caused some S$8 billion in losses and put a few brokerages under stress. Two brokerages — Goldman Sachs International and Interactive Brokers — were deceived into providing lines of financing amounting to US$142 million and US$815 million respectively.

The three stocks at the heart of the manipulation were Blumont Group Ltd, Asiasons Capital Ltd and LionGold Corp Ltd. Their share prices and volume were “managed” from August 2012 until Oct 3, 2013.

The Singapore Exchange (SGX) suspended the stocks on Oct 4, 2013, causing all three to crash and billions in market capitalisation to be lost.

Investigations and subsequent prosecution culminated on Dec 28, 2022, with the Singapore High Court sentencing the main perpetrators — Soh Chee Wen and his companion and partner in crime Quah Su-Ling — to 36 years and 20 years imprisonment respectively.

The biggest takeaway from the trial, which started in 2016, is that large-scale manipulation can be detected and those responsible punished if there is a resolve by all parties involved in enforcing the laws and regulations of the capital markets to do so.

The second takeaway is that the task of tackling large-scale stock manipulation cannot be handled by just the stock exchange or the enforcement agency for the capital markets. The central bank has to play a key role.

In Malaysia, Bursa Malaysia and the Securities Commission (SC) are the main agencies that monitor the capital markets. Both entities will have the relevant information on those responsible for the stock manipulation but are not equipped to unearth evidence, which is the money trail.

The key authority for probing stock manipulation is the central bank, which keeps track of money flows into and out of the country. In Malaysia, the central authority is Bank Negara.

In the penny stock fiasco, the joint efforts of the Monetary Authority of Singapore (MAS), SGX and Commercial Affairs Department (CAD) saw the prosecution being successful against Soh, better known as John Soh, and Quah.

The investigations unearthed evidence of the duo controlling 187 trading accounts opened under the names of 58 individuals and corporate nominees. During the investigations, MAS and CAD raided more than 50 locations and interviewed more than 70 persons.

Investigations revealed that they were responsible for generating artificial liquidity and demand for the shares of the three companies, causing their price to rise over time. At the same time, there was no change in ownership and the trading was not disclosed to the authorities.

Apart from SGX, MAS and CAD, another enforcement arm that played a key role in the scandal was the judiciary.

Soh’s 36-year sentence is probably the heaviest ever meted out by the courts for stock market manipulation. And he had been locked up without remand since 2016 as the authorities had identified him as a “flight risk”.

There are others, such as Bernard Madoff and Sholam Weiss, who were given much longer prison terms but they were put behind bars for running investment schemes that were actually Ponzi schemes, for accounting fraud and for money laundering.

As far as stock market manipulation is concerned, Soh’s sentence is probably the heaviest. It has sent a strong message to others who might try to manipulate the capital markets in Singapore.

Justice was meted out swiftly. The penny stock fiasco ended in October 2013 and Soh, who was adviser to LionGold, was hauled up and his passport impounded. By 2016, he was charged and remanded without bail. The trial started in 2019 and four years later, he was sentenced.

In Malaysia, Low Thiam Hock, better known as Repco Low, was charged in September 1999 for stock market manipulation that allegedly happened in 1997. His case is still ongoing.

It is the end of the road for Soh. It will be almost impossible for him to manipulate shares in his remaining lifetime if he is to serve out even half of his 36-year sentence.

The 63-year-old will be close to 80 when he is out of his Singapore jail. By then, he would have learnt the hard way that the act of manipulating stocks is not taken lightly in that country.

The Singapore authorities have proven that they will come down hard on those who damage its status as a financial hub.

Everyone knows that stock market manipulation is bad for capital markets. The adverse effects are grave especially when it is carried out over several months and involves many listed companies.

In 2020 and 2021, The Edge reported large-scale abnormal trading volumes and movements in the share prices of more than 30 stocks. The stocks were linked to one another through an intricate web of cross-shareholdings.

Today, almost all the stocks are at a fraction of their value. The trading volumes have fizzled out, just like their prices.

What’s appalling is everybody in the industry was aware that something was wrong and it was disruptive to the capital markets. Yet, because the victims were market participants and not individuals, the resolve to hold those responsible accountable was somewhat muted.

Investigations by Bursa Malaysia and SC ended with no one being charged.

Instead, The Edge was hauled up in court because of alleged misreporting. Fortunately, the charges brought against two editors of the newspaper, including this writer, were discontinued.

Large-scale stock manipulation is not healthy. It can be prevented if there is a resolve by all agencies, especially the SC and Bank Negara, to work together to follow the money trail.

M Shanmugam is a contributing editor at The Edge

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