HK government on Minibonds saga

Hong Kong Finance chief given report on minibonds saga
January 3, 2009 by admin
Filed under: South China Morning Post
Joyce Man, South China Morning Post01 Jan 2009

The banking and securities regulators handed a report on the minibonds saga to the financial secretary yesterday, three months after investors started complaining.

The Monetary Authority and the Securities and Futures Commission filed the report, on the lessons learned and issues they identified during an investigation into complaints about the Lehman Brothers issued minibonds, to acting Financial Secretary Chan Ka-keung.

Although there has been speculation that the report would pinpoint a few banks, sources at the regulatory bodies said the securities commission’s investigation had highlighted more than 20 distributors that sold minibonds, including banks and brokers.

The report focused on the mis-selling of the investment product.
Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives. They are marketed as proxy investments in well-known companies.
Although the Monetary Authority regulates banks, it has referred all the cases to the commission for further investigation, the sources said.

The government would keep an open mind on any review of the regulatory system and on whether the city needed a single regulator for all investment products, a spokesman for the Financial Services and the Treasury Bureau said.
He said the government would probably publish the report but that the regulators who submitted it had expressed concern that doing so would affect the ongoing investigation and any improvements to the system.
The Monetary Authority and the commission declined to comment on the report.

Meanwhile, two leaders of Singapore’s Lehman investors flew to meet their Hong Kong counterparts yesterday in the hope of finding common ground for a class action in the US.

Both the Singaporeans and Hongkongers said they were considering inviting leaders for similar investors from Taiwan to form a Southeast Asian group to mount the suit on US turf. They would probably meet again soon in Hong Kong, which had greater political freedom than Singapore, they said.

Lung Tze Kuen, a Minibond Victims Group committee member, and Goh Meng Seng, a National Solidarity Party executive council member, met Hong Kong’s Kam Nai-wai –- a Democratic Party member –- and Peter Chan Kwong-yue, chairman of the Allied Victims of Lehman Products.

The four investors’ leaders hope to go to the US because the legal system there provides for class action, which Hong Kong’s does not.

Mr Lung added that the jury system and contingent fee –- where clients do not pay lawyers if they lose their cases –- would work in the favour of investors who decided to join the suit.

They attempted to identify commonalities in the products sold in the two cities that would allow them to unite for a class action in the United States.
Mr Chan said: “The Lehman products are very similar in their basic structures, in issuer, trustee, and even the law firms that drew up their documents.”

In Singapore, about 10,000 people invested S$500 million (HK$2.69 billion) in Lehman-related investment products, of whom 8,000 purchased minibonds, Mr Lung said.