Criticism mounts of FSS oversight of debt-ridden Tongyang

 

Criticism mounts of FSS oversight of Tongyang

 

‘There’s growing doubt over the role of the financial regulator.’

 

Oct 03,2013

 

In June, a 47-year-old office worker surnamed Jeong received a call from an employee at Tongyang Securities, the brokerage arm of debt-ridden Tongyang Group. According to Jeong, he was introduced to investing in bonds issued by the conglomerate and was told he would get an annual interest rate of 7 percent, more than three times higher than the market average.“I decided to invest 30 million won ($27,926) after hearing from the employee that the principle would be guaranteed,” Jeong said. “All he did was to ask for my [account] password and said he would sort other things out.”

The bonds Jeong invested in were to mature after 18 months and were issued by Tongyang Corporation, which filed for court receivership on Monday. Market analysts note that considering the sour financial conditions of the conglomerate’s de facto holding company, Jeong will most likely lose more than 70 percent of the 30 million won he invested.

“Come to think of it, isn’t it an unfair financial practice to persuade a consumer to join a financial product based simply on a call without having me sign a contract?” he asked in an anxious voice.

Jeong is just one of the 49,000 individuals who invested in the corporate bonds and commercial paper of Tongyang Group affiliates through Tongyang Securities.

Ever since concerns rose over the fate of Tongyang Group last month, with the conglomerate not securing enough funds to pay back its due debts, a growing number of consumers who invested in Tongyang Group affiliates have expressed worry and started to file complaints. So far, five affiliates of the cash-strapped group have filed for court receivership, and whether or not the court will allow them to continue its business is unknown.

The Financial Supervisory Service said yesterday it will expand the number of claim centers where consumers can file complaints over unfair treatment by Tongyang Securities. The regulator started receiving claims on Monday.

The FSS says it added 18 consultants to the complaint task force that now has 49 members, including six lawyers. It has also extended consulting hours to 8 p.m. from 5 p.m., and the centers now also operates on Saturdays and during holidays.

Despite these efforts, criticism is growing against the FSS for not having properly monitored Tongyang Securities. According to reports yesterday, Tongyang Corporation issued asset-backed commercial paper worth 156.9 billion won in July and September through a special purpose company set up to raise money.

“When I first heard the news regarding Tongyang, I was surprised that the regulator wasn’t able to have control over it and prevent the current crisis involving financial consumers from happening,” said an industry official. “There’s growing doubt over the role of the financial regulator.”

Last week, when controversy over Tongyang Securities rose, FSS Governor Choi Soo-hyun tried to calm investors, saying their money was safe. He even convened another press briefing earlier this week and repeated his remarks.

“Consumers should be cautious about making any quick decisions [to withdraw their investments],” Choi said. “Stock investments made through Tongyang Securities have been protected.”

With the possibility that their investments might evaporate, consumers are angry.

A 33-year-old surnamed Kang, who lives in Incheon, invested 65 million won in a three-month-maturity commercial paper of Tongyang International. The money was originally deposited in a safer cash management account (CMA). Kang said he received a call from an employee of Tongyang Securities who recommended the investment.

“I had saved the money to spend it later on jeonse [lump-sum deposit],” Kang said. “I asked the employee if the investment was safe and he told me I shouldn’t worry about it.”

Meanwhile, according to market sources, it’s likely that investors who poured money into the commercial paper and corporate bonds of the five affiliates that have filed for court receivership will not be able to get back their investments until the court decides within six months what percentage they can receive.

 

“Incomplete sales” of Tong Yang’s bonds, CPs reach 1,800 reports

Park Seung-chul

2013.10.02 18:05:26

The Financial Supervisory Service (FSS) has received around 1,800 reports of “incomplete sales” of Tong Yang Group’s corporate bonds and commercial paper (CP) during two days between Monday and Tuesday. The Financial Consumer Agency has also received over 10,000 cases of civil complaints that Tong Yang Securities sold CPs issued by Tong Yang Group without notifying investors their full risks.

To reduce losses, investors need to secure as much evidence as possible that prove companies engaged in incomplete sales, according to the FSS.
Incomplete sales refer to a seller’s failure to inform investors the structure, risk of losing principal and other important details of financial investment products during promoting the products. The Financial Investment Service and Capital Market Act require sellers to identify clients’ investment preferences, recommend products suitable for their preferences, clarify the details and risks of the products to clients and obtain confirmation from clients that they understood risks. In addition, sellers are prohibited from giving decisive conclusions on uncertain investment circumstances or misleading information.
Investors, therefore, need contracts, advertisements, flyers and notifications letters regarding purchase of corporate bonds or CPs for verification. Investors are also advised to summarize information given by securities firms during their sales pitch for financial products.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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