Vietnam securities watchdog to seize stock fraud profits

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The State Securities Commission (SSC) is drafting a regulation to confiscate profits gained through securities fraud as fines have failed to act as a deterrent.

Vu Bang, chairman of SSC, said the current maximum fine imposed on stock offences of VND70 million (US$3,690) would be increased to VND500 million ($26,370) soon, but profits from fraud would still outweigh fines in many cases.

"We [SSC] suggested higher fines but the government did not agree as VND500 million is now the highest administrative fine [in a regulation passed by the National Assembly, Vietnam's parliament, in 2008]," said Bang.

Fines for stock fraud, currently ranging from VND10 million to VND70 million, do not mean anything to offenders who pocket a huge amount of money thanks to insider trading or stock manipulation, experts say.

"In the coming time, people engaging in securities fraud such as insider trading or securities manipulation will not only have to pay fines but also give up their illegal profits to the authorities," Bang said.

Insider trading is a term that refers to "buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security."

Securities manipulation is an act of artificially inflating or deflating the price of a security.

An example of manipulation is to simultaneously buy and sell orders at about the same price through different brokers to give perception, because of the higher volume, that there is increased interest in the security. This aims to attract additional investors, and increase the price.

In early April, SSC said that Nguyen Kim Phuong, a major stockholder of Cement Materials and Transportation JSC (VTV), had engaged in manipulation.

In early February, Phuong registered with SSC to buy 1.3 million VTV shares at VND40,000 per share. This news, posted by Hanoi Stock Exchange on its website, edged VTV shares up to VND66,000 on March 19. Phuong then did not buy but sold 557,800 VTV shares on March 24 at VND62,800, pocketing more than VND16 billion (without reporting her selling plan to SSC).

Under current regulations, major shareholders or shareholders who are also the company's members must register their buying or selling plans with SSC. The stock market regulator will send this news to the Hanoi or HCMC exchange. The bourse then publishes the information on its website.

SSC has yet to announce the fine Phuong will have to pay.

"Because of low fines, most stock fraud suspects admit their guilt after inspectors show some proof. But when the regulation to allow the authorities to seize profits gained through securities fraud is introduced, they will not confess their wrongdoing so easily," said Bang.

"So, inspectors must find enough evidence," he said.

Bang also said SSC had assigned its officials to visit countries where the stock market is well developed to learn the way they investigate insider trading.

"At some international markets, it sometimes takes one to two years to complete an investigation into insider trading cases. On duty, their inspectors can coordinate with banks to know the trajectory of money.

"But in Vietnam, inspectors can't do that as we have yet to issue such policies. Our officials will research this issue at foreign markets [before seeking the government's approval for the policy]," he said.

Bang said SSC officials would also study measures that developed markets use to oversee trading authorization.

Trading authorization gives someone other than the account owner the authority to make certain investment decisions.

Bang said some investors had taken advantage of trading authorization by asking many people to open accounts and authorize them to trade securities so that they can drive stock prices up or down.

But SSC does not ban trading authorization as it is necessary for many investors who sometimes cannot buy or sell stocks by themselves but have to ask someone else to do it on their behalf, Bang said.


"¢ On March 25, Tran Thai Hung, a major shareholder of Hai Phong Cement Transport and Trading JSC (HCT) registered with SSC to buy 450,000 the company's shares. He then sold a large number of shares after seeing HCT share prices go up. On April 8, he cancelled his buying plan.

"¢ On March 24, Nguyen Kim Phuong, a major stockholder of Cement Materials and Transportation JSC (VTV) sold 557,800 VTV shares after seeing share prices rocket from VND40,000 to VND62,800, after deliberately announcing plans to buy 1.3 million shares early February.

"¢ From December 17, 2009 to January 7, 2010, Hoang Minh Huong in the Mekong Delta province of Long An and Quach Thi Nga in HCMC bought a huge number of Saigon-Quy Nhon Mining Corp. (SQC) shares at ceiling prices for many consecutive sessions. The increase in buying volume attracted many investors who decided to buy in. Huong and Nga then sold SQC shares at very high prices.

"¢ In September, 2009, Dao Thi Kieu, an executive of Ha Nam Mineral JSC (KSH), revealed the company's gold mining plan to Nguyen Thi Nhung and Nguyen Van Giong before it was published. Nhung and Giong then bought KSH shares that they later sold at higher prices when the plan was announced to the public.

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