Vietnam's first securities fraud arrest intensifies vigilance over trading

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Vietnam's stock market regulator pledged to clamp down on securities fraud as authorities prosecute the nation's first share-price manipulation case.

"We have increased surveillance to protect genuine investors and ensure a fair playing field," Nguyen Doan Hung, vice chairman of the State Securities Commission, said in an interview in Hanoi Friday. The arrest "sent a clear message that any stock price manipulation will be punished strictly."

Two executives at Vien Dong Pharma Joint-Stock Co. have been arrested and more than 50 securities-fraud probes this year led to fines, the commission's website shows.

Investigators are monitoring trading daily and the commission increased its biggest fines sevenfold to VND500 million (US$25,600) under a law passed in September, said the regulator's chief inspector, Nguyen Thi Chan Phuong.

The Ho Chi Minh City Stock Exchange's VN Index on Friday climbed 1.5 percent, completing its best week in three months and paring the world's worst performance in the second half of 2010.

The gauge has tumbled 60 percent from its peak in 2007 as securities fraud allegations weakened sentiment hurt by tightened lending to combat spiraling inflation, and three currency devaluations since November last year to curb a widening trade deficit.

Le Van Dung, the former chairman of Vien Dong Pharma who was arrested last week, allegedly manipulated the share price of another drugmaker, the State Securities Commission said in a statement on its website Friday, citing initial police findings.

In a separate announcement, the regulator said police arrested Cao Hong Van, deputy general director and chief accountant at Vien Dong, after she allegedly paid bribes. A planned share sale by Vien Dong Pharma may be canceled, the commission said.

Demand, supply

Dung and unidentified people opened accounts to "artificially" create demand and supply for shares of Hatay Pharmaceutical Joint-Stock Co. Hatay shares have slumped 58 percent since spiking to a record 98,500 dong on Aug. 18. The shares remain 46 percent higher this year.

The commission has also blocked securities trading accounts held by the former chairman, Dung, two companies and 13 related people as part of a fraud investigation, it said in statement dated yesterday.

The clampdown is aimed at shoring up investor confidence, Hung said. Local traders sometimes refer to the volatile Ho Chi Minh City and Hanoi stock exchanges as "Hosino" and "Hasino," a play on "casino," said Hoang Thach Lan, who heads the brokerage unit at Ho Chi Minh City-based MHB Securities Co., the investment arm of Mekong Housing Bank. "Traders gave the exchanges the nicknames when people made gains and then lost a lot more in the last three years."

Clear, firm

"Investors want to see the authorities taking a clear and firm stance," Andy Ho, head of investment at VinaCapital Investment Management Ltd., the country's biggest fund manager, said in an e-mail. "The authorities are establishing that they are up to the task of regulating the market and ensuring that price fixing and other transgressions don't take place."

MHB Securities's Lan, who heads a brokerage unit, says the commission can afford to do more. "What the regulator has done so far is good, but it needs to impose harder, stronger sanctions to stop similar frauds," Lan said.

Vien Dong Pharma was placed on the exchange's watch list on Nov. 30, requiring more regular financial reports. Starting yesterday, the State Securities Commission limited trading of Vien Dong Pharma's stock to 15 minutes a day, compared to the regular trading session of 2 1/2 hours. The shares, which have slumped 56 percent from a record on Sept. 10, rose 4.1 percent today to 51,000 dong.

Worst performer

The VN Index has sunk 8.4 percent in the second half of 2010, the worst performer among 87 benchmark indexes tracked by Bloomberg worldwide.

The criminal investigation "marks a big step forward in raising the level of compliance within the Vietnamese market," said Dominic Scriven, Ho Chi Minh City-based chief executive officer of Dragon Capital Group Ltd., Vietnam's second-largest investment firm.

"We want to increase surveillance to prevent further price manipulation in the future," Hung said.

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