Experts say the arrest of a local tycoon accused of orchestrating a securities fraud will serve as a deterrent to local stock manipulators, many of whom have gotten off easy.
"In order to regain investor confidence, it's necessary to identify stock manipulators as a new kind of criminal who must be punished strictly," said Ha Hai Esquire, of the Ho Chi Minh City Bar Association. "Otherwise many investors will lose their money, companies will go bankrupt, the market will be disrupted, and the economy will be badly affected."
Hai said recent amendments to the Penal Code, which took effect in January 2010, allow the authorities to press criminal charges against market manipulators and sentence them to up to seven years in prison.
But the recent arrest marks the first flex of Vietnam's new punitive muscle.
Le Van Dung, former chairman of Vien Dong Pharma JSC (DVD), was arrested last Friday on charges of manipulating stock prices. Police did not say which stocks had been manipulated by Dung.
Many investors said the 38-yearold chairman created a buzz this spring when he and several collaborators created a false demand by purchasing a large number of shares in Ha Tay Pharmaceutical JSC (DHT).
Soon afterward, Ha Tay's stock fell sharply when a total of nearly two millions shares were registered for sale at the same time. It plummeted to VND56,000 at the end of September compared to its peak of VND101,100 in mid-August.
Dung ranked 60th on the list of the 100 richest investors in Vietnam last year, owning a total of VND240 billion worth of shares. He now holds more than 3.6 million shares of Vien Dong.
Vien Dong has appointed another person to take over his post as chairman. The company, the third largest publicly-traded pharmaceutical firm on the Ho Chi Minh Stock Exchange by market value, has fallen 64 percent this year, to VND49,900 on Thursday.
Starting Tuesday, the stock was put on the exchange's list of companies that investors should consider carefully. Firms on this list may be facing huge losses or suspected of regulatory violations.
Nguyen Son, head of the Market Development Division at the State Securities Commission, confirmed that Dung is the first person in Vietnam to be arrested for manipulating stock prices.
Economist Nguyen Van Thuan, head of the Finance and Banking Department at the HCMC Open University, said his arrest serves as a serious warning for other stock manipulators.
The punitive fines previously imposed by the State Securities Commission failed to deter violators, he said.
Investigations could temporarily discourage investor sentiment but, in the long run, the market will benefit from improved transparency, Thuan said.
Slap on the wrist
Industry insiders say previous manipulators have gotten away with several billion dong at the least, but the fines often range from just VND50 million to VND100 million (US$2,560-5,120).
The highest fine yet imposed by the Securities Commission was only VND250 million ($12,800), on two investors from the southern province of Dong Nai. Vo Van Truong and Pham Dinh Phu were each fined the record sum on November 12 after they used a total of ten trading accounts to create fake demand to control stock prices at American Vietnamese Biotech Inc. (AMV).
Sometimes it only takes one investor for a manipulation scheme to work.
In a typical one-man show discovered this year, Nguyen Thi Kim Phuong announced publicly that she would purchase 1.3 million shares of Cement Materials And Transport JSC (VTV).
Following the announcement, she secretly sold about half-million shares that she was holding.
The purchase announcement boosted VTV's value sharply "” from only VND39,000 per share on February 8 to VND66,000 on March 19.
Phuong then sold the rest of her shares at VND62,000 "” once again on the sly. In the end, she profited more than VND16 billion ($820,000) from the ruse.
When her scheme was discovered by market regulators, Phuong was fined VND170 million ($8,700).
The State Securities Commission needs to be more stringent with penalties and the maximum fine of VND500 million should be imposed more regularly, economist Le Dat Chi told Thanh Nien.
Stock regulators should also set up more specific rules to deal with violations based on how serious they are, he said.
Hai of the HCMC Bar Association said this year dozens of stock manipulation cases have exposed serous flaws in the system.
"The problem is the cash penalties pale in comparison to what they [manipulators] can gain," Hai said. "As a result, the situation has become more complicated."