10 FocusM | July 16-22, 2016 July 16-22, 2016 | FocusM 11 LEAD LEAD

Best news Price tumbles Recent enforcement actions Checkmating market Advance by Securities Commission phase Price Distribution trending phase / upward campaign ending Datuk Ishak Ismail JUNE 13: Businessman Datuk Ishak Ismail was charged in the Sessions Court with making misleading statements in The Star newspaper on June 5, 2010 to syndicates induce the purchase of Kenmark Industrial Co (M) Bhd shares. A typical Prior to making the alleged misleading statement, Ishak, who was charged Accumulation phase pump-and-dump under section 177(b) of the Capital Markets and Services Act 2007 (CMSA), was underway exercise a major shareholder of Kenmark, holding 57.7 million shares. He also faced two counts of insider trading charges when he sold 58.7 EASONED know that logic doesn’t necessarily million Kenmark shares on June 9 and June 11, 2010 while in possession Good of material non-public information that two of Kenmark’s clients had been prevail in trading. Fundamentally weak can news see steep rises in prices while those with good prospects declared bankrupt and that EON Bank Bhd had refused to uplift the receivership Planning on Kenmark. can experience price slides. phase: Earlier in 2010, the Securities Commission (SC) had obtained an injunction SSuch irrational behaviours have given And many a time, such invisible Beginning of from the High Court to freeze RM4.8 mil of the proceeds of the impugned rise to talk that stocks are sometimes hands and their manipulative manner campaign trades by Ishak who has claimed trial to all three charges. The Sessions Court by Cheah Chor Sooi manipulated by syndicates or groups thrive on the pump-and-dump strategy Source: F1 Academy of of Technical Analysis Sdn Bhd imposed a bail of RM600,000 and one surety on Ishak pending trial in November. of people who “push” these stocks up with large block of shares acquired, price or down. These syndicates are also ramped up and followed by dumping undeterred by the fact that these stocks of an enormous quantity. Such market ComCorp (June 21) – sell/stop hit “To control or prevent such pump-and- Low Thiam Hock are queried by Bursa Malaysia for any behaviours would eventually leave stock dump scams, investors should be cautious FEB 29: The Sessions Court sentenced Low Thiam Hock – better known as unusual market activity (UMA). chasers who are not wary of the hidden with any news that they receive on their Stopping the Repco Low – to a five-year jail term and RM5 mil fine for manipulating Repco A good example is the trading of agenda getting their fingers burnt. investments and educate themselves by Holdings Bhd’s share prices on Dec 3, 1997. Low, 53, was convicted under penny stocks, including their warrants, doing their own research,” she tells FocusM. manipulation section 84(1) of the Securities Industry Act 1983. which continue to hog the limelight Comintel Corp She urges investors to always exercise the Following the sentencing, the Sessions Court allowed Low’s application for a attracting keen interest from punters. A recent example is Comintel Corp Bhd following: ▶ PUBLIC education on what is stay of the decision pending his appeal to the High Court. Initially charged in the They can be highly speculative or volatile (ComCorp) which was served an UMA ▶ Understand the business of the meant by a buying or selling Sessions Court on Sept 18, 1999, the former executive chairman of Repco was although some have zero fundamentals. query by Bursa on June 21 after its share company; climax, spotting the invisible acquitted on the basis that the charge was not proven. The SC then appealed For retail investors who make up price dipped 27 sen, or 28.88%, to 66.5 ▶ Read and research carefully and thor- hands, how they ply their trade, to the High Court which affirmed the Sessions Court’s decision. one-fifth of Bursa’s stock trading sen with 30.65 million shares traded (see oughly the “opportunities” stated in how to identify accumulation However, the Court of Appeal on Feb 28, 2013 overturned the decision of participation, delving in penny charts). Source: F1 Academy of Technical Analysis of Technical Analysis Sdn Bhd reports (rumours) and to independently and distribution, what makes the High Court and ordered Low to defend the charge against him, reverting stocks has become a way to “The syndicates pushed the verify the facts, and the market rise and fall (tick) the case to the Sessions Court. The sentence against Low is the highest make quick gains. But this stock up for ‘false breakout’ ▶ Always be sceptical and treat “stock tips” from the syndicates’ perspec- imprisonment term imposed by the courts in a case. could be potentially risky to the upside with a break ComCorp (Nov 28, 2007) – note similar fall, all the way down with extreme caution and never trade tive is as important as knowing Low is appealing. as they are oblivious to above the recent high of based on these rumours as they are about the invisible hands in 97.5 sen to 99 sen before very likely part of the pump -and-dump or securities laws (investors’ action. slamming it down to scam. rights). Tan Swee Hock & two others 66.5 sen within the last Indeed, some bloggers are somewhat ▶ One way to spot manipulated DEC 8, 2015: Transocean Holdings Bhd director Tan Swee Hock, 62, and two 20 minutes of the trading influential and have a following. Savvy stocks is to track them with other individuals were charged in the Sessions Court with acquiring 632,700 Tam believes stocks day,” commented stock and , philanthropist and blogger Koon the Channel Breakout 20-20 units of shares in the company between Aug 20 and Nov 6, 2009 while in move because big futures analyst Fred Yew Yin is one. He admits that his average trading system which is capable possession of material non-public information. funds move them KH Tam in his daily daily trades exceeds RM1 mil but clarified of capturing the manipulator’s The SC alleged that the information referred to in the charges relates to the from behind newsletter dated that he has no intention to mislead people, intention of “attracting a fol- proposed takeover offer by Kumpulan Kenderaan Malaysia Bhd of Transocean June 23. “It is a especially his followers, to lose money. He lowing” through a “buy” signal shares. The offer was announced to Bursa Malaysia on Nov 6, 2009. classic case of Source: F1 Academy of Technical Analysis of Technical Analysis Sdn Bhd was quoted as saying that he had never and the manipulator’s intention Tan, who faces 28 charges, is said to have acquired the Transocean shares pumping and recommended readers to buy shares he to “distribute” through a “sell” through accounts belonging to two individuals, Chan Sze Yeng and Yap Lee dumping.” was selling. signal. Lee. Chan and another individual, Cheng Seng Chow, were both charged with What mentals were sound even up to the point “As you know, I had written many arti- The issuance of unusual market abetting Tan. puzzled of the plunge. Its price-earnings ratio cles about Latitude (Tree Holdings Bhd), activity query by Bursa Malaysia Tan, Chan and Cheng were each granted bail of RM200,000 with one surety. Tam about (PER) was 8.31 times while its latest net VS (Holdings Bhd) and Lii Hen (Industries does raise the red flag and has in ComCorp profit for Q4FYE1/16 jumped to RM6.11 Bhd) which had gone up a few hundred per a way been successful in curbing is that its mil year-on-year from RM708,000 previ- cent the last two years. If you had followed manipulation. Datuk Lim Kim Chuan & two others funda- ously (Q3FYE1/16: RM4.75 mil). my recommendations, you would have NOV 24, 2015: Former Melewar Industrial Group Bhd CEO Datuk Lim Kim “Here is a good example that the only made a huge profit. Of course, if you were Chuan and two other individuals were charged with insider trading in the way to exit is via a technical sell signal too greedy and did not sell, you cannot Sessions Court. Lim, 56, was charged with acquiring 398,000 units of M3nergy and not via fundamentals,” Tam points blame me,” he was quoted as saying. distribution phase (dumping of stocks). Bhd shares between Aug 6 and Sept 11, 2008 while in possession of material Characteristics of manipulated stocks out. “I would not re-enter this stock after In any case, the authorities have been Turning the tide on syndicates is made non-public information. it triggered a sell signal. The last time it coming down hard on manipulators. Of more complicated as greed and limited The SC alleged that the information referred to in the charges relates to did this stunt was on Nov 28, 2007.” the 58 active investigations pursued by the capital – as evident in the overindulgence the conditional voluntary takeover offer by Melewar Equities (BVI) Ltd, a ▶ LIQUIDITY returns to stocks which that is, word of mouth, the media, Securities Commission (SC) as of Dec 31 in contra trading – tend to make retail substantial shareholder of Melewar Industrial Group Bhd, to acquire M3nergy used to be illiquid with price volatil- market analysts, fund managers or Who are the culprits? last year, 43 or 74% were related to insider investors increasingly vulnerable to the shares. The share acquisition was announced to Bursa Malaysia on Sept 12, ity rising and traded volume surging even virtually on digital platforms Market observers tend to perceive and trading. Last year, the SC had 53 ongoing game plan of syndicates. 2008. as stocks are being mopped up; such as blogs or social media categorise the rogue traders – or syndi- cases in court, of which 30% related to “From the Tulip Mania in the 1600s Lim, also a former director of M3nergy, faced a total of 11 charges under manipulation is the only way for sites via group chats. Knowingly or cates as they are popularly known – to insider trading and 28% linked to corporate to the South Sea Bubble and Mississippi the CMSA. He is said to have acquired the said shares through the accounts major shareholders to make profit unknowingly, these disseminators be both company insiders and outsiders. Lya advises investors to do their own governance breaches such as financial bubble of 1700s to the crashes of 1929, 1987, of Tay Hup Choon and Theng Boon Neoh @ Tan Boon Cheng. Both Tay, 47, a (or in some instances, to cash of market-sensitive information can The first group comprises owners/ research mis-statements and disclosure offences. 2000 (dotcom bubble), 2008 (subprime Singaporean, and Theng, 57, were charged with abetting Lim in committing out) as illiquid stocks often do not impact a particular stock, a group directors of the listed companies, fund crisis), and 2015 (China) market, manipula- the offences. possess impressive revenue/profit of stocks or the overall market managers, substantial shareholders, For example, social media in the form Fighting the syndicates tions had prevailed and will continue to do Lim was granted bail of RM250,000 with one surety while Tay and Theng stream. sentiment. /remisiers and underwrit- of Facebook and Whatsapp have brought Tam believes stocks move because big funds so,” he insists. “There is nothing much you were each granted bail of RM150,000 and RM120,000 respectively with one ▶ While fundamentally-sound but ▶ When the manipulator wishes to ers, among others. about chat/telegram/webminar groups move them from behind. “It is very unlikely can do about them, except to educate and surety each. illiquid stocks will rise gradually offload his holdings, he releases The second group comprises traders which have facilitated the dissemination for one to beat the big funds (syndicates) at warn them. After all, it is caveat emptor.” with no mini crashes, those on the most bullish news of all to spark who are savvy at their game. They could of market tips – both credible or solely their game. Investors can go with the flow Possessing holding power and using the the other extreme are capable buying frenzy amid high-volume be acting on their own or hired by an on rumours or – that could (think and act like the syndicates) so as averaging-down method are not ideal solu- Alan Rajendram Jeya Rajendram of trapping speculators (ignorant transactions and likely possibility of insider or a third party to manipulate trigger excessive or impulse buying or they can foretell which stage of the rally the tions either as they only provide investors JULY 9, 2015: Former Linear Corporation Bhd director Alan Rajendram Jeya retail investors) with false pullbacks the stocks scaling new highs. The stock prices, particularly penny stocks selling. syndicates are at,” he tells FocusM. with a false sense of security, says Tam. “A Rajendram was charged with authorising the furnishing of a false statement before rallying to make new highs. bubble will eventually burst during for quick profits. Minority Shareholder Watchdog Tam, who holds a Master in Financial stock can fall to zero (by getting delisted) to Bursa Malaysia Securities Bhd on Dec 29, 2009. ▶ Strong rumours/tips that the this distribution phase, trapping Interestingly, however, the advent Group (MSWG) general manager (cor- Technical Analysis from the US-based Inter- and holding power can mean total loss,” The announcement in this case was that Linear’s wholly-owned subsidiary stocks are “going to fly”; this is “stock chasers” who are lured into of information and communication porate services) Lya Rahman lists five national Federation of Technical Analysts, he cautions, referring to Transmile Group LCI Global Sdn Bhd had accepted a RM1.6 bil construction project awarded done through multiple conduits, the buying frenzy. technology has inadvertently served as a typical manipulation tactics in the pump- labels the common three stages pursued by Bhd and Fountain View Development Bhd by Global Investment Group, a Seychelles-incorporated company, to design conduit to expand their reach to mislead and-dump scam, which are e-mail spam, syndicates as the planning phase (accumu- as well as Enron and Worldcom (US stocks) and construct a district cooling plant of 350,000 RT (refrigeration tonnes) in Source: Adapted from Profitability of Technical Analysis (2006) by Fred Tam investors vis-a-vis the market for the internet fraud, paid promoters, cold lation of stocks), advancement phase (stock as examples of stocks that “went to zero”. the district of Manjung, Perak, for what was termed the ‘King Dome Project’. prices of counters they have earmarked. calling, and questionable press releases. prices peaking) and campaign ending/  Continues next page Bail was fixed at RM150,000 with one surety. 12 FocusM | July 16-22, 2016 LEAD

Important Questions investors must to read or ask before learn charts buying stocks

FROM a fundamental standpoint  From previous page – one that emphasises value Nevertheless, there is a safeguard investing – Securities Investors in place. With the growing sophistica- Association Singapore president tion in stock trading, Tam believes the and CEO David Gerald emphasises knowledge of technical analysis can the need for investors to ask them- prevent investors from falling victims to selves the following questions a syndicated crash. before buying a stock: “At the very basic, every investor must ▶ Who are running the company be able to comprehend the significance Ho says syndicates can be formed by any Yusli argues that big institutional players and what is their reputation? of a moving average, support, resistance, criminal-minded individuals or groups are not ‘syndicates’ ▶ How has the company per- trendlines, reversal and continuation formed financially over the patterns, Japanese candlesticks, etc. UMA. “If the company cannot explain syndicate – consciously or otherwise – past three years? Technical analysis adopts a cut-loss the trading pattern, then it will be issued by heeding the call of the group leader ▶ What are the risks faced by policy and that is the best way to manage with a ‘trade with caution’ which serves to buy a stock. the business? How is the one’s money,” he reckons. as a signal to investors to take note about At the close of trading on June 30, company coping with the Detailing the importance of research trading in such a counter,” Gerald points Ho observes that 95.5% or 106 of the 111 risks? How strong are the among retail investors, Tam names the out. stocks on the Ace Market were penny internal controls? and Wyckoff’s Theory At SIAS, the emphasis is on value stocks, accounting for 11.73% of Bursa’s ▶ How independent is the – which necessitates the reading of investing with investors being taught how 904 counters. board? Does it have an charts – as prerequisite for investors to to invest in companies by understanding On the Main Market, there were independent, capable and be aware of the intentions and motives of the annual report and to invest in the 418 or 52.71% penny stocks, including effective audit committee? syndicates. “The trouble with the uncles long term. “Investors should first invest 14 Practice Note 17 counters. In other Do the board and senior man- and aunties (older investors) is that they in themselves, otherwise they would words, 524 or 58% of all Bursa counters agement align their don’t take the trouble to read or learn encounter more head and heart aches were penny stocks. interests with charts expounded by the Dow Theory,” instead,” suggests Gerald. “They must Ho nevertheless opines that while those of the he laments. “They listen to tips but when learn their risk profiles and know their a certain level of speculative activity is shareholders? things go awry, they fail to have an exit risk appetites.” needed to add excitement to any stock plan which technical analysis teaches.” Those who don’t want to do so much exchange, retail investors remain a By merely observing trading trends work or less savvy can invest in exchange vulnerable lot. Gerald advises captured on charts, Tam identifies EKA traded funds (ETFs) which are passive “The investing public, being outsid- investors to Noodles Bhd, Sumatec Resources Bhd, index funds that give them the return of ers, can only react to rumours or read find out more about the XOX Bhd and MTouche Technology Bhd the market, he adds. from newspapers the previous day’s top people running as examples of stocks that demonstrate Malaysian Investors’ Association 10 active stocks and their percentages of the company huge syndicate presence. president Datin Ho Choy Meng attributes price movements,” she asserts. “Being the less stringent requirements to outsiders, they are at the mercy of the Lack of transparency list on Bursa as potentially blurring the organised syndicates which feed just Securities Investors Association Sin- sight of regulatory authorities in their enough information (rumours) to attract gapore (SIAS) president & CEO David quest to detect genuine entrepreneurs the desired interest.” Gerald says syndicates thrive on lack of from opportunists. On this note, she cites the “once transparency by developing their own “The nefarious activities of the frenetic Shanghai which hypotheses and trade on such situations. latter thus lead to today’s problem of is still bleeding today” after attaining “Thus if a genuine company is less than many pump-and-dump cases although dizzying heights in May/June last year. “I transparent in its disclosure, it might we cannot point our finger to say the always remind our members not to invest be under the attack of such syndicates syndicate members are definitely from any amount greater than the amount they which are out to take advantage of this, the management,” she tells FocusM. can afford to lose. While trading and many a time causing the value of the “Syndicates can be formed by any crim- gives us a good leverage to make much stock to fall,” he tells FocusM. inal-minded individuals or groups out to money when the trend is optimistically Malaysian Institute of Corporate Speaking from experience, he notes mine their gold from the local bourse.” up, margin traders can have their for- Governance president Datuk Yusli that the Singapore Exchange queries With the advent of the internet and tunes wiped off once the tide turns.” Mohamed Yusoff argues it would not companies to explain any unusual trad- social media, members of Whatsapp be appropriate to equate big institutional ing patterns which are similar to Bursa’s or telegram group can actually form a Adequate laws players such as the Employees Provident MSWG’s Lya opines that the present legal Fund, Permodalan Nasional Bhd, Retire- Active investigation Last year’s ongoing court framework is adequate to oversee the ment Fund Inc, Khazanah Nasional Bhd by nature of offences cases by nature of cases market. The existing Ser- or the Pilgrims Fund Board as “syndi- vices Act (CMSA) and Securities Industry cates” although they tend to transact in Act (SIA) have effectively regulated the big blocks of stocks. 3% 10% 6% Unlicensed 2% Market Unlicensed stock price manipulation activities. “They are unlikely to be involved in 5% activities Others manipulation activities “What is needed is to further impose such activities as it would be a funda- Securities 2% 11% 15% 14% fraud Securities stricter enforcement actions. However, mental breach of their charters,” Yusli Corporate Market Questions we have seen actions taken by the regu- tells FocusM. “Of course, it can affect the manipulation fraud of law governance lators the past two years against market markets when institutions trade in large manipulators, including some high-pro- volumes, but this is simply a reflection file cases on insider trading, which we of the volumes being transacted and believe is the right way forward to instil cannot be described as manipulation as confidence and fairness in the market.” the institutions are trading solely on their Lya suggests that the CMSA and SIA own accounts.” include a provision to empower the “Such trading is open and transpar- regulators to act against anyone from ent; it does not involve benefiting a group spreading rumours and to prohibit mass of co-conspirators which is the usual media from quoting and reporting from intent of a syndicate which trades in an unknown sources which will ultimately opaque and undeclared manner,” adds affect the integrity of the capital market. the former Bursa CEO. “A strong ‘fit and proper’ test on the Nevertheless, Yusli contends that appointment of board members akin market manipulation and insider trading 28% to banking institutions would mitigate of quoted securities are criminal offences 74% 30% Corporate Insider trading Insider trading governance the risk of insiders who are likely to be that are normally motivated by greed and the culprits in the abuse of powers and accompanied by a complete disregard Source: Securities Commission Source: Securities Commission information for their own benefits,” she for the law as well as victims of these adds. activities.