The Financial Supervisory Commission (FSC) last night suspended state-run First Securities Investment Trust Co (第一金投信, FSITC) from creating new funds and asked the asset management arm of Financial Holding Co (第一金控) to submit plans to compensate investors for losses related to stock manipulations by three former fund managers.
The penalty came after First Financial approved a leadership reshuffle at FSITC after the fund house fired three fund managers allegedly involved in stock manipulations.
“FSITC should also examine its internal control mechanism in two weeks and file a report on how it plans to improve,” said the commission, whose chairman Chen Yuh-chang (陳裕璋) headed First Financial for two years before his appointment to the helm of the FSC in 2010.
The financial regulator said it would meet with fund houses for talks on measures to strengthen corporate management and personnel discipline.
“The commission will deal the severest punishment on financial institutions and professionals to protect investors and maintain the health of the market,” the FSC said.
Earlier in the day, the conglomerate gave its go-ahead to the resignation of FSITC chairwoman Hung Hsin-shih (洪新湜), who offered a day earlier to step down to take responsibility for the scandal.
The three fund managers — Hsu Hung-cheng (許弘政), Hsu Shun-chen (許訓誠) and Chaio Jen-chieh (喬仁傑) — reportedly bought shares in Prescope Technologies Co (普格) last year in exchange for kickbacks, local media said, quoting investigators who are probing irregularities at Prescope.
“First Financial will tighten oversight of personal conduct and investment procedures to prevent a repeat of the incident,” company deputy spokesman Chou Po-chaio (周伯蕉) said by telephone.
The company would offer compensation if the fund managers’ alleged misdeeds caused undue losses to investors, Chou said, adding that the investment decisions appeared normal to him.
FSITC has posted a letter of apology letter on its Web site, saying it is taking legal action against its former employees and would strengthen internal risk controls to better protect the rights of customers.
“FSITC will cooperate with investigators and see how things pan out before making further moves,” a company official said by telephone.
The scandal broke out four months after fund managers at ING Securities Investment and Trust Co (ING SITC, 安泰投信), the local unit of Dutch financial services provider ING Group, reportedly mismanaged government-owned funds to line their own pockets.
In November last year, ING SITC agreed to pay full compensation to institutions and individual clients for losses related to investments in Ablerex Electronics Co (盈正豫順電子).
While Hung will be replaced by Hsueh Shu-mei (薛淑梅), chairwoman of an insurance brokerage unit, she will remain First Financial’s spokeswoman, Chou said.
The Securities Investment Trust and Consulting Association (證券投信投顧公會) voiced regret over the scandal and suggested authorities impose maximum punishments on rogue fund managers in order to protect investors.