Tue, Sep 20, 2016 - Page 12 News List

FSC fines CTBC Bank over XPEC deal

COLLAPSE:CTBC Bank and CTBC Securities have broken the rules governing internal controls and failed to verify relations among their clients, the finance watchdog said

By Ted Chen  /  Staff reporter

The Financial Supervisory Commission (FSC) yesterday fined CTBC Bank Co (中國信託銀行) NT$3 million (US$95,389) for failing in its role as a depository bank to perform due diligence in a high-profile acquisition that involved local video game developer XPEC Entertainment Inc (樂陞科技).

Japan’s Bai Chi Gan Tou Digital Entertainment Co (百尺竿頭) on May 31 launched a tender offer to acquire a 25.17 percent stake in XPEC for NT$4.86 billion.

The deal collapsed as Bai Chi Gan Tou refused to furnish payment, leaving participating investors with about NT$180 million in losses.

The commission also gave affiliate CTBC Securities (中國信託證券), which provided financial consultation and shareholders services for XPEC, a three-month ban on handling consultation and planning services.

CTBC Bank and CTBC Securities have broken rules governing internal controls, and have failed to verify the status and relations among the clients they serve, the commission said.

The three-month ban would also bar CTBC Securities from establishing additional branches, taking on domestic and offshore reinvestments, issuing corporate bonds and stock warrants, as well as serving as market makers for exchange traded funds, Securities and Futures Bureau Deputy Director-General Chou Hui-mei (周惠美) told a news conference.

The commission’s ruling came after a joint statement by CTBC Bank and CTBC Securities appeared on the front pages of the nation’s major Chinese-language daily newspapers yesterday, at a cost that is estimated to exceed NT$3 million.

The two companies said that their roles in the deal did not extend to approving or vetting of Bai Chi Gan Tou’s ability to fulfill its payment obligations, as the deal did not involve underwriting of securities or debt instruments.

The companies also said they had visited Bai Chi Gan Tou’s proprietor in Japan and verified that XPEC’s then-prospective buyer appeared capable of keeping its payment obligations, as they have seen proof of deposits and plans to funnel US$230 million from offshore investors to carry out the tender offer.

In addition, as of May, Bai Chi Gan Tou’s proprietor controlled a 14 percent stake in XPEC through other holding companies in which he is the beneficiary.

However, the commission deemed the efforts inadequate.

“We found that the information gathered by the two companies in their verification process were very basic filings,” Chou said.

Chou added that current tender offer rules do not allow for extensions, and CTBC Bank had summarily announced that it was extending the payment deadline for the deal.

The commission will turn over its findings to the Securities and Futures Investors Protection Center, Chou said.

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