Prosecutors yesterday charged three executives with breach of trust in connection with flaws in the partial liquidation of Taiwan International Investment Management Co’s structured note investments in 2005.
The indictment charged former Taiwan International Investment Management Co chairman Lawrence Chang (張平沼), former Taiwan International Securities Corp (TISC) chairperson Chen Shu-chu (陳淑珠) and former TISC vice president Fang Kuan-pao (房冠寶) with violation of the Securities Exchange Act (證券交易法) related to alleged irregular trading activities involving some of the group’s subsidiaries.
Chang, who became chairman of the company in July 2006, was punished by the Financial Supervisory Commission last year after a routine regulatory review found Chang failed to supervise matters in the aftermath of the firm’s liquidation, as well as being guilty of other instances of management negligence.
In 2005, Taiwan International Investment Management allegedly sold structured note investments with a book value of about NT$8.5 billion (US$263.3 million) to five subsidiaries of the Taiwan International Group. On the same day, TISC allegedly entered into a reverse sale agreement with the subsidiaries, allowing the structured notes to be held as collateral.
A reverse sale agreement is a way of borrowing money by allowing securities or notes to be held as collateral while agreeing to repurchase the securities or notes at a higher price at a specific future date.
However, the subsidiaries’ financial conditions were too poor to make the interest payments to the securities company, causing investors to sustain financial losses in unpaid interest of at least NT$200 million.
Prosecutors allege Chen was aware that although the structured notes had a book value of NT$8.56 billion, the notes were overvalued. Despite this, Chen allegedly still gave instructions to go ahead with the reverse sale agreement, which resulted in financial losses of about NT$137 million at TISC.
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