The Financial Supervisory Commission (FSC) yesterday fined KGI Securities Ltd (凱基證券) NT$3.36 million (US$117,676) for poor internal control and lax management after a stock broker, surnamed Lai (賴), allegedly committed suicide in August in Taipei due to huge investment losses.
Lai’s death has sparked public concern over KGI Securities’ management, with his family accusing the company of putting undue pressure on its brokers, including encouraging Lai to illegally trade futures for his clients, which resulted in huge investment losses.
The commission announced the penalty after releasing its long-awaited investigative report on the incident, three-and-a-half months after it launched a probe.
Photo: CNA
Lai had secretly managed at least 12 clients’ funds with their approval since 2018, helping operate their discretionary accounts, which means he decided which futures to buy or sell without their orders, an illegal behavior for a broker, Securities and Futures Bureau Deputy Director Kuo Chia-chun (郭佳君) told a news conference in New Taipei City.
At least NT$9.53 million was involved, Kuo said.
Lai’s manager, surnamed Chiu (邱), knew that he was trading futures using his own accounts at KGI Securities, but Chiu did not clarify the sources of funds, although Lai’s cumulative transactions totaled millions of New Taiwan dollars, Kuo said.
Given that Chiu had access to information about all of Lai’s transactions, as he had been using his own accounts at the firm, she should have questioned if it was reasonable that Lai would have so much money to invest and looked into why he did not use the firm’s intranet when placing orders, Kuo said.
When Lai applied to reduce the handling fee for futures transactions so he could pay less, Chiu approved it with no questions asked, nor did she stop him when he continuously suffered losses from the investments, she said.
“These indicated that Chiu did not supervise her staff well and KGI Securities did not exercise solid internal controls,” she said.
“Although Lai’s clients were willing to let him operate their funds, it was still an illegal practice and KGI should have caught it,” she added.
As for the complaint of Lai’s family’s that KGI Securities sets unreasonable sales targets, the commission found that the firm’s reward mechanism is similar to those of its peers, and that it did not threaten Lai with dismissal if he missed the target, Kuo said.
The commission did not find a laptop that was reportedly used by Lai in the office to secretly execute orders, adding that it was possible he used his mobile devices to place orders.
The penalty is the highest-ever levied against a securities firm in a single case, as KGI Securities had breached the Securities and Exchange Act (證券交易法) and the Futures Trading Act (期貨交易法), Kuo said.
Chiu has been suspended for six months from engaging in any securities or futures transactions, the commission said.
The commission would ask the Taiwan Stock Exchange and the Taipei Exchange to enhance their monitoring of securities firms and demand that they strengthen their internal controls, she said.
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