For many years, Taiwan’s investors have been complaining about poor management integrity and corporate governance. Last week, they expressed resentment again over alleged insider trading in Taiwan Semiconductor Manufacturing Co’s (TSMC) acquisition of a local solar cell maker’s shares.
On Wednesday, TSMC announced the purchase of a 20 percent stake in Motech Industries Inc for US$193 million. No one seemed surprised by the news as rumors about the deal had been reported by several newspapers, spread among local securities houses and discussed on several Internet bulletin boards.
As usual, both TSMC and Motech denied any wrongdoing and financial regulators said they would probe any insider trading violations. A major issue, however, is that the deal is not just an isolated case but one of a series of examples of possible insider trading in recent months.
The merger of LCD panel makers Innolux Display Corp and Chi Mei Optoelectronics Corp provides a good example. The companies’ shares had already surged ahead of their merger announcement on Nov. 14 amid market speculation about a possible deal. While Chi Mei issued a stock exchange filing on Nov. 13 to deny media reports about the deal, it seemed that company management, deal advisers, market traders and big stakeholders had allegedly shared confidential information before the deal was announced to the public.
The same kind of suspicious activities also underpinned two recent mergers between local chip packaging and testing companies — the merger between Advanced Semiconductor Engineering Inc and Universal Scientific Industrial Co on Nov. 17 and the deal between Chipbond Corp and International Semiconductor Technology Ltd on Tuesday.
It was obvious that Chi Mei’s exchange filing was incompatible with what it was planning. Unfortunately, the company’s practice of cheating shareholders and stock investors resulted in a fine of only NT$30,000 from the stock exchange regulator.
There is a lot of evidence that small and individual investors have fallen victim to a situation in which some have more information about potential transactions than others — known as information asymmetry. Why then does the regulator do nothing about it?
Some say that the jailing last week of former Procomp Informatics Corp chairwoman Sophia Yeh (葉素菲) — five years after the chipmaking company became insolvent following an NT$7 billion accounting fraud scandal — served to reassure market skeptics.
But that shouldn’t be viewed as a triumph because we have also seen several suspects in high-profile corporate scandals, insider-trading incidents and accounting abuse cases in the past few years flee the country after they were indicted.
Even though Yeh faces 14 years in prison and a fine of NT$180 million for her role in the accounting fraud, nearly 10,000 Procomp shareholders are out of pocket and chances are slim that they will ever see much of the NT$5.58 billion (US$173.5 million) in compensation they want.
Regardless of the type of corporate fraud, fast and effective prosecution of financial crimes is essential to help investors gain confidence in the regulator’s supervisory mechanism and the government’s effort to reform the financial market.
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