The world's financial markets volatility has led many of us to recall the jitters of the regions' Asian Financial Crisis of the late-1990s.

 

We witnessed then, a host of corporate honchos having to take a hair cut or, in some cases, having to let go of their assets entirely.

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Those among us with long memories wince when we recall the many faces in the stock market who practically destroyed the credibility of our markets; making a mockery of the rules, regulations and prevailing legal systems in general by spinning layer upon layer of complex schemes that became many-tangled webs of deceit. We too, have had our own versions of the Satyams and Madoffs, and our legal systems were trussed up so tightly in these webs that, till today, quite a few cases are still unravelling in court.

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That is a pity because the true picture is that, in the past 15 years, the region's markets have actually matured on their own, thanks to the introduction of various codes of corporate governance which have raised levels of transparency and accountability within corporations. What's more, Asia's tigers have come roaring back from the mad, turbulent 1990s and are developing nicely with the significantly more robust banking systems.

 

Indeed, the foreign banks were rocked to their roots by the most recent global financial crisis of 2008-2009, but our banking systems stood resilient even as many of the West's financial edifices crumbled. Even better, South-East Asia's currencies withstood the fickleness of nervous punters, gaining strength to this day.

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Of course, like so many things in life, it's not all good news. The recent buoyant performances of Asia's stock markets, boosted by generally firm GDP growth rates, have heralded a host of fresh problems, chiefly the rejuvenation of the corporate reptiles. They have shed their skin, crafted a new image for themselves with frills like new corporate faces. Alas, they have clung fast to their modus operandi, and so continue to wreak untold damage to the unsuspecting as they had before.

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A review of the regulators websites under “regulatory action”, “enforcement action” or “media releases” often will name the market manipulation/insider trading cases. When we reviewed these reports, we noticed the re-emergence of those same corporate raiders.

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In one instance, the regulator obtained an ex-parte injunction (that is, a court order to command, direct or restrain somebody from acting in a certain way) to bar the “investor” from dealing in shares of a specific public-listed company. The regulator sought this injunction after their investigations revealed possible breaches of securities laws, especially with regard to its previous board directors, managers and major shareholders. Unfortunately, its minority shareholders lost most of what they had invested in it because of a whipsaw in the share price, which eventually collapsed altogether.

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As we delved deeper into the list of corporate scandals, we unearthed a rogue company owned by one who is on the Global Super-Rich list. What is even more interesting is the web of transfer pricing which this particular wealthy reptile has designed in such a way as to deny existing shareholders any potential dividends or capital gains and if possible, even evade taxes.

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The tale of this particular reptile winds back to the 1997 Asian Financial Crisis, when it first landed in hot water with the regulator for having created fictitious forward losses on its subsidiary, which was an agricultural unit.

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To begin with, during the crisis, this unit's operations was labouring under more than US$1bil of debts but, ultimately, the debt was restructured such that it was favourable to the subsidiary's parent. One of the parent's groups remains listed today, but it reports minimal profits. For example, in the fiscal year 2007, it reported a loss of US$11.8mil, but this somehow dropped to US$2mil in 2008, and then went up to US$5.3mil in 2009.

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Now comes the most intriguing web:

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This parent company, incorporates Company A, that is, the Agricultural Company.

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The same parent then creates Company B in Macau, which markets Company A's products.

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In 2008 and 2009, Company B derives 81% and 63% of their revenues respectively from Company A.

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Company B then reports net profits of US$22.9mil and US$35.5mil in 2008 and 2009 respectively.

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A regulator can do only so much. The real power to fight reptiles is in the hands of astute investors, who gain power by doing their homework thoroughly, scrutinising the track record of a company's senior management, including its chairman and CEO, as well as its board members. These rogue groups do not build businesses or brands, they spin stories, ramp up share prices and unfortunately then dump those shares on the unsuspecting.

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When we spoke to the various regional regulators about the re-emergence of those same corporate reptiles, okay, manipulators, the response was that it could only slap a fine on such wrongdoers, and were sometimes resigned to settling such cases out of court. Worse, they could never ban such personalities for life. At most, the regulator could name and shame such traders for violating the listing rules in their respective annual reports. To rub salt into the wound, new investors often did not bother to probe the backgrounds of these traders that somehow return and get to “run” companies.