When the three penny stocks, Blumont Group, Asiasons Capital and LionGold Corp crashed suddenly in early October 2013, James Hong Gee Ho was hit in more ways than one.
Firstly, as an executive director of Blumont, Hong bears a fiduciary duty to the company and its shareholders. Secondly, having pledged a substantial amount of Blumont and other shares he owned to Goldman Sachs, the subsequent forced selling decimated Hong’s own net worth by around US$50 million. And that figure did not include what he owed to various other banks and brokers. On July 24, 2014, Hong was made bankrupt.
Hong was among the witnesses called to testify at the long-running trial of John Soh Chee Wen and Quah Su-Ling. They are alleged to have manipulated the three penny stocks through a web of trading accounts belonging to associates such as Hong. In the subsequent crash, some $8 billion in market value vapourised.
The court was told how Hong and Quah had share-financing accounts with Goldman Sachs and on the morning of Oct 2, 2013, they were given around three hours to pay up. When they failed to do so, the forced selling began.
Given the massive financial hit he took personally, Hong was asked repeatedly by Soh’s lawyer N Sreenivasan if he was keen to find out what caused the crash. In response, Hong told the court he had heard “many versions”.
“But as far as I’m concerned, you know, all these are just hearsay or whatever, so, I just leave it as such. At the end of the day, you just stick to the fact that it had crashed, that’s about it. Anything else is speculation,” said Hong, who has been impeached as a witness for multiple inconsistencies in his statements and testimonies.
As part of Sreenivasan’s overall arguments, he had insisted several times that his client Soh and co-accused Quah did not cause the crash. Rather, he claimed it was an unusual query from the Singapore Exchange (SGX) on Oct 1 and the subsequent actions of Goldman Sachs that caused the crash.
“Now, do you remember any incident that sparked off the problems for Blumont?” asked Sreenivasan.
“My problem with Blumont?” asked Hong.
“No, the problems for Blumont shares. You have your problems, we’re not quite interested in them at the moment,” retorted Sreenivasan.
Under questioning by Sreenivasan, Hong agreed that an unusually pointed query by SGX on Oct 1 to Blumont on why its shares were trading at such a high value could have been the cause of the subsequent collapse.
“You have been in the corporate world quite a few years, have you ever come across any exchange asking why a share is trading at a particular price?” asked Sreenivasan.
“Not that I can recall,” said Hong.
“Normally, they ask why is your volume so high, right?” asked Sreenivasan.
“Yes,” said Hong.
“If there are wide price fluctuations, they may ask if you know anything about why there were such wide fluctuations in the price, right?” added Sreenivasan.
“Yes,” said Hong.
“But you have never come across an instance where SGX actually asked, ‘Are you worth what the market is valuing you?’, right?” continued Sreenivasan.
“Not that I can recall because it’s very unusual,” said Hong.
“It’s so unusual that when that query is made and announced, panic buttons and bells and red alarms will be sounded in a market investing in that share, right?” said Sreenivasan.
Hong then said he was not in a position to comment on the market reaction.
“Come now, Mr Hong, it’s okay,” cajoled Sreenivasan.
“As an investor of Blumont and not from any position in Blumont making that announcement, then I would follow that line of logic — the only reason that exchange is putting forward is that the stock is not worth the price it is trading at,” said Hong.
Hong told the court he was “dumbfounded” at the “very unreasonable question” from SGX. He claimed stock prices are “dictated by the market” so companies should not be asked to justify their share prices.
“We don’t control the share price. We are just doing what a company is supposed to do and the share price is transparent to the company per se,” Hong told the court.
“So did you go and see SGX and say, ‘Listen, are you out of your mind? How do you expect me to answer the question?’ Did you do that, or say words to that effect?” asked Sreenivasan.
Hong said he could not recall the exact sequence of events other than there was this “fury of exchange” that took place between lawyers and the exchange.
He and other Blumont directors also got in touch with the exchange’s officials to try and respond to the query although he could not recall specific details of the conversations.
