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Published April 16, 2008 Business Times
Zhonghui chairman sues OCBC Sec for alleged breach of duty
Broking firm intends to defend itself against allegations
By MICHELLE QUAH
(SINGAPORE) Zhonghui Holdings chairman and president Gao Bin is suing OCBC Securities Pte Ltd for their alleged breach of duty and good faith over an account he held with them.
OCBC Securities says it intends to 'vigorously defend' itself against the allegations.
Mr Gao, represented by K Anparasan and Ang Keng Ling of law firm Khattar- Wong, has filed a writ of summons in the High Court against OCBC Securities, accusing them of being negligent in their duty to him. He is asking for damages to be assessed, interest, costs and other such relief as the court sees fit.
Mr Gao, who is also a major shareholder in Zhonghui, opened a securities borrowing account, a securities trading account and a share margin account with OCBC Securities in July 2006, for the purposes of trading on the Singapore stock market.
He had pledged some of his Zhonghui shares - amounting to about a 3.3 per cent stake in the company at the material time - with them as security.
China-based Zhonghui is an integrated solid-waste management group that was listed on the Singapore mainboard in October 2004. The company's shares last traded at 7 cents.
According to OCBC Securities' website, its securities borrowing account allows its clients to borrow shares real-time and online for immediate covered short-selling.
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Mr Gao claims that, prior to Sept 17, 2007, OCBC Securities had provided him with reports which represented that his securities borrowing account was in a profit position, and that no cash or security top-ups were required.
However, in a report dated Sept 17, 2007, OCBC Securities said his account had sustained losses and required a cash top-up of over $2.1 million and a security top-up of $2.1 million.
The next day, OCBC Securities asked Mr Gao to make immediate arrangements to bring his margin percentage to 150 per cent of his debt balance by effecting a cash top-up of $1.5 million, and to top up the value of marginable securities to $1.5 million. If he failed to do so, they would sell the Zhonghui shares he had pledged as security.
OCBC Securities' policy, as described on its website, is: if a client's limit level is between 130 and 140 per cent, his account would be subject to limit call - which can be met by either depositing additional cash, acceptable securities or buying back his borrowed shares and returning them to meet the call.
If his limit falls below 130 per cent, part or all of the shares borrowed may be forced buy-back by the company to bring the client's limit to at least 150 per cent. The client's collateral may be forced sold to meet this limit requirement.
By Oct 5, 2007, OCBC Securities' report showed that the cash top-up required was $2.7 million, the security top-up was $2.7 million, and the amount to return was now some $5.4 million.
In his affidavit, Mr Gao said OCBC Securities subsequently admitted to him, in meetings he had with them and his remisier Philip Ng, that their earlier reports to him were wrong - and were the result of numerous errors they made in recording trades in his account.
Mr Gao cites an email by Mr Ng which said that the errors recorded led Mr Gao to believe that his account was in a profit position, which caused him to execute trades to his detriment.
Mr Gao has sued OCBC Securities for fraudulently and/or negligently misrepresenting the position of his account with them and for breaching their duties and obligations to him, including their duty of care and/or good faith. He is claiming that he has suffered loss and damage as a result of relying on their misrepresentations.
The writ was served on OCBC Securities this week.
OCBC Securities is represented by Edwin Tong and Kristy Tan of Allen & Gledhill (A&G) and they are expected to file their defence to Mr Gao's claim shortly.
When contacted by BT, A&G said: 'At present, Mr Gao has only filed a generally endorsed writ. He is required to now furnish details in relation to the basis of his allegations. OCBC Securities and its solicitors will consider those particulars if and when Mr Gao provides them, and will file its defence thereafter.'
It added: 'OCBC Securities has every intention of vigorously defending itself against Mr Gao's allegations. However, as the matter is now before the High Court, OCBC Securities does not see that it would be appropriate to comment on Mr Gao's allegations at this stage.'
Mr Gao, through his lawyers, had also applied for an injunction on April 1 this year to prevent OCBC Securities from divesting his Zhonghui shares which he had pledged to them as security.
The application for the injunction was resisted by A&G and dismissed by the High Court. This means, OCBC Securities can enforce against the security provided by Mr Gao by disposing of the Zhonghui shares to recover the shortfall.