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Investor wins suit to recover $1.3m loss

Investor wins suit to recover $1.3m loss

Source: Straits Times
Article Date: 14 Nov 2021
Author: Tan Ooi Boon

The man had invested $1.5 million in a fund that was assured to be "capital-guaranteed".

The term "capital-guaranteed" gives investors peace of mind because even if calamity strikes, they will at least escape with their initial investment. What could go wrong?

A case winding its way through Singapore's courts suggests that plenty could go wrong unless all parties are literally on the same page when it comes to signing documents.

The man at the centre of the case, Chinese national Lou Kan, invested $1.5 million in a fund that was assured to be "capital-guaranteed", which meant his money would be safe even if the global economy did badly.

But when he wanted to cash out five years later, he was shocked to discover that he could get back barely 15 per cent of the initial capital, or about $225,000, because his investment was not as risk-free as he had been told.

The fund's vendor who sold him the product had apparently misled him into thinking that this was a safe investment. The investor also signed on documents which stated that he was buying into a capital-guaranteed fund.

When the investor discovered that he would not be getting his money back, he sued the vendor, a senior executive at the fund's manager, in the High Court.

He won the case last month with the judge ruling that Mr Lou had clearly acted on the seller's false representations.

The ruling ordered the vendor to reimburse the remaining $1.275 million to the investor.

But the man lodged an appeal over this decision with the case pending before the Court of Appeal.

This is an unusual case because the investor sued the person who sold him the product and not the investment company itself.

Victims of financial losses usually have little recourse against those who sell the products because most sellers are either freelance agents or employees who don't have the means to make good the losses, even when they are found guilty of fraudulent behaviour.

While the facts of this case are unique, the High Court's ruling should serve as caution to those financial representatives who have the bad habit of making exaggerated and sometimes untrue claims about the investment products they peddle.

Advisers who do this just to pocket a quick buck on commission should be aware that their customers can always sue them and make them pay for losses if they have misled them into parting with their money.

IS THE $1.5 MILLION GUARANTEED?

Events that led to this lawsuit began in 2012 when Mr Lou applied for permanent residency here under the Singapore global investment programme (GIP), which then required foreign applicants to make a $1.5 million investment in approved funds.

While still in Beijing, Mr Lou engaged Mr Xing Xinli to help in the immigration process, which included a referral to the GIP-approved "Sunmax Global Capital Fund 1".

With Mr Xing's help, Mr Lou later met Mr Li Hua, managing director of the fund's manager. Mr Lou said he was given the fund's "private placement memorandum" (PPM) dated Feb 1, 2009, which stated that the fund was principal-guaranteed but relevant management fees would be chargeable.

To show what this meant, one of its terms stated: "For example, if you invest $1,500,000 in our fund, you will get at least of (sic) $1,237,500 back just after 5 years."

While there were different versions as to how the investment was eventually placed, what was undisputed was that both Mr Lou and Mr Li had signed on the "2009 PPM".

In 2017, Mr Lou cashed out his investment and asked for his $1.5 million sum plus returns, after paying the management fees.

But the investment company told him that according to its "2010 PPM", this fund was not principal-guaranteed.

And in his case, he would get back about $225,000, "with the possibility of further distributions after liquidation of the fund's non-cash assets".

Mr Lou said this was not what Mr Li had told him and neither did he have any knowledge of the 2010 documents. He pointed out that both of them had signed the 2009 documents, which stated that his investment was guaranteed.

In the following year, he sued Mr Li as there had been no resolution to the dispute.

Mr Li claimed that he never gave the 2009 forms to Mr Lou, noting that the forms were already on the table when he arrived at the meeting, which was arranged by Mr Xing.

He claimed he brought the newer forms because the 2009 version was no longer in use.

Mr Li also said he never made any representations that the investment was capital-guaranteed and that if anyone had said so, it was probably Mr Xing, who recommended the fund to the investor.

But High Court judge Pang Khang Chau found that Mr Li had told Mr Lou that the fund was a principal-guaranteed fund and that he had also given him the 2009 PPM.

If Mr Li had indeed given Mr Lou a copy of the 2010 PPM at the meeting, the judge said he would have ended up with two sets of documents.

"After much toing and froing, Mr Li finally accepted that, based on his version of the events, there would have been two sets of PPM at the meeting, but he continued to maintain that he did not realise (then) that there had been two sets present.

"I find this part of Mr Li's evidence illogical and lacking in credibility," said the judge.

There was also evidence to make Justice Pang find that Mr Li had said the fund was guaranteed.

"It is noteworthy that Mr Li affixed his signature to only one page of the (2009) document, which happened to be the page containing a definition of the fund that employs the phrase 'principal-guaranteed fund (exclusive of management fee)'," he noted.

"In court, Mr Li explained that during the meeting, Mr Xing suddenly asked him to sign this document and he just signed as requested without reading the document carefully. I find this explanation unbelievable."

Mr Li argued that Mr Lou, as a savvy businessman, could not have relied on what he said because Mr Li was a stranger he had known for only two hours.

But the judge noted that Mr Li was not just any stranger who had accosted Mr Lou on the streets unsolicited: "Mr Li held credentials as a director of an investment fund which had been approved by a Singapore government agency for the purposes of the GIP.

"That lent credibility to whatever Mr Li said about the fund and made it likely that Mr Lou would believe it, and therefore rely on it."

The defence had also offered another possibility, that Mr Lou was misled by Mr Xing, who recommended the investment fund to people seeking his immigration services.

But Justice Pang said this would run counter to Mr Li's description that Mr Lou was a savvy businessman because it was less likely that he would make an investment based on the words of someone hired to process immigration applications.

So Mr Lou would have deferred any decision to invest until after he had met Mr Li personally, the judge found.

The court then ruled in favour of Mr Lou for about $1,275,000 - his original investment minus the earlier cash payout - plus 5.33 per cent annual interest from the date of issue of the writ in 2018.

Source: Straits Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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