Koh Kim Teck, a retired stockbroker from Malaysia who lost S$35.1m (US$26m) in investments with Credit Suisse during the 2008 financial crisis has filed a law suit in the High Court of Singapore against the Singapore branch of the Swiss bank for breaching its duties and failing to manage his private wealth account with care 'when giving advice and/or providing information' in relation to high-risk structured investment products, including knock-out discount accumulators (Kodas) and dual currency investments (DCIs), which were purchased on the defendant's advice.

According to court fillings from 2015, Credit Suisse knew that the investor had no familiarity with both Kodas and DCIs, which were 'unsuitable' for the investor 'objectives of wealth preservation'. The investor also claims that the bank had failed to monitor and keep him informed of the risk exposure of the account, and alleged that it was unreasonable for the bank to give him less than 24 hours' notice to provide an additional US$5.7m in collateral before closing out his account, which resulted in the losses.

According to local media reports, on August 29, the first day of a three-week trial, Kim Teck's lawyers portrayed him as a man of substantial wealth 'who was relentlessly courted by bank employees pushing high-risk products'.

Credit Suisse had reportedly promised Kim Teck 'the heavens and the stars' when trying to get him to open a private wealth account with the bank but 'when the music stopped', the bank closed out his account with a 'farcical' four hours' notice, which resulted in the US$26m loss.

Credit Suisse lawyers contended that the losses were a consequence of Kim Teck's own investment decisions and the global financial crisis, not through any fault of the bank.

The Swiss bank also challenged the investor's attempt to portray himself as having been led astray and said that Kim Teck, who retired as the general manager of a prominent stockbroking company listed in Malaysia, was a sophisticated and savvy investor.

Both sides have diametrically opposite versions of what led to the opening of the account in 2003. The trial continues.

Spain's CaixaBank to redress investor

CaixaBank was also ordered to return €100.000 to a family business after the Provincial Court of Zaragoza (Audiencia Provincial de Zaragoza) rendered null and void a structured deposit transaction recorded in 2008 on the basis that the bank did not inform the client that the risk embedded in the product was 'significant' and failed to run a suitability check.

The court decision overrules an earlier sentence by the Court of First Instance on Zaragoza which ruled in favour of the bank and rejected the client's claim initially.

The court ruling states that the product had a 'complex and risky nature with high volatility' as the payout structure was linked to the performance of three shares, and that the risk of capital loss was high despite offering 'a very attractive' return rate. According to the ruling, the product was suitable for an investor with a high risk profile but not suitable for an investor with a medium risk profile.

The investor's lawyer Alberto Cárdenas from Jolister Legal law firm was quoted by the local press stating that 'fortunately' financial firms are being 'held accountable for breaching their responsibilities' around the 'sale of complex and high risk products such as structured deposits'.

'These are products for professional investors with sophisticated financial knowledge and cannot be sold in the high street to retail clients' stated Cardenas.

Finra fines broker-dealer for ETF leverage sales practices

The US Financial Industry Regulatory Authority (Finra) has entered into a consent agreement with a FSC Securities Corporation, a Georgia-based broker-dealer emerging from inappropriate practices and procedures relating to its sales of leveraged exchange-traded funds (ETFs). The sales included ETFs that were leveraged, inverse, or both inverse and leveraged, and that were sold to retail accounts. The action reflects the regulator's continuing concerns about the procedures that its members have used to approve and monitor sales of these products.

According to the Finra letter of acceptance, waiver and consent (AWC), FSC Securities Corporation was censured and fined $15,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a reasonably designed supervisory system for its representatives' sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs). The findings stated that the firm's procedures required it to perform due diligence on each new product sold to customers to ensure that the firm and its representatives understood the nature of the product and its potential risks and rewards.

The procedures also required the firm, on an ongoing basis, to determine whether the specific product was performing as anticipated, whether market conditions had affected performance, and whether only authorized and suitably trained representatives were selling the product. The procedures required the firm to document these reviews, however, the firm could not demonstrate that it had complied with these procedures.

The firm's procedures also required its representatives to collect a signed qualification agreement from each customer prior to executing any non-traditional ETF transaction for that customer.

According to the procedures, the qualification agreement would describe product features and risks, and memorialize the customer's acknowledgment of acceptance of the risks. The firm did not enforce this procedure and collected no qualification agreements from its customers.

The firm did not have any exception reports specific to non-traditional ETFs, and failed to implement a system to monitor non-traditional ETFs holding periods and losses. (FINRA Case #2014041310602)

Related stories:
La Banque Postale and Natixis fined for structured products shortcomings

US broker charged with leverage ETF/ETN fraud

Hong Kong regulator fines BNP Wealth Management HK$4m for overcharging clients