A LEGAL battle between local brokerage AmFraser Securities and former client Goh Cheng Yu over trading losses racked up in last October's penny stock crash is heading to trial.
The High Court last week dismissed AmFraser's application for judgment in its favour without a trial, finding that there are "serious questions that need to be tried and addressed in order for the dispute to be disposed of properly".
Assistant Registrar Colin Seow said the case related to the "integrity of the securities trading system", raising questions over whether certain clauses known as "conclusive evidence clauses" can be used to exclude liability for fraudulent acts by an employee against an innocent customer.
AmFraser, which reportedly faced potential losses of up to RM120 million (S$47 million) after the crash, is seeking $1.89 million in trading debts from Mr Goh. He is assistant project manager of Wee Hur Development, a wholly owned unit of construction group Wee Hur Holdings, in which his family is prominent.
The shares of Asiasons Capital, LionGold Corp and Blumont Group rocketed to record levels last October before going into a tailspin, losing more than 90 per cent of their value in a matter of days.
The crash wiped out about $8 billion in stock market value.
Mr Goh said that he was not liable for the losses because the shares in Blumont, Asiasons and the International Healthway Corp - a firm not involved in the meltdown - were bought under his AmFraser trading account on Oct 2 last year without his "instruction, authorisation or knowledge".
He said the investments in question were made by Mr Heng Gim Teoh, an AmFraser trading representative.
Mr Seow, in the decision released last week, noted: "The integrity of the securities trading system, like the banking system, is inextricably dependent on public confidence and trust in the system.
As such, the integrity of the securities trading system can, in theory, be seriously undermined if the law were to be such that the public is unable to find any security in the knowledge that financial services providers can be prevented from employing conclusive evidence clauses to shift the risk of unauthorised transactions made by a fraudulent employee to an innocent customer".
In declining to award summary judgment in AmFraser's favour, Mr Seow said: "Factual questions as to whether (Mr Goh) was at all material times an innocent customer and whether (Mr Heng) had acted fraudulently (regardless of whether he was at the material time a direct employee of AmFraser) are vigorously contested by both parties in the present case. These are clearly issues of fact which ought to be tried before a judge."
Mr Seow also noted that AmFraser has not provided any evidence that the investments were made by Mr Heng on Mr Goh's instructions, or with Mr Goh's consent.
Mr Goh claims Mr Heng admitted that he had increased Mr Goh's trading account limit without his authorisation, and that he had booked the investments on behalf of a Mr Lim Lin Ken without Mr Goh's knowledge.
But AmFraser, in its court filings, said Mr Heng is not an employee and was paid based on transactions conducted on behalf of his clients.
Mr Heng has since tendered a declaration to the court denying that he had admitted to carrying out the investments without Mr Goh's authorisation.
This article was first published on August 7, 2014.
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