[SINGAPORE] Underpinned by a global hunt for yield, Singapore’s real estate investment trusts are having a bumper year in deal-making as well as fundraising.

What is the biggest scam you’ve ever seen?

In January 1973, I graduated with an MBA from USC and immediately went to Singapore to work for Chang Ming Thien (the father of my college room mate) a businessman with no formal education who had worked his way up to become the CEO of United Malayan Banking Corporation in Singapore. Besides being the CEO of UMBC he was also the CEO of several other public companies and owned real estate in Singapore as well as other countries as far away as Bel Air, California.

My first job for M. T. Chang was to do a feasibility study for the building their family was putting up called the High Street Centre. During the course of my work I noticed the company appeared to be owned not by the Chang family but by curiously through large number of small holding companies which were shareholders of the company which owned High Street Centre. My curiosity took me down to the Registrar of Companies where I looked up the corporate records of each of High Street Centre’s owners and their financial statements. It turns out all of these many companies started life with no assets other than cash which they’d borrowed from United Malayan Banking Corp, they all initially borrowed S$100,000 (more or less) from the UMBC, their balance sheets showed an initial $100,000 in liabilities with $100,000 in cash deposited at the UMBC (naturally), all accumulated expenses (incorporation fees and bank interest charges) were carried on their books as Capitalized Costs.

About 20 of these companies in unison bought stock in yet another company, this company now had 20 X S$100,000 = S$2 million cash in the bank and NO DEBT. This company then bought the piece of property on which the High Street Centre was to be built for cash AND then went right back to the UMBC to borrow (since they had no debt to start with) ALL of the money needed to build the High Street Centre. Once construction started this company (totally controlled by the CMT family) could start taking deposits for shops and flats from the High Street from other outside investors. I realized that Chang Ming Tien was able to build and own the High Street Centre using not a single penny of his own money, every cent he used was UMBC depositors’ money. Almost certainly, this was contrary to Monetary Authority of Singapore regulations.

Around the same time, the Chang Family bought over the Overseas Trust Bank in Hong Kong, shortly after that OTB (later a huge scandal in HK involving Patrick Chang, MT Chang’s younger son when OTC collapsed not many years after MT Chang passed away in a hotel under strange circumstances). Prior to it’s collapse Patrick Chang himself boasted to me how his father had managed the take over of Faber Merlin (a real estate and hotel company listed in HK) without spending a single penny of anyone’s money. This scam was even marginally legal in the manner in which it was planned and executed, it was nothing short of brilliant, all MT Chang had to do was LIE to his business partner.

Faber Merlin was a real estate company listed on the HK Stock exchange, it’s major visible asset being the Merlin Hotel is Tsim Sha Tsui. Kowloon. It may have owned other parcels of real estate but back then I really had no intimate knowledge of the company. In 1974 the HK Stock Market had basically collapsed, the result of the Arab Oil Crisis when the price of oil soared from about $10 a barrel to $50 a barrel over a very short period of time. Business conditions were miserable. Faber Merlin’s CEO back then was a businessman named J. J Rapier, Chang Ming Thien at the time was just a director at Faber Marlin.

Chang Ming Thien had a talk with JJ Rapier where he suggested to Rapier that since business conditions were so bad and since real estate prices were so low that it would be a great move for Faber Merlin to raise some money to buy up some of these distressed properties and take advantage of the depressed economic conditions. Rapier thought it sounded good but that Faber Merlin’s price was itself low and that it would be difficult to raise money selling stock at these depressed prices. Chang’s solution was to have Faber Merlin float a rights issue, existing shareholders would be given the right to buy new shares in the company at a discount from the market price. These rights were like very short term warrants, the rights themselves had a value (market price minus exercise price) and any shareholder not wishing to exercise their rights could always sell them for cash, a win/win situation for the company and for the shareholders.

Raper told Chang that there could be a problem with everyone selling their rights and not exercising them, Chang told Raper there would be no problem, that his company, Overseas Trust Bank would underwrite (guarantee) the entire rights issue, that any and all unexercised rights would be taken up and exercised by OTB. Raper thought that sounded very good, virtually fool proof but that Rapier himself had a problem coming up with the cash to exercise HIS rights, the rights he would receive on the shares he owned himself. Chang assured Rapier that this would be not be a problem as OTB would extend sufficient credit to Rapier so that Raper could exercise his rights and buy into the rights issue. Looking at the prospect of receiving a hefty cash inflow even when business conditions were dire, Raper could not say no to such a beneficial proposition so Faber Merlin went ahead and proceeded with their rights issue as planned.

In the days leading up the the expiry of the rights, J. J. Rapier suddenly found it impossible to contact Chang, it was as though Chang Ming Thien had vanished off the face of the earth. Nobody at OTB other than CMT himself had the authority to lend Rapier the money needed to exercise his own rights. The rights expiry date came and went, all of Rapers rights expired BUT (true to Chang’s word) all of these expired rights were taken up by the Overseas Trust Bank and exercised. When the dust settled, OTB owned more shares than J. J. Rapier. M.T. Chang resurfaced and immediately called a shareholder’s meeting. Now that his OTB held the majority of shares in Faber Merlin, Chang immediately fired Rapier and his entire board of directors, immediately replacing the entire board with his own cronies. His next move was to address what he was about to do with all the new cash raised from the rights issue. Chang’s decision was that since business condition were fragile, the most prudent thing to do was to keep the cash on deposit at (surprise) the Overseas Trust Bank. Thus Chang had managed to engineer the takeover of Faber Merlin without a single penny leaving his pocket or the Overseas Trust Bank’s coffers.

In the end, Rapier himself was a pretty sharp businessman, following the theft of his company he dug around and found that the OTB itself had broken Hong Kong bank regulations when the rights were exercised, he realized that OTB has broken it’s reserve requirements when it plowed all that money into exercising those Faber Marlin rights so he sued. Eventually they settled for US$10 million, Rapier took that money back to England and retired, I assume he sold his remaining Faber Merlin stock. Some years later, long after I stopped working for Chan Ming Tien’s group of companies after realizing he was nothing but a con-man, I opened the newspaper to read of the collapse of the OTB, it’s CEO, Patrick Chang handcuffed at the HK Airport trying to flee with a bag full of cash and jewellery.

Overseas Trust Bank

I learned an awful lot during the 2 years I worked in Singapore and Indonesia as a young man in my twenties fresh out of University on my first “real” job. It doesn’t pay to build your business on a foundation of deception and fraud. Yes, you can fool some of the people some of the time but in the final analysis you can’t fool all of the people all of the time.