Legal News

Mo? Money, Mo? Problems; Banks Do Battle With Asia?s Newly Rich

By Dan Slater

In recent years, Wall Street banks doing business in Asia have staffed up their private wealth operations there to serve the continent’s newly-rich in countries like Indonesia. Today, the Journal reports on the legal fallout from this trend.

Merrill Lynch has become entangled in a dispute with an Indonesian private-banking client, Prem Harjani, who’s suing Merrill for $90 million in damages for allegedly selling shares without his knowledge. Merrill, in turn, is suing Harjani, the owner of a Jakarta-based investment bank, in a Singapore court in an effort to recoup $12 million that it says Harjani failed to repay. This week, the bank won a court order freezing Harjani’s assets in Singapore.

A Merrill spokesman in Hong Kong said Harjani’s allegations are “without merit.” Through a lawyer, Harjani declined to comment. His lawyer said Merrill’s actions in selling the shares had lost his client money.

Could the flap portend a trend in these suits? The WSJ notes that many Asian private-banking clients have complained about losses on so-called accumulators — essentially bundled derivative contracts that offer investors the ability to buy a security or currency at a fixed price over a period of time. The price, writes the WSJ, usually represents a discount to the market, and as long as prices continue rising, the investor locks in tidy profits. When prices dive, as they have this year, the discount is wiped out, and the investor is unable to exit without incurring heavy losses.

An Indonesian couple is seeking $8.6 million in damages from UBS in a Singapore court, claiming they weren’t aware of the risks involved in a currency accumulator that went bad. In Hong Kong, a local businesswoman, Joyce Tsang, is suing Goldman Sachs for allegedly trading accumulators for her account without her authorization.

Goldman Sachs and UBS deny any wrongdoing.

“We have seen a general increase in litigation,” said Martin Rogers, an attorney at Clifford Chance in Hong Kong, who’s represented banks in such matters. “My view is that most of these cases are not well-founded.”

Full post as published by Law Blog - WSJ.com on November 19, 2008 (boomark / email).