Lehman minibond investors get their money back

Sun Hung Kai Investment Services and KGI Asia have completed their voluntary Lehman Brothers minibond repurchase initiatives. There are several other pending unresolved cases involving the minibond fiasco.

Thousands of Hong Kong investors held Lehman Brothers minibonds, or credit-linked notes, following the investment bank's collapse. Angry investors flooded the Securities & Futures Commission (SFC) and the Hong Kong Monetary Authority with complaints and marched in the streets last year to protest about how they were misled by selling agents -- especially commercial banks -- into believing that the minibonds were virtually risk-free.

Sun Hung Kai and KGI separately undertook to repurchase outstanding Lehman Brothers minibonds from eligible clients as part of the agreements with the SFC following its investigation into the sale of Lehman Brothers minibonds to their clients.

As agreed upon with the SFC, Sun Hung Kai and KGI offered to repurchase from their eligible clients all outstanding Lehman Brothers minibonds subscribed for or purchased through the firms, at a price equal to the principal amount invested by those clients.

These agreements have helped 329 clients recover the full amount of their initial investments in Lehman Brothers minibonds.

Both Sun Hung Kai and KGI are now the holders of the repurchased securities and are entitled to receive a distribution of the underlying collateral held on behalf of minibond holders. While there is uncertainty about the ultimate value of the collateral, this distribution is likely to defray a significant portion of the repurchase costs, according to the SFC.

For its part, Sun Hung Kai concluded the process for its 16 eligible secondary market clients following the early completion of its voluntary repurchase of Lehman Brothers minibonds from more than 300 eligible primary market customers in March.

Based on its valuation in January, the securities repurchased by Sun Hung Kai were estimated to be worth a total of HK$85 million ($7.7 million). That marks the biggest amount involved in a settlement of a case involving complaints of mis-selling in Hong Kong, albeit Sun Hung Kai Investment Services has never admitted to any wrongdoing.

Compensation for those who lost their investments -- and in some cases, life savings -- in the minibonds has been among the main priorities of the SFC as it has stepped up investigations into investment products that have failed following Lehman Brothers' collapse in September last year.

In a previous interview with AsianInvestor, the head of the SFC Martin Wheatley said that in previous cases where there has been mis-selling of products, the SFC has taken action occasionally and has reprimanded people and firms involved, but it has never seen anything like the scale of the Lehman minibonds.

The last big case for the SFC involved Towry Law, where the regulator forced a settlement from the firm. In 2004, financial advisory firm Towry Law entered into a settlement with the SFC for more than $30 million to compensate investors affected by the collapse of two of its hedge fund offerings.

"Nothing we have dealt with in the past is as huge as what we are dealing with now," Wheatley said previously. "We want to make sure that the people who have been mis-sold products get their money back, or at least a portion of their money back."

In January, Sun Hung Kai Financial, the parent of Sun Hung Kai Investment Services, said it believed that the repurchase initiative was the best possible solution for its affected customers and is enough to provide them with closure on the failed minibonds.