The recent market falls have shaken some Taiwan investment managers in more ways than one.

An unnamed source from the Securities and Futures Commission (SFC) this week has accused some Taiwan investment managers of misleading conduct by publicly talking up the market while shorting it at the same time, according to the local press.

But an SFC spokesperson contacted by FinanceAsia declined to confirm whether any managers were being investigated on the market manipulation claims, saying such matters are usually referred to the Department of Justice for investigation. Until then, the commission would not make comments.

The damage has been done. Names of foreign firms that have sold their holdings in the past few days have been published. Between the five managers named, a total of NT$36.41 billion worth of stocks has been dumped.

Chip-makers were among the most sought-after stocks on recommendations by fund managers in the media after Nasdaq fell last week. TSMC and United Microelectronics rose NT$3 and NT$2 respectively on Monday only to lose NT$6 and NT$3 the following day. Others such as Advanced Semiconductor and Siliconware Precision also suffered similar fate.

Logical conclusion

At the beginning of this week, amid a short-lived rally on the TWSE Index where small investors account for 85% of the trade, foreign institutional investors dumped Taiwan shares worth NT$4.57 billion, leaving domestic mutual funds to absorb NT$5.22 billion net.

The SFC is not impressed, and has threatened to put the foreign managers concerned under investigation. The managersÆ defence is that they held an optimistic outlook for some Taiwan stocks but their clients wanted to sell. The SFC, however, is skeptical, pointing to the sequence of these managersÆ words and deeds.

When the managers received big sell orders from clients, the SFC argues, they should have stopped making comments that encouraged small investors to buy. It reckons the managers' actions amount to market manipulation.

Besides, it says, overseas clients usually act on the information provided by their advisers on the ground, and that it is possible that these investors sold on their advisersÆ recommendations.

One foreign manager has privately challenged the SFCÆs logic, asking why any manager would risk the charge of market manipulation for profits that ultimately end up in someone elseÆs pockets.

Now, thereÆs a thought.