Chu Wu Hsien, a former chairman of the management board of the Public Service Pension Fund (PSPF) and minister of civil service between 2004 and 2008, has been detained by prosecutors in Taiwan on suspicion of wrongdoing in office. The investigation is expected to delay the PSPF's latest outsourcing exercise, as more senior officials from the fund are called in for questioning. The PSPF is one of Taiwan's four state-run mega funds.

Up to 43 senior executives from eight local brokerages that have been dealing with the PSPF have also been summoned in relation to the scandal. So far, the businesses known to be affected include: Grand Cathay, Yuanta, Polaris, SinoPac, Daiwa Securities SMBC-Cathay and SinoPac Securities.

The prosecutors say they suspect Chu, in collaboration with senior staff in the PSPF appointed by the Chen Shui-bian cabinet, received bribes in the form of commission kickbacks from the brokerages of up to 10% per trade. According to government-released information, the investigation was prompted by the existence of multiple accounts, irregular trading patterns and uneven order placing favouring certain brokerages.

They also say Chu, along with other unnamed officials, might have also misused funds from the NT$280 billion PSPF to manipulate stock prices and even coerce service providers into voting for their preferred political party.

The investigation effort is ongoing, but Chu denies any wrongdoing in the scandal, saying that the PSPF pays a standard 4% expense ratio when using local brokerages to execute trades.

The scandal would make a first involving a public fund in Taiwan. But observers comment that for the bosses of the securities houses, investigations of the kind are not uncommon when there has been a change in political power.

Janet Li, principal investment consultant at Watson Wyatt in Hong Kong, points to the incidence as a timely reminder for public funds to pay attention to governance issues -- a cause that Li had been advocating even before the transition of political power in the presidential and Legislative Yuan.

Li believes that with proper documentation and fund accounting the officials could be cleared of the charges. She says officials should seize the opportunity to improve structures in decision-making, provide a clearer definition of underlying executives' roles, and to enhance checks and balances including board composition and the quality of board members' oversight responsibilities.

Chu has a long political career dating back to 1991. He has held positions as an advisor to the presidential office and a director-general in the Central Personnel Administration. Between his government jobs, Chu's CV is also peppered with academic roles, lecturing at the National Taiwan University and the Judges and Prosecutors Training Institute.