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SINGAPORE - Was Chang Tse Wen, a renowned Taiwanese scientist who reaped US$118 million (S$153 million) from his development of asthma drug Xolair - only to lose nearly half of it through investments gone awry - a victim of alleged negligent advice from Deutsche Bank and his private banker?
Was he induced into buying risky investments, and then asked to sign disclaimers that exempted the bank from being liable? If so, do these disclaimers have teeth and do they apply?
These issues, among others, will be examined in a three-week trial presided by Judge Philip Pillai that began yesterday in the Singapore High Court. Lawyers for Dr Chang will present evidence this week to support their claims that the bank breached its duty of care to him when it allegedly failed to warn him of 'substantial risks involved in margin financing of derivative products'.
Meanwhile, Deutsche Bank's lawyers, in their opening statements, blamed Dr Chang's failed investment on 'market forces' generated by the global financial crisis that followed the collapse of Lehman Brothers in September 2008.
Calling Dr Chang a 'sophisticated investor', the bank described his case as a 'typical situation of a private banking customer who suffered investment losses arising from his own investment decisions'.
Ang Cheng Hock, the bank's lead counsel and a lawyer with Allen & Gledhill LLP, said that Dr Chang 'on his own initiative started to invest very aggressively' in shares of international banks such as Citigroup in November 2007 despite being warned that Deutsche Bank had issued a 'sell' rating on Citigroup.
Dr Chang allegedly said that he would like to 'follow in the paths of investment guru Warren Buffett (in purchasing shares when others are 'fearful' and times are 'uncertain') as well as Saudi Prince Alwaleed bin Talal (who had invested in Citigroup shares in bad times and profited thereafter).
Speaking for the plaintiff, Peter Julian Millett, a former member of the English House of Lords and one of Dr Chang's expert witnesses, said it wasn't reasonable for the bank to disclaim responsibility for the advice it gave as his investment adviser.
'The bank was in a stronger bargaining position than Dr Chang, the relevant clauses were not drawn to Dr Chang's attention, and he did not give his informed consent to them,' Lord Millett said in his affidavit.
Dr Chang, 63, sued Deutsche Bank after he lost US$49 million investing in so-called Discounted Share Purchase Programmes (DSPP), or high-risk derivative investments, allegedly on the advice of Johnny Wan Fan Ting, assistant vice-president of the bank's Hong Kong branch. The transactions were managed out the bank's Singapore office.
Lawyers for Dr Chang said yesterday that they plan to present evidence that indicate his lack of experience in derivatives, and that Mr Wan's alleged recommendations were unsuited to Dr Chang's investment risk profile and needs.
They also accused the bank of failing to warn him of the 'concentration risk inherent in his large exposure to financial institution stocks' and for allegedly 'profiting from the 34 DSPPs without procuring his informed consent'.
K Muralidharan Pillai, Dr Chang's lead counsel and a lawyer with Rajah & Tann LLP, said that his client's investment portfolio in 34 DSPP contracts involving the shares of four banks - Citigroup, UBS, Societe Generale and Washington Mutual - was 'hopelessly unbalanced and undiversified'.
That's because almost all of his investment portfolio with Deutsche Bank consisted of one financial product - high-risk derivatives in just four companies that were in the same industry, banking.
More than two-thirds of the DSPPs were invested in shares of Citigroup.
Dr Chang claims that he was advised by Mr Wan to buy a designated number of shares in the four banks at a designated purchase price every day for one year through 34 DSPP contracts.
The problem was that he first entered into 32 DSPP contracts between Nov 19 and Dec 12, 2007 just as major US banks including Citigroup and Washington Mutual were getting roiled by the turmoil in the mortgage and credit markets.
Due to drastic falls in the value of the bank shares in the DSPPs, he was told by Deutsche Bank in March 2008 that his potential exposure was around US$76 million.
Ultimately, 16 of the 34 DSPPs were unwound in March, July and October 2008 at substantial losses and by November 2008, his entire US$49 million investment was wiped out by the unwinding, and the continued purchase of shares through DSPP contracts that were still in force.
Dr Chang took legal action after the bank sued him to cover a US$1.8 million shortfall in his account due to his investment losses, failing which he would be made a bankrupt. But the High Court set that demand aside in March 2009, saying that Dr Chang had a valid counterclaim.
This article was first published in The Business Times.
