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Sekawan Intipratama: Another Stock Fraud

In Wednesday, November 11, 2015, the Indonesia Stock Exchange (Bursa Efek Indonesia, BEI) suspended three brokerage houses from stock trading activities, namely Danareksa, Millenium Danatama, and Reliance, because the three were allegedly ‘not to performing an adequate procedure of internal controls’. BEI execute the suspension after receiving a report from the Financial Services Authority (Otoritas Jasa Keuangan, OJK), that the three were involved in ‘pump and dump’ activities related to Sekawan Intipratama (SIAP), a small-cap stock, which causes huge losses for many retail/institutional investors in the market.

Actually this is not the first time BEI suspends a brokerage, because on October 29, BEI also suspended Trust Securities, a small brokerage firm. However, because the stock in question (SIAP) has been popular before as ‘cursed stock’, and two of the brokerages (Danareksa and Millenium Danatama) are large firms, then this suspension received a lot of attention from the media, analysts, and investors themselves.

And about SIAP itself, this is the umpteenth time where a stock of a small company could rise like crazy, also with unusual volume of transactions, while in fact, the company continued to post losses every quarter. At the beginning of 2014, SIAP was traded at Rp80 per share, but it reached 450 in early 2015, or rose more than five folds in just a year, and its daily trading volume reached hundreds of millions of shares. Nevertheless the end is obvious: The stock fell apart and, of course, by dragging many victims.

There are at least three things we can learn from the case. First, the BEI and OJK finally do something to protect the investor. Just last month, I criticized the two authorities because they fail to prevent crimes in the stock market (you can read again the article here), but it seems like they finally dare to do something, although only in a form of suspension of the three brokerages who allegedly involved in case of SIAP (and even today the suspension has been lifted). But at least this suspension has damaged the reputation of Danareksa, Millenium Danatama, and also Reliance, where the investors would think twice to open a trading account in the three brokerages. In this case the action of Director of BEI, Tito Sulistio, deserves to be appreciated because, just think about it: If you are the Director of BEI, would it be that easy to suspend the above three? Because you will surely receive opposition from some people who are ‘disturbed’, moreover, two of the three brokerages are large and influential ones.

However, if an institution committed an offense, they have to be punished no matter how big they are. I hope that the action of BEI could be a signal that they’re really siding with all participants of capital market including retail investors, not the big players only.

Secondly, this case would be a reminder that as an investor, you should be careful in selecting a broker, and I’m serious about this: You should be careful.

Because, in theory, a broker should support the investors/its clients to be successful in the equity markets. However, in practice, the majority of the brokerage companies only care about trading fee, and they do not care whether you make profits or suffer losses, or worse: Some stockbrokers may deliberately try to reap profits that derived from investor’s losses. In the US, there is Jordan Belfort, a stockbroker who was arrested and imprisoned because of case of insider trading (and there may be many other stockbrokers that also imprisoned). But in Indonesia, I have never heard about a stockbroker or any other stock market professional who was imprisoned for cases of insider trading or any other crimes, while, once again, this case of SIAP is not the first time (so this is a big challenge for you, Mr. Tito Sulistio, and also any other officials on the BEI and OJK, but we will appreciate if you guys can do more).

Related to tips in choosing a broker, you can read it here.

And third, the case of SIAP should be a lesson for you, whether you’re one of the victim or not, to stay away from from ‘boiled stocks’, ie a stock which its movement is controlled by particular parties (usually the company itself), not by the market flow. Actually it was not that hard to see that SIAP is such boiled stock. In June 2014, SIAP became the object of backdoor listing for PT Indo Wana Bara (IWB), a coal mining company, where the owner of IWB acquired SIAP, and SIAP issued 23.4 billion of new shares at the price of Rp200 per share (so the proceeds were Rp4.7 trillion, equal to US$ 400 million), which used to acquire IWB.

The problem is, IWB has not yet in production, and even worse, the company still lacks of heavy equipments, trucks etc. to carry out the mining activities, and the shareholders did not have the money to buy the equipments. When SIAP held a rights issue worth Rp4.7 trillion, the company do not receive the proceeds in cash or any tangiable asset, but only goodwill valued at Rp4.7 trillion, which become the largest asset of the company.

And the question, how could a coal mining company that not even ready to operate, be valued up to US$ 400 million??? But the subsequent events were predictable: The owner of SIAP trying to make easy money by selling the stock, which actually has no value at all, to pension funds or other institutional investors, with the promise that the stock would be repurchased (repo), and that ‘the stock price in the market will be maintained’, and that ‘if the coal mining start to operate later, the value of the earnings generated will be far more than just US$ 400 million’ (Okay, later.. but when? What about the low price of coal?). That’s why the stock of SIAP was pumped up to make profit for the repo holders, and consequently the movement of SIAP in the market is not natural at all, which it can easily go up or go down extremely, and the transaction volume also too large for a third-liner stock.

So when the stock finally collapses, I’m not surprised at all, because SIAP is clearly a boiled stock (still remember the case of TRAM? Read it again in here). The fundamental of the company is also totally bad, where SIAP continue to suffer losses. About brokerage firms that involved in the boiling of the stock, it is a different story, but at least it could be a lesson for the brokers themselves to behave.

However, the stock market is not only a place for investors, but also a place for speculators and those who think that they could do any means to make a profit. So like it or not, there will be other SIAPs the future. But as long as you play straight and not try to speculate with boiled stocks like SIAP or others, then trust me, your portfolio will be just fine.

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