Background
MTM has raised concerns about corporate deviance in Vietnam's frontier market, where minority investors have faced numerous frauds, scams, and misleading financial statements Although the number of stock market scandals remains relatively low compared to the total number of listed companies, these incidents serve as warning signs of potential financial consequences that could hinder economic progress and erode investor confidence Research by Giannetti and Wang indicates that when corporate frauds are exposed, households tend to decrease their investments in both fraudulent and legitimate firms, negatively impacting the capital market In the case of MTM, hundreds of billions of VND were lost to scammers, leaving thousands of investors to hope that regulatory bodies can help recover their investments from this seemingly worthless company.
Upcom Market, which stands for the stock market of public unlisted or delisted companies, was officially authorized by HNX to commence operations on June 24, 2006, with 10 registered firms and a market capitalization of 1,231.4 billion VND Since its inception, the market capitalization has dramatically increased by approximately 400 times, currently hosting around 600 registered firms as of July 31.
2 0 1 7 ) Withthehighvolumeandvalueintrading(Figure2),Upcomhasbecomeanactivem a r k e t f o r i n v e s t o r s T h e Upcoms t o c k u s e d t o attractt h e m o n e y f l o w s s u c h a s WSB,GEX,etc.HNXhasincreasedthetransparency,attractedthecapitalflows,extendedt h e tr adingtimeupto03:00pmandtoeasethereferencepriceupto±15%.Toreducethegapbetweent hefreeandlistedmarkets,HNXhasoperatedtheUpcompremiumranking 3t o directtheinvesto rs.
PhuongChuDanh,whoisoneoftheminorityinvestorsofMTM,wereelectedtotheBoDChairmanofMTM.Heknewthat hisinvestmentwaslostand heattemptstorebuildMTMwhichwasnocorebusinessormoneytobecomearealcompany.
2 http://hnx.vn/web/upcom/introduction
3 Upcom premiumisthecompaniesthathastheregulatedcapitalin thelastyearupto120 billionsdong,EBIT>30billionsdongandR O E ≥5%.
Figure1.MarketcapitalizationoftheUpcommar ketsince2013to2 rd quarter
Apartfromtheactiveeffortstoprotecttheminorityinvestors,thestockmarketstillhas aseriesoffirmsthatregistertotradewiththepurposeofappropriatingthepropertyoft h e disper sedinvestors.ThemosttypicalcaseisinthebeginningofJuly-2016,Phuong
ChuDanhf i l e d a la ws ui t againstH N X be ca us e H N X ma de th e d a m a g e t o t h e i n v e s t o r s w h o boughttheshareofMTM.Indetail,HNXissuedDecision201/QD-
On September 19, 2016, the Bureau of Security and Investigation (A92) initiated an indictment and temporarily detained Tiep Tran Huu, the current Chairman of MTM, due to evidence of fraud linked to inadequate documentation This situation presents an opportunity for top MTM shareholders to claim 70 billion VND from investors The fraudulent activities have persisted since MTM's establishment as a public company, leading to its trading suspension on Upcom The non-compliance with legal regulations has left minority investors particularly vulnerable, jeopardizing their entire investment recovery.
Intheprocessofreclaimingtheamountofinvestment,theshareholder,PhuongChuD anh,joinedtheMTMastheroleoftheChiefaccountant.Hehasattemptedtoorganizet h e extraordinaryshareholdermeetingtofindoutaremedialsolution.Simultaneously,heh a s cooperatedwiththepoliceofficesandregulatorybodiestoprovideevidencesoffraudactiviti es.Evenhehadbeenthreatenedwithdeathbytheanonymouspeoplewhoclaimed
5 The estimationofauthor themselvesastherepresentativesofA92,HNXandanotherminingcompanies 6 Thus,thecase o f M T M i s t h e pioneerw h i c h t h e m i n o r i t y i n v e s t o r s s u e d a n d t o o k a parti n t h e c o m p a n y insteadofbeingdisadvantagedsofar.Additionally,thiscasescandalizeddue tot h e p r o l o n g e d f r a u d u l e n t processa n d m a s s i v e damaget o relatedp a r t i e s Thel a x managementofHNXleavesthedoorsopenforfraudulentbehaviorsandraisestheconfusion i n t h e i n v e s t i n g c o m m u n i t i e s W i t h a l l p o i n t s above,t h e t h e s i s i s goin gt o analyzethecaseofMTMinordertorecommendapolicytostrengthentheweaknessesofreg ulationin Upcom marketaswell as avoidingthefraudulentfirms.
Thesis motivation andcontribution
This thesis investigates corporate fraud through the lens of the principal-agent perspective and the fraud triangle, contextualized within the broader financial landscape The primary aim of the research is to highlight regulatory weaknesses in the Upcommar market and the fraudulent behaviors that led to the MTM collapse While the study focuses on a single fraudulent company, it is framed within the legal environment of frontier financial markets Although corporate fraud is extensively discussed in numerous published papers and professional journals, most documented cases occur in the United States and Europe, with few instances reported in China and other countries Notably, in Vietnam, the research did not identify any cases of corporate fraud to date The analysis is anchored by a featured case that exemplifies the broader framework, specifically examining the anatomy of the MTM situation.
Contributionofthethesisistounderstandthefraudulentbehaviorsandweaknesseso f re gulationt h a t l e d t o t h e c o l l a p s e o f M T M int h e c o n t e x t o f VietnamUpcomstockmar ket.Withbroaderview,theseevidenceswillhavepracticalimplicationsforregulatoryb o d i e s andpolicy makerstoreducethelikelihood ofexpropriationofdispersedminority shar eholdersdue to agencycost andfraudulentfirms.
Researchquestions
M T M i s t h e caseo f f r a u d w i t h o u t t h e conclusiono f regulatoryagencies.Therefore, t h e l e s s e r e x t e n t focuseso n currentevidencestoidentify thefraudulentbehaviorsandtheweaknessesofregulation.Thethesisw i l l a t t e m p t t o answerthefollowingresearchquestion:
ResearchMethodology
This thesis will employ a case study methodology with a single-case design featuring multiple units of analysis to examine the MTM company A case study is defined as an exploration and investigation of contemporary real-life phenomena through detailed contextual analysis of a limited number of events or conditions and their relationships (Zainal, 2007) MTM is recognized as a significant phenomenon in the Upcommarket due to the active role of minority shareholders and the demonstration of fraudulent behaviors within groups Rather than waiting for responses from regulatory bodies after submitting their petitions, this group of investors actively participates in the Board to provide evidence and revitalize MTM.
Thecasestudyi s selectedd u e t o t h e advantageso f d a t a collectinga n d analysis.M T
M i s rewrittenbasedo n t h e s t o r i e s , t h e h i s t o r y o f c o m p a n y c o l l e c t e d i n t h e annu alfinancialstatements,theofficialdocuments,researchandpressinformation.AstheauthorY i n mentionedthat"whentheboundariesbetweenphenomenonandcontextarenotclearlye v i d e n t ; a n d i n w h i c h m u l t i p l e sourceso f evidencea r e u s e d"( Y i n , 2013).A l l fraudu lentbehaviorshaddoneduetoaweaknessofregulationoramechanismofinvestorprotection.Th eseinteractionsofMTMandthelegalenvironmentwerestrongandcomplicated.A s t h e r e s u l t , t h e casestudys e e m s t o b e t h e m o s t s u i t a b l e m e t h o d i n t h i s circumstance.
Thestructureof thesis
Thethesisconsistsoffivechapters.Aftertheintroductionin thefirstchapter,the secondchapterdescribestwotheoreticalframeworks.Thethirdchapterpresentstheweakness esofregulationintheUpcommarket.Thefourthchapterintendstodescribethefraudulentb e h a v i o r s t h a t causedt h e c o l l a p s e o f M T M T h e f i n a l c h a p t e r concludesa l l p o i n t s aboveand suggests policyrecommendations.
ToanalyzethecasestudyoffraudulentbehaviorsintheUpcomstockmarket,thet h e s i s usesframeworksincludingtheprincipal- principalagentperspectiveandFraudtriangle.Theprincipal- principalagenttheoryappliestoshowtherelationsbetweenm a j o r i t y and minorityshareholders in theUpcommarketas well as thecaseofMTM.
Inemergingeconomies,t h e c on tr ol li ng shareholderst h u s h a v e th e m o t i v e a nd meanst o e x p l o i t t h e i r p o s i t i o n s Therefore,f r a u d trianglei s a frameworkt h a t usest o analyzet h e caseofMTManddeterminethefraudulentbehaviorsthatdominatetheregulatory weak nesses.
ThePrincipal-PrincipalAgencyPerspective
Theseparationof ownership andcontrolin joint stockcompanieshadmentionedby
Since 1776, Adam Smith raised concerns about organizational and public policy implications Over 150 years later, Berle and Means expanded on Smith's ideas, developing a governance theory for modern corporations in the U.S., characterized by dispersed ownership and the separation of ownership from control This divergence of interests led to what is commonly referred to as "agency costs," as noted by Jensen and Meckling While principal-agent relationships have been extensively studied in developed economies, and agency theory has become a dominant perspective in understanding corporate governance, the emerging context reveals a different conflict of interest between majority and minority shareholders, termed principal-principal relations This aspect was significantly addressed by Young et al in 2008, who provided a foundational conceptual framework for principal-principal research in emerging and transitional economies.
The principal-agent model illustrates the relationship between the principal, agent, and their contractual obligations, highlighting significant differences in institutional and national contexts In developed countries, this model thrives due to strong enforcement of property rights Conversely, in emerging markets, governance structures often favor controlling shareholders, leading to conflicts of interest where agents prioritize their own wealth over minority shareholders' interests This dynamic results in opportunistic behavior, where large shareholders and their appointed managers may exploit weak minority shareholder protections, engage in empire-building, and prioritize personal benefits over collective shareholder value.
Corporate Principal-agent agency Principal-principal agency model
Agency cost Due to divergence of Due to possibility of expropriation of
Institutional Majorly developed countries Majorly emerging/transition economies
Assumptions Bounded rationality, Controlling shareholdersmaximizing
Reasons for Opportunism and self- Expropriation of minority shareholders
Concept of Homogeneous group Heterogeneous (controlling and minority)
Largest Hardly visible, no too strong State-owned enterprises, family
Role of boards Monitor agents Negligible, facilitating majority
Forms of Managerial entrenchment, Below market value asset transfers to
Liquid of stock Usually high Generally low ownership,weak enforcementofagency contractsand legalprotection ofminority shareholders,f u l l o f b u s i n e s s groupstructures.A s t h e result,t h e r e arem o r e f r e q u e n t l yconflictsofinterestsbetweencontrollings h a r e h o l d e r s a n d m i n o r i t y s h a r e h o l d e r s T h e additionaldifferencesareshown theTable1andFigure3 below.
Principal-Principal ConflictsManagers affiliated with controlling shareholder
AsshowninFigure3,thedashedarrowdepictstherelationshipsbetweenthecontrolling shareholdersa n d t h e i r affiliatedmanagers.T h e s o l i d arrowi s drawnt h e conflictso f t h e minority shareholdersandtheaffiliatedmanagers,whoarerepresentingthemajority shareholders.
Figure3.Principal-agentconflictsversusPrincipal- principalconflicts(Young,Peng,Ahlstrom,B r u t o n , &Jiang,2008)
InthecaseofMTM,thethesisgoesthroughthelensofprincipal-principalagency modelofYoung(2008)showedtherelationshipsthatfacilitatefraudulentbehaviorsinthe
Toexamine theagency cost,thethesi susetheconceptualization ofJensenandMeckling(Jensen&Meckling,1976):
) b o n d i n g c o s t s – c o s t s incurredbyagentst o guaranteetheyw i l l n o t takeactionsto harm theprincipal.
Fraudtriangle
Incentives/pressures
Despitemanyp r a c t i c a l approachest o w a r d t h e componentso f Fraudt r i a n g l e b ydifferentresearchers,three fundamentalcomponents seemtobe unchangedfor 70years.
C r e s s e y suggestedthatpressuretocommitfraudcouldbeidentifiedwithapersonalincentive. AsshowninFigure3below,thesepressuresarecausedbypersonalproblemsl i k e apres surefromemployersorexternalforcessuchasfearofloosejob,lowwage.In addition, all thesevariablesareconsideredasthe incentives to commit fraud.
These pressureshave formulatedbeforethefraudulentplan.Hence,itisverydifficulttoidentify thepressureswithoutdoinganin- depthinterviewwiththeformerBoDmembersa n d C E O ofM T M However,t h e i r m i s s i n g i s t h e b i g g e s t c h a l l e n g e t o revealt h e s e p re ssu re s Ina d d i t i o n , t h e p u r p os e of t h e s i s evaluatest h e f r a u d u l e n t aspectsrathert h a n personalproblems.Therefore,the pressure should be out the extent of discussion.
FraudulentOpportunity
The inadequate management, control, and administration in the stock market can create opportunities for scammers According to Dorminey et al (2010), the triangle of fraud is an effective tool for deterring and detecting fraud, as it highlights the absence of pressure and rationalization in predatory behavior Any shortcomings in control and inefficient management lead to increased opportunities for fraud Furthermore, a lack of efficient oversight within a company can result in significant vulnerabilities (Soltani, 2014) In the case of MTM, numerous gaps exist that facilitate fraudulent activities.
Attitudes/Rationalization
Some individuals possess attitudes or rationalizations that allow them to view their fraudulent actions as acceptable The greater the incentives or pressures, the more likely these individuals are to justify their unethical behavior Cressey noted that perpetrators must create a morally acceptable rationale for their actions, as those who cannot justify their unethical behavior are unlikely to engage in fraud Consequently, unethical behaviors are just the visible part of a larger issue, making it challenging to understand the perpetrator's mindset Therefore, it is essential for the thesis to concentrate on the ethical problems associated with Management Team Meetings (MTM) and the related attitudes and rationalizations, which warrant independent research.
TransformationofFraudtriangles
Manyresearchesadjustedthefraudtriangleframeworkbecauseofdisadvantages i n analyzingafr au d company,e s p e c i a l l y theresearcho f Soltani (Soltani, 2014),hesai dt h a t t h i s frameworkhasseveralcriticalgaps:Firstly,theframeworkshouldbeplacedin thecontrolenvironment.Secondly,a l l l i s t e d companiest i g h t l y c o n t r o l bygovernmenta n d
Regulatory Framework regulatoryagencies.Int h i s way,i t i s essentialtop u t t h e frameworki n t h e c o n t e x t o f reg ulation.Thirdly,t h e frameworks h o u l d b e e x a m i n e d i n t h e ethicalclimate/ businessethics.Therefore,t h e e n v i r o n m e n t a l factorsi n t h i s trianglearer e g u l a t o r y f r a m e w o r k , c o n t r o l environmentandethicalclimate/ business ethics, as shown inFigure5 below.
Accordingtothe modifiedfraudtriangleofSoltani,acontrol environmentandisconsi deredasthetoneatthetop.However,thefraudfirmlikeMTMisasmallcompanywith the smallnumberofstaff.Thetoneatthetopissuitabletoanalyzethebigcompaniesl i k e
E n r o n , W o r l d c o m , HealthSouth,etc.Inaddition, thet h e s i s d o e s not expando u r analysisto theethicalclimate/ business ethicsbecausethe period of MTMthat istradingin
Figure7.Thecomponentsofethicalproblems Figure8.Themodifiedfraudt r i a n g l e withseveraladjustments
The Upcommarket has been operational for just two months, and the primary objective of MTM appears to be defrauding minority investors, rendering the impact of business ethics on MTM negligible Consequently, this thesis primarily examines the regulatory framework surrounding MTM It emphasizes the interactions between MTM, regulatory bodies, and other partners, highlighting the environmental aspects involved For a thorough analysis, the thesis will utilize a modified version of the fraud triangle, incorporating specific adjustments as illustrated in Figure 8.
Thestrengthofeachcomponentwouldreinforcetheothers.Peoplewhohavemoret h e n umberofethicalproblems wouldhavegreaterincentiveswhenthey sawtheo p p o r t u n i t i e s tofraud.OrHoweandMalgwiagreedthatabridgebetweenincentivesando p p o r t u n i t y i s c r e a t e d w h e n a n i n d i v i d u a l i s a b l e t o rationalizet h e fraudulentbehavior(How e&Malgwi,2006).
Overviewofregulatoryframeworkin theVietnamstockmarkets
Thest oc k m a r k e t o f V i e t n a m rankedi n t h e l o w e s t groupa s t h e frontiermarket 8 T h e sustainabilityofinstitutionalframeworkismodest.Theseweaknessesarethechancesf o r thefirmtofraudtheminority investorsinVietnam.The stockmarketisoperatingast he marketmechanism underthecontroloftheregulatorybodies.Ifnotworkefficiently,t h e marketfailuresshould bedetectedandintervened bypublic policies.
Lawfostereconomicactivities(exclusively)byprotectingpropertyrights(aruleofl a w ) (Milhaupt&Pistor,2008)."Propertiesareprotectedbylaw"thatisthepreconditiont o devel opet h e e c o n o m i c T h e s i m p l e equationc o u l d interprett h e r e l a t i o n s h i p betweenl a w andeconomicdevelopmentbytwoauthorsMilhauptandPistor.Inthestockmarket,t h e f o l l o w i n g e q u a t i o n s h o w s t h e f u t u r e w o r k f o r p o l i c y markerst o strengtheni n v e s t o r protectionaswellasdeveloping thesharemarket asthemain funding channel( Nguyen,Oates,&Dunkley,2014). goodlaw+goodenforcement =goodeconomicoutcomes
Thef i r s t contenti s h o w t o b u i l d a goodl a w T h e legals y s t e m o f t h e s t o c k marketi n Vietnamisstrengthenedtoadaptthenewchallengeoftheeconomicdevelopment.Especially ,thestrengthofminorityshareholderinvestorprotectionindexofVietnamhasi m p r o v e d o v e r t i m e T h e ranki n 2 0 1 6 w a s 1 1 8 tha n d t h e n m o v e d t o 87 thi n 2 0 1 7 (seedetailsi n Appendix4).
Source: http://www.doingbusiness.org/Reforms/Overview/Topic/protecting-minority-investors#vietnamaccessedon25/03/2017
8 https:// www.msci.com/documents/1296102/1330218/MSCI_Market_Classification_Framework.pdf/d93e536f-cee1-4e12-9b69- ec3886ab8cc8accessedon23/03/2017
Despitethefact that systemis im pr ov ed with the changingofmarket,seriesof scandalsha ppenedtotheoutsideinvestorsbeforeMTM.ThestoriesofDVD 9 ,BBT 10 ,KSS riset h e warning ofhow goodlaw wehave.Twomajor concernsabout thesystemthat areac i v i l l a w anda centralized andsignalinglegal system.
W it h t h e b e t t e r l a w e q u i p m e n t , t h e i r rightsareprotectedfromt h e d o m i n a n t g r o u p s o r m a j o r i t y shareholdersandtheycomfortablytodiversifytheirportfolios(LaP orta,Lopez-de-Silanes,Shleifer,&Vishny,2001).AsshowninTable 2,HongKong andSingaporeareleadingtheworldintheindicatorofminorityshareholderprotections.Twoc ountrieshavec o m m o n l a w systemsinstead of a civil law.
Theprotectivea n d d e c e n t r a l i z e d systemgivest h e i n d i v i d u a l i n v e s t o r s (andt h e i r lawyers)moreweaponrathergovernmentagenciestoagainstthefraudfirms(Figure12). However,i n t h e c o n t e x t o f Vietnam,t h e systemconsidersa s t h e centralizeda n d s i g n a l i n g 11 W i t h t h e s e characteristics,t h e m i n o r i t y s h a r e h o l d e r s a r e l e s s protectivea n d p a s s i v e ThecaseofMTMreinforcesthepointthattheshareholderprotectioninVietnamj u s t stops at thesignalinglevel.
Suspectingt h e o p e r a t i o n o f M T M , t h e groupofi n v e s t o r s comest o t h e heado f f i c e ofM T M Withtheaddressonthe2016prospectus,allofthemareshockedbecausethereist h e cheaprestaurantinsteadoftheminingcompany.ThenewsisspreadwidelyandHNXk n o w theyhadabigmistake.Theyrushtodothequickinvestigationandrecognizethatit
11 Signaling isamiddlepointinthehorizontalscale(fromcoordinativetoprotective) (Figure12) istheghostcompany.HNXquicklyenactsthedecisiontostoptradingfortheMTMstock.T h e rea sonbrieflyistoprotecttheinvestorsandwaittheresultsofthe policeinvestigation.T h e s i g n a l t h a t H N X s e n d t o i n v e s t o r s i s t h a t i n v e s t o r s arep r o t e c t e d , b u t h o w cantheyprotect.This is verycomplicatedand noanswersyet.
Without legal protection, investors rely on stock market liquidity as a natural exit strategy when disappointed However, HNX restricts this option for all MTM investors with the phrase "For your protection." Former MTM leaders exploit this situation by reaching out to MTM investors through private talks, financial forums, and phone calls, encouraging them to sell MTM shares at around 100 dong each This results in a win-win scenario where investors recoup their money while the scammers have enough stock to hold a shareholder meeting and announce bankruptcy.
Liket h e argumento f S h e i f e r & Vishny,d i s p e r s e d shareholdersr e l y h e a v i l y o n legalofprotectionbecausetheylackofothermeansofensuringareturnontheirinvestm ent (Shleifer&Vishny,1997).Onthesamepointofview,Berle&Meansstatedt h a t t h e se parationo f ownershipa n d c o n t r o l requiredlegalinterventionst o ensuret h a t shareholdersa r e n o t m i s l e d o r abusedbyd i s t a n t managers(AdolfAugustusB e r l e & Means,1991) Lawisthemostimportantpartforminorityinvestorstohavesafei n v e s t m e n t Inthea bsenceofsignificantreformsoftheItalianprivateenforcementsystem,corporategovernanceabu sesandthepotentialforaccountingscandalsmaystillbepersistent (Sorensen& Miller,2017).
Thecurrentr e g u l a t o r y systems h o w s s e v e r a l weaknesses.A s t h e r e s u l t , p u b l i c policiescani n t e r v e n e i n s o m e contentst o reducet h e p r i n c i p a l - p r i n c i p a l conflicts.T h e m o s t importantpointhereistoexploretheweaknessesofthecur rentregulation.Althought h e policiesintheareahasimplementedmorethanbefore,howeveri ntheUpcommarket,t h e s e conflictsstillexist.Iftheregulatorybodiesenhancepublicgovernan ce,firmsarelessl i k e l y to commitfraud (Zhang,2016).
Noscanningfraudulent companies in theUpcommarket
The easyandquickprocess to be listed
UpcomisknownasthetransactionofOTCandthelistedmarket.Astheresult,theproced uret o b e l i s t e d i n t h i s marketi s simple,q u i c k Accordingt o t h e Circular1 8 0 / 2 0 1 5 /
M o F b e l o w , a l l documentshadbeenpreparedbyt h i s company.T h e u n i q u e externala g e n c y t h a t r e c h e c k s a l l informationi n t h e s e d o c u m e n t s i s t h e externala u d i t company.Theauthenticityofthesedocumentsisdependedmainlyonafirm'sself-awareness.
Ifthiscompanycolludeswith the audit companyto cook thefinancialstatements, theycanl i s t t h e i r s t o c k s a n d sellto minorityinvestors in theUpcommarketeasily.
Auditcompaniesare not themarketguardians
Nowadays,finalizingtheproceduretobelistedinUpcomstockmarketisquicklys i m p l e andmainlybasedontheconscioussenseoffirm.Onlythefinancialstatementsoft h e lastyearareauditedbytheexternalparty.TheremainingoftheUpcom- listingprocedureistheresponsibilityoffirmwithoutthecheckingorcontrollingofthee xternalagencies.Ina d d i t i o n , t h e p r i c e f o r t h e f i r s t t r a d i n g dayi s t h e suggestion byt h e f i r m Therefore,t h e a u d i t e d f i n a n c i a l statement,e s p e c i a l l y t h e realc a p i t a l c o n t r i b u t i o n i s t h e p r i m e gatekeepersto prevent thefraudcompanytobe listed.
Collusion between audit companies and firms can easily undermine technical barriers, leading to significant ethical concerns The SSC conducts regular reviews of approved audit companies, yet the quality and ethical standards vary widely among their numerous branches While some argue that only a small number of low-quality audit firms engage in collusion, even one compromised entity can tarnish the entire industry Currently, there is a lack of comprehensive reports investigating fraudulent financial statements, with only a few cases being detected and addressed A report by the National Audit Office in China examined 32 financial statements audited by 16 different firms in 2001, revealing that 14 audit companies produced inconsistent opinions on 23 statements, resulting in fabricated figures totaling RMB 7.1 billion This situation is likely just the tip of the iceberg (Bai, Yen, & Yang, 2008).
Tosumup,thepoliciestocontrolthequalityandthecollusivebehaviorsbetweent h e auditcompaniesandfirmsinVietnamaremissing.Insteadofconsideringtheapprovesbythea uditcompaniesas thegoldstandard,the regulatory bodiesneedmoreaggressivep o l i c i e s t o p u n i s h t h e lawviolations, recoverythedamagesforthe investors, etc.
Rankingis notenough
Accordingt o t h e DecisionN o 2 8 2 a t 09/05/2016o f HNX,t h e UpcomP r e m i u m ran kingandtheinvestoralertareofficiallyvalidon24/06/2016.Companieswhichqualifyt h e fin ancialcriteriaandcomplywiththeregulationofthecorporatedisclosurewouldbeselecte dtotheUpcompremiumlist.Intheotherhand,companieswouldbeconsideredtorankinthew arninglistbyHNXiftheyviolatetheArticle9,point3oftheDecisionNo.
HNX 12 W i t h t h e sizeo f 5 7 7 registeredf i r m e d 13 ,t h e s t o c k rankingsystembasedo n t h e financiali n d i c a t o r s a n d t h e informationd i s c l o s u r e w o u l d contributes i g n i f i c a n t l y toenhancethe transparencyand thepropertyrightof the investors.
Thebenefitso f t h e r a n k i n g s e e m t o b e perfecti n theory.A f t e r 6- monthimplementation,t h i s systemdoesn o t i n c r e a s e t h e l i q u i d i t y i n s p i t e oft h e f a c t t h a t t h e Upcomcapitalizationis over HNX upto12/2016.EventhestockwhichareonthePremium listareallowedtomarginbut the liquiditystayslowerthantheexpectations.Thati s t h e riskavoidanceof theinvestorsto theUpcommarket.
Source:dataofHNXandauthor'sconstructionT h e i mbalanceoft h e s t o c k s u p p l y a n d d e m a n d o n t h e Upcommarketiss h o w e d i n t h e mark etcapitalizationandthetradingvalue(Table15).Althoughthemarketcapitalizationh a s increasedsteadilybutthetradingvolumehasdecreasedcontinuouslyandjustroseint h e end- yearmonths.Iftheliquiditycannotbeimproved,theencouragementforthepubliccompaniesl o o k s l i k e f i l l i n g t h e n a m e r a t h e r t h a n t o a c h i e v i n g t h e t a r g e t o f t h e s t o c k marketdevelopmentandbeingthe steppingstoneforlistingon HNXorHOSE.
1.HNXshouldconsidertostoptradingtheregisterstockifoneofbelowscenarioshappen: a) Thevolatilityofpriceandvolumeareunusal. b) Theseriousviolationofregulationintheinformation disclosure. c) Performingthesplit,besplitedand mergeofshare d) IncaseofprotectingtherightsofinvestorswiththeapproveofSSC
Anotherc o n s e q u e n c e o f t h e r a n k i n g p o l i c y t h a t effectss e r i o u s l y t o t h e m i n o r i t y i n v e s t o r i s t h e p r i c e m a k i n g a n d c r e a t i n g t h e f a l s e liquidity.T a k i n g advantageoft h e i m m a t u r e disclosureenforcement,controllingshareholdersmak escollusionwiththeBoDandbrokertomakethepriceofstocktofraudtheinvestors,es peciallyinthemarginablestock.T h e mo re resources u p p o r t i n g forBB ,t he l o s s t h e inv estorswouldget.Detectinga n d penalizingisthecomplicatedandtime- consumingprocesswhilethepropertyrightsofi nv es to r aredampened.
Theincreaseoftheregisteredcapital without controlling
Toincreasetheamount offraudulentmoney,thenumberoftradingstockswouldi s s u e a s m u c h a s p o s s i b l e Therefore,f r a u d u l e n t f i r m s h a v e t o e x p a n d t h e i r regulatedcapitals.Theprocessintheriseoftheregulatedcapitalhadbeensplitintofewsectio nstoa v o i d theregulatoryagenciesandminorityinvestors.Theriseoftheregulatedcapitaloften s t o p s whenthesizeofcapitalisbigenoughtoaffordtheattractiveprojectsinthefinancials t a t e m e n t s A c c o r d i n g t o EnterpriseLawi n 2 0 1 4 , Decree7 8 / 2 0 1 5 /
5 Request forchanginginformation in the business license x
GovFraudulent companiesi n t e n d t o f i n i s h a l l t h e processo f t h e r i s e o f t h e regulatedcapital beforebecomingapubliccompany.AccordingtotheCircular180/2015/
MoF,theywouldh a v e tosubmittheequityreportiftheychangedtheregulatedcapitalinthesa meyearthats u b m i t t i n g documentstolist.Onceagain,theroleofexternalauditcompanyisto recheckt h e authenticityoftheregulatedcapitals.Ifthecollusionhappenedbetweenthecontroll ingshareholdersa n d t h i s auditcompany,thei n t e r e s t s o f m i n o r i t y s h a r e h o l d e r s w o u l d b e expropriated.
Theundemandingcapitalcontribution
Thecapitalcontributionthroughinvestment
Investing in partner projects is a key strategy for both controlling and minority shareholders to generate profits Controlling shareholders and their partners operate as business groups, which are defined as collections of legally independent firms linked by economic and social ties (Yiu, Bruton, & Lu, 2005) These groups often engage in cross-holding, board interlocks, and coordinated actions (Chung, 2006; Dieleman & Sachs, 2006) When the controlling rights of majority shareholders overshadow ownership rights, minority shareholders face a higher risk of expropriation, leading to principal-principal conflicts In extreme cases, controlling shareholders may derive significant returns from projects that yield negative returns for the corporation (Faccio, Lang, & Young, 2001).
Theproblemsincoordinatingandallocatingresourcesbetweenaffiliatedmemberso f businessgroupsleadtothepoorperformanceofthisbusinessgroups.Minoritysharehold ersarehardtoidentifytheunfairintra- grouptransactionsduetothelowt r a n s p a r e n c y ofsprawling,loosely- affiliatedbusinessgroups.Thiskindofnetworkcreatessignificantopportunitiesforcollusio nandunethicaltransactions.However,theregulationi n t h e frontiers t o c k marketl i k e Vi etnami s l a c k i n g o f efficientp o l i c i e s t o preventt h e collusionbetweenbusinessgroups.TheloneCircular90/2015/
MoFthatrequiredalltransactionsofcapitalcontributionbybankingactivitiesisagoodtechnic albarrier.However,i t i s n o t enought o a v o i d t h e c o l l u s i o n o f b u s i n e s s groupsb e c a u s e theyc a n transactsbycheque,orpaymentorderand withdrawall ofmoneylater.
Thecapitalcontributionthoughinvoices
Buyingpurchasei n v o i c e s a n d s a l e i n v o i c e s t o l e g a l i z e t h e fabricatedo p e r a t i n g activitiesi s c o m m o n m e t h o d o f fraudulentcompaniesi n Vietnam.O n e c o m p a n y o f t e n choosesthememberinbusinessgroupsasawaytoreducethecostaswellast oincreaset h e regulatedcapitalofthecompany thatsoldinvoices.Becausethemoresaleinvoicetheys e l l , t h e m o r e u n d i s t r i b u t e d e a r n i n g theyget.Therefore,theyc a n i n c r e a s e t h e regulatedcapitalsand issues more stocks to sell to minorityshareholders.
Thelegalresponsibilitiesofformermajorityshareholders
In fraudulent cases, majority shareholders and leaders often evade legal responsibilities by resigning from managerial roles or selling their shares New board members and senior managers are then elected, while the original shareholders sell their stocks to new investors, maintaining control over trading activities After the listing, they sell stocks from these new accounts at inflated prices When the market price drops, they repurchase 75% of the company's stocks and subsequently announce bankruptcy This strategy leaves former members free from legal liabilities, resulting in significant losses for minority shareholders due to principal-principal conflicts.
Toreducet h e l i k e l i h o o d o f expropriationo f m i n o r i t y s h a r e h o l d e r s d u e t o t h e s e conflicts,o n 06/06/2017,t h e S t a t e announcedDecree71/2017/Dec-
Govcontainss o m e i m p o r t a n t contentsthatreducesthepossibility offraudulentactivities(Government,2017),e s p e c i a l l y i n t h e t o n e a t t h e t o p bythe a d d i t i o n o f externalmembers.Therea r e s e v e r a l highlightedpoints thatstrengtheninvestor protection:
AC h a i r m a n o f BoDcannotb e i n cha rgeof CEO
Di n differentcompaniest h a t a m e m b e r o f BoDi n a p u b l i c c o m p a n y cana bleto be,at05.
Reducingtheconcentration ofpowera t t h e t o n e o f t h e top in a company
Atleastone- thirdofthenumberofmemberso f B o D i s a n independento u t s i d e member.No m o r e t ha n t h i s n um be r canbeanexecu tive.
Am e m b e r o f a u d i t c o m m i t t e e i s n o t relatedto aexternalaudit companyC h i e f a u d i t executivem u s t b e a f u l l - t i m e jobandhasadegreeinauditingorac
Source:Decree71/2017/Dec-Gov,MinistryofFinance
OverviewofMTM
Stealingthe brandnameof unlisted company
Perceivingt h e fraudulento p p o r t u n i t y t o s e l l t h e s t o c k o f t h e c o m p a n y t h a t wasguttedoutofmoney andproperty,theMTMleadershadstolenabrandnameaswellasthepicturesw h i c h d o w n l o a d e d fromt h e realM T M websitet o a d d i n t h e 2 0 1 6 Prospectus.W i t h t h e n a m e t h a t "The
C e n t r a l M i n i n g , m i n e r a l E x p o r t i n g a n d I m p o r t i n g J o i n t s t o c k Company"- abbreviatedMTM,thiscompanyintentionallymakesconfusiontotheinvestorw i t h "TheCe ntralMineralJointStockCompany"14w h i c h alsogetstheMTMabbreviationa n d notlistedyetin thestockmarket.Therefore,allstockofMTMwhichhadbeentradedfrom23the founder share holdersto1158new shareholdersforalo ng period duetothe confusionabove.However,noauthorityagenciesorbodiesdetectedthisviolationuntilthecollaps ehappened.
Trademarkinfringementi s c o m m o n a n d e a s y f o r a ghostc o m p a n y i n Vietna mmarket.Accordingt o t h e p u b l i s h e d prospectus,t h e t e l e p h o n e n u m b e r o f M T M i s 0 3
3 8 3 5 2 2 8 6 8 Theisonlyonedifferenceinnumber"1"betweentwotelephonenumbe rs.W i t h samepictures,twoaddressesarebothinVinhcity-
NgheAnprovinceandsimilar t e l e p h o n e numbers,t h e confusionbetweenM T M a n d t h e CentralMineralJ o i n t StockC o m p a n y isunavoidable.Thefollowingpictureswer estolenfromtherealMTMandputt h e m o n t h e 2 0 1 6 p r o s p e c t u s o f t h e fraudcompany.
Comparingwith the pictures in the libraryof the real MTM:
Therea r e a l o t o f i n v e s t o r s w h o arei n v e s t i n g int h e l i s t e d companiesw i t h o u t a seriousconsideration.IncaseofMTM,theshareholders justcametoheadquartersof thec o m p a n y toconfrontthecompany'sCEOaboutthesharpfallinthemarketpriceofMTMs tock,thendiscoveredthecompany'saddressisjustacheaprestaurantinsteadofab u s i n e s s of ficewiththeregulatedcapitalisover300billionVND.IntheMTMwebsite,therearethreepa rtnersofthecompanyincludingSaigon–
HanoiCommercialJointStockBank( S H B ) , B a n k f o r Investmenta n d Developmento f Vi etnamJ S C andVietcombankSecuritiesLimitedC o m p a n y (VCBS).A f t e r t h e i n s p e c t i o n a n d r e v i e w processo n c o n s u l t i n g activitiesandpartnership,VCBSdoesnothaveanyc onsultingactivitiesaswella s partnershiprelatedtothiscompany.Nominorityshareholder checkedthisinformationw i t h VCBS.Itmeansthatinvestorsweresoeasytobelieveortotru staninformationthatp r o v i d e d byaghostcompany.
No taxpayment
EstablishedinSeptemberof2007,MTMhadthe2.2billionVNDregulatedcapitaland workedmainlyintheareaofthemineralexploration,mining,tradingandprocessing.T o 12/ 2014,theregulatedcapitalincreasesto310billionVND.TheactivitiesofMTMinthis peri odwerehi dd en a n d th er e i s n o d i s c l o s e d document.T h e r e i s t h e c le ar evidencet h a t M TMowes161milliondongoftaxuptoMayof2016(Table1).Whenthetaxdebtwasrevealed,
M T M p a i d a l l t h e d e b t t o h i d e t h e i r f r a u d u l e n t b e h a v i o r s N o revenue,e x p e n s e a n d t a x paymentb u t t h e regulatedc a p i t a l h a s increased3 0 t i m e s , a s s h o w n i n T a b l e 7 This isthesignofthefraudulentcompany.
1 2900819613 TheCentralMining,mineralE xportingandImportingJ o i n t Stock Company
B3851619 16/06/2016 Taxpayerstoppedworkingb u t hav en'tfinalizedtheprocedureofclosin gthetaxcode
Source:VietnamTaxation,MinistryofFinanceT h e signoffraudulentbehaviorsinproductionandbusinessofMTMisthatallpicturesoft h e prospe ctusarecopiedfromthewebsiteofanotherunlistedMTM.InthereportofVinhC i t y Department ofTaxation,MTMhavenotcreatedanyrevenueorexpenseintheperiodfrom2007to2012and2 015.Moreover,thenumberofstaffwasjust5-
10peopleinspiteo f112asmentionedin theprospectus.Therefore, oneofthefraudulent behaviorsisthatt a x obligationandsocialinsurancearenotcompleted.Investorscancheckthe informationbysearchingthe taxcodeon thewebsiteofthe GeneralDepartmentof Taxation.
Aghostcompanyand itsaddress
ItseemstobeeasytoopenacompanyinVietnamwithallfabricatedinformationt o deceiveothers.ThetelephonenumberannouncedbyMTMisnotavailable.Theaddresso f MTMwasknownasacheaprestaurantwithoutasignofthelistedcompany,asseenin thesepicturesbelow.ThisinformationwaspublishedwidelyandMTMimmediatelyopeneditso fficeinsidearestaurantandhungtheboardofcompany nameinthefrontdooro f t h i s restaurant.
WiththereasonofrelocationfromVinhcitytoHanoi,MTMjusthadtosendtheofficialdocume nttoHNXthatcontainsthenewaddress.TwotherepresentativeofficesofMTMlocatedin thedentalclinicandthegasstore,asseen in thepicturesabove.
Beapubliccompany
Aftertobethepubliccompany,theMTMcompanysubmittedthedocumentstobel i s t e d totheHNXon03/11/2015.To29/03/2016,thedocumentswerefinalizedandwere allowedt o l i s t o n 3 0 / 0 3 / 2 0 1 6 byHNX,ac co rd in g to t h e D e c i s i o n 201/Dec-
HNX.However,t h e s u b m i t t e d documento f M T M j u s t h a d th e a u d i t e d financialreporto f year2 0 1 4 Accordingt o t h e Circular180/2015Cir-
MoF,t h e documento f M T M lackso f t h e contentsasshowninTable6above.Therefore,The Decision201/Decision-HNXshowed
15 These picturesdownloadedform thewebsite:http://beta.ndh.vn/dieu-gi-dang-xay-ra-o-mtm
20160618111131146p4c147.newsaccessedin26 th July of2017. http://cafef.vn/sau-khi-co-phieu-dot-ngot-bi-ngung-giao-dich-mtm-da-hoat-dong-tro-lai-
20160623105821912.chnaccessedin26 th July o f 2017. that HNXdoes not follow theguidancein theCircular180/2015/MoF.This was thechancef o r M T M a n d 1 0 3 f o u n d i n g s h a r e h o l d e r s t o t r a d e a n d appropri atem o n e y oft h e n e w i n v e s t o r s i n U p c o m m a r k e t
Source:Circular180/2015/ MoFA t t h e r i s k o f b e i n g investigateda n d p r o s e c u t e d , leaderso f M T M a n d t h e o t h e r r elatedpartieshavetakenanumber ofactionstocoveruptheir fraudulentbehaviors.They paidt a x e s a n d h un g the company'sn a m e bo ar d i n t h e frontd o o r o f a r e s t a u r a n t t o p r o v e t he company'songoingo p e r a t i o n s T h e y m a d e a m e d i a directiont h a t t h e t a x d e b t wasa m i s t a k e ofanemployee,whowaslaid off.Inthenext step,
The3 rd change ofr egulatedcapital
The1 st change ofr egulatedcapital
The2 nd change ofr egulatedcapital
MTMchangeditsheadofficeaswellaschangeditsbusinessfromminingtorealestat e.Specifically,thiscompanyhassignedaninvestmentcooperationcontractupto525b i l l i o n VND with theProsperity VietnamTrading andServices Ltd 16 Thed at e stated int h e contractwasApril20,2016andthecontractwascrushed.InfactwhenVTVreportersq u e s t i o n e d onJune27th,therepresentativeofMTMdidnothaveanydocumentsproving itsoperation.MTMhasimplicitlycontactedtheshareholderstobuybacksharesatcheaperp r i c e toacquireafull75%ofthesharestodeclarethebankruptcyandtoendallscandalsinmayhe m.MTMwasestablished in2007anditscertificateofbusinessregistrationhasbeenchang edfor 10 times(seeAppendix6).
TheDepartmentofNaturalResourcesandEnvironmentofNgheAnProvincethati s s u e d t h e m i n i n g l i c e n s e f o r M T M confirmedofn o t recordinganymining a c t i v i t i e s o f M T M for4yearssince2008to2013.Thismininglicenseexpiredin2013.However,from3 1 /
0 1 / 2 0 1 2 to31/12/2013,MTMhadincreasedtheirregulatedcapitalfor50times,form 2.2billionVNDto100billionVNDasshowninTable8.AfterHNXdetectedthatMTMseemst o b e a ghostc o m p a n y a n d decidedt o s t o p t r a d i n g t h e s t o c k o f M T M t o protecti n v e s t o r s o n 2 0 / 0 6 / 2 0 1 6 Threem o n t h s later,Mr.T i e p T r a n Hu u, t h e C h a i r m a n o fBoD MTMdetained.However,thegroupofminorityshareholderstriedtoimplementane x t r a o r d i n a r y s h a r e h o l d e r meetingt o f i n d o u t a r e m e d y f o r t h e i r l o s s e s Aftert h e
3 rdmeeting, t h e n e w membersw e r e electedt o B o D a n d C E O o f M T M T h e s e n e w leadersi n t e n d tochangethetitleofMTMaswellascorebusiness,tobeacompany withareale s t a t e investment.
Fraudulentopportunities
Thecapitalcontributions
MoF,thedocumentofMTMthatsubmitted HNXtolistwasstillmissing"theequityrepo rt".However,thiscircularm e n t i o n s t h a t thisreporti s optionali n t h e caseo f changingt h e registeredcapitali n a registeredyear.Becauset h e s u b m i s s i o n wasi n 2015, M T M d i d n o t havet o s u b m i t t h i s report.
*R e s o l u t i o n o f thee x t r a o r d i n a r y m a j o r s har eho ld er meetingin2 0 1 1 n o 0 2 / 2 0 1 1 / N Q -
2 31/12/ 10.000 90.00 100.00 Issueto * Resolution of the extraordinary major
2013 0 0 current shareholdermeetingin2 0 1 2 n o 0 2 / 2 0 1 2 / N Q - sharehol DHCDdated2 0 / 1 2 / 2 0 1 2 ders *R e p o r t o n resulto f o f f e r i n g s t o c k s t o the contemporaryshareholdersNo.01/2014/KSMT- BCTVdated02/01/2014senttoDepartmentof PlanningandInvestmentofNgheAnProvince
* Business License No.2900819613 dated 31/10/2013foritsfifthchanging.
3 31/10/ 100.00 210.0 310.00 Issueto * Resolution of the extraordinary major
2014 0 00 0 current shareholdermeetingin2 0 1 4 n o 0 1 / 2 0 1 4 / N Q - sharehol DHCDdated2 0 / 0 1 / 2 0 1 4 ders *R e p o r t o n resulto f o f f e r i n g s t o c k s t o the contemporarys h a r e h o l d e r s n o 0 1 A / 2 0 1 4 /
* Business License No.2900819613 dated 09/09/2014foritsseventhchanging.
3 1 / 0 1 / 2 0 1 2 t o 3 1 0 b i l l i o n V N D on3 1 / 1 0 / 2 0 1 4 M T M h a d increasedt h e registeredcapitalbyissuingcommonsharestotheirfoundingshareholdersinsteadofIPO.Ther efore,therealityof thisprocessneedstobeconfirmedbya thirdparty.
Int h r e e year,M T M h a d d o n e t h e incrediblep r o c e s s o f i n c r e a s i n g t h e regulate d,from2.2billionVND to310billionVND,over
150times,asshowninTable8above.Them e t h o d wassosimplebyissuing morestocksforcurrentshareholdersandthen,MTMsentth e reportstorelatedgovernmentbodies andchangesthe businesslicenses.
Afterthefake processoftheincrease ofr e g u l a t e d capital,M TM contributed 1
20billion VND toKSS 17f o r t h e bigprojectaccordingtothe2016Prospectus.However,CEOo f KSSconfirmed thatthisa mountof moneywaswithdrawsandpaid backtoMTM,as s h o w n inTable4.Allremainin gdocumentsforthiscontractarejustsomepaymentorders.T h e detailofthiscontract has notbeenpublicyet.ToprotectinvestorsinUpcommarket,t h e Article4ofCircular180/2015/MoFshouldbeadjusted.Theequityreportshouldbeamandatory requirementinthe submittingdocuments.
Fakeinvoicesandmanipulatingthefinancialstatements
In 2014 and 2015, the leaders of MTM withdrew cash and liquidated current assets, necessitating a revised balance in the financial statements to align with independent audits The audit firm for MTM in 2014 was IFC, located in Thanh Hoa province The financial statements contained fabricated information, including false purchase invoices to confirm liabilities, misleading sales invoices to validate receivables, and fictitious cash and inventory records A detailed table (Table 4) illustrates the fake invoices, money transfers, and withdrawal receipts involved in this deception.
17 As showni n Table8 , KSSwasstoppedtrading.Inaddition,i n Junet h i s companya l s o fined1 0 0 millionVNDforlackingo f submittingreportsi ncluding:separatea n d consolidatedfinancialstatementso f the4 t h quartero f 2013;Separateandconsolidatedfinancialstatementsofthefirstand secondquarterof2014;Informationonsigningauditcontractsin2014;Informationonprosecutiono f theChairmanoftheBoardofDirectorsand chiefaccountant.
1,207,428,000 Surplus money in transferringcomparedwith the invoice
ZincprojectinSaoSaoo f BacCan.Ho wever,t h e C E O confirmedt h a t t h a t amounto f money waswithdrew and paidback.
Tradecreditors -21,696,761,543 TheW e s t N o r t h M i n i n g Investme ntJS C (KTB) Thes h o r t a g e o f assetswait ings o l u t i o n s ( c a s h i n h an d, cashintransit,stocks e l l i n g )
Mr s VanD u o n g T h i , M r s LoanT ongThi,MrsTrangNguyenThiThu,M rs Vinh Vu Thi
MTMsold25saleinvoicesfor5othercompanieswiththetotalvalueaftertaxwas1 3 0 bil lionVNDincluding:KSK,KHB,PTKandNorth-
EastmetallurgyJSCwhichwasn o t listed AccordingtotheannouncementofHNX,Itis i m po rt an t that thesecompaniesu s e d fakeinvoices to creatfakecashflowsas awaytoavoid ascanofregulatorybodies.
Anotherseriousflawintheaudited2014financialstatementistheregulatedcapital.The4 thQuarter f i n a n c i a l s t a t e m e n t o f M T M disclosedi n 0 9 / 2 0 1 6 , t h e regulatedc a p i t a l w i t h t h e realc o n t r i b u t i o n a t 3 1 / 1 2 / 2 0 1 5 a n d 3 1 / 1 2 / 2 0 1 4 i s 2 6 8 b i l l i o n in steado f 3 1 0 billion i n the a u d i t e d financials t a t e m e n t M o r e t ha n4 0 b i l l i o n wasgone ,e q u i v a l e n t l y 4m i l l i o n sharesofMTM do not existbutaretradedinUpcommarket.
RegistrationLicenseforthe JSCNo: 2900819613approvedbythe NgheA n Departmentof
PlanningandInvestmentin thefirst time on 07/09/2007,and the10 th diversification on 12/07/2016.
NguyenThien ThuatStreet,LeMaoCounty, Vinh City,NgheAnProvince
- TheCharteredcapital accordingto the RegistrationLicenseup to data
- TheCharteredcapital accordingto the RegistrationLicenseup to data
- TheCharteredcapital in therealmoneycontribution up to date31/12/204:268.400.000.000 dong (twohundredsixtyfourbillion fourhundredmillion VND)
Int h e i n t e r v i e w w i t h t h e D i r e c t o r o f t h e D e p a r t m e n t o f Environmenta n d N aturalresourcesinNgheAn,thisDepartmentdoesnotrecordanytheminingactivitiesofMTM from2008to2013.Since2013,themining licensehasexpired.However,the2014financials t a t e m e n t s t i l l n o t e d t h e activitiesrelatedt o t h e explorationa n d mining.Therefore,thereceivablesfromcustomersofMTMmakeconfusi onbecauseMTMhasnoproductsto sale.
-The cost of making an entrance 217.562.270 _
-The cost of granting and probing 3.248.945.793 _
SSCdisclosuresthelistofpermittedauditcompanyannually 19 However,controlling t herelationshipbetweent h e a u d i t c o m p a n y a n d t h e f i r m i s p a i d m u c h attention.Inc a s e o f M T M , theauditcompanythatchecksthefinancialstatementYear2014and1 stQuarter of2
0 1 5 i s IFC-which companyis in the recommended listbySSC.
19 http://www.ssc.gov.vn/ubck
FID increases the regulated capital and issues more stocks
The value shares of MTM
Incentives
Thehighprofit in theharsheconomic
The current business and mining performance of MTM is deteriorating, marked by low earnings According to the 2014 audited earnings statement, the earnings before tax and interest were only 11 billion VND, while current assets are four times the EBIT Both former and new leaders seem to be misappropriating assets instead of focusing on company development The total asset value, including cash on hand, cash in bank, and selling stock of KSS and MTM, is approximately 394.45 trillion VND The estimated value from selling 24,050,000 shares of MTM is around 62.53 billion VND, influenced by fluctuating average share prices between 8,459 VND and 2,600 VND over 43 sessions In two years, this group could potentially earn over 400 billion VND (about 18 million USD), equivalent to 40 years of MTM's earnings With an extremely high rate of return, scammers are taking risks to defraud market participants rather than opting for safer investment channels like bank savings, real estate, or stock investments.
Therefore,sellingthevaluelesscompanywithhighpricesandtaketherealmoneybac kistheincentiveoftheformerandnewleaderofMTM.Accordingtotheprospectusf o r y ear2 0 1 5 , t h e M T M shareso f t h e f o u n d i n g s h a r e h o l d e r a r e n o l o n g e r restrictedt o
1 2 / 0 8 / 2 0 1 5 becausethe3- yeartermfromthefirstbusinessregistrationisover.Theycant r a d e o r t r a n s f e r t h e ow nershipeasily.T h i s k i n d o f c o m p a n y h a v e s i g n i f i c a n t l y greaterincentivestofraudth anrestrictedfirms do (Johnson,Ryan,&Tian,2009).
Sellingthe stock ofthevaluelesscompany
Afterm i s a p p r o p r i a t i n g a l l m o n e y o f company,t h e formerleadersfindt h e n e w characterstotakepartintheBoDandtheExecutiveCommittee.Themissionofthe newleadersaretoscamandmisappropriatethemoney bysellingallstockof M TM froma ll s t o c k accounts(whichh a s nameso f 3 2 s h a r e h o l d e r owned3 1 m i l l i o n stocko f M
T M , a c c o u n t i n g for98%thecharteredcapital).Since15/04/2016- thefirstdayoftrading,thegroupofMTM- stockownersmakesthetradingwithhighvolume,createthevolatilityofp r i c e t o attractt h e i n v e s t o r s W h e n t h e p r i c e h a s droppeda t t h e c e r t a i n p o i n t , t h e b i g v o l u m e a n d t h e informationh a v e beenspreads o m a s s i v e t h a t newi n v e s t o r s h a s participate d,i t w o u l d b e t h e m o m e n t t h a t t h e f o u n d e r s h a r e h o l d e r s s o l d t h e i r s t o c k a n d t ookmoney backtoshareout AccordingtothelistofnewinvestorsofMTMthatVSDp r o v i d e d , t h e n u m b e r i s u p t o 1 1 5 8 p e o p l e w i t h 2 4 , 5 0 0 , 0 0 0 s t o c k s s o l d (accounti ngf o r 77.6% thecharteredcapital).(Thedetail in the Appendix2)
20 After theextradonaryshareholdermeetingon 29/08/2015,theformerBoDhad beenreplacedbythetotalnewBoDfortheperiod2015-2016 including:(1)Mr.TiepTranHuu-Chairman(2)MrTruongNguyenLe- CEO,(3)MrCongPhungThanh-ChiefofExcutivecommittee,
Thecollusionof the formerBoD
Sincelate2014,the newBoDhasbeen elected.All the mostim po rt an t positi onsarebelongedtothesmall number ofindividuals Especially,thecaseofMr.Duong V uDai-ChairmanofBoDandCEO;Mrs.ThuyThaiThiHong-
VicepresidentanddeputyChairman;Mrs.VanDuongThi -memberofBoDand Chiefaccountant.
1 DuongVuDai DuongVuDai Thanh Pham Hong
2 ThuyThai Thi Hong ThuyThai Thi Hong DuyNguyenTrong
Source:the2016MTMprospectusT h i s dominance createsa n opportunity forthes c a m m e r s tom i s a p p r o p r i a t e thec o m p a n y assetsbecausetheyholdt h e t o p p o s i t i o n s i n hand.W i t h t h e C E O a n d chiefaccounta nt,t h e y areeligibletowithdrawallmoneyeasily.Thenumberofindependentoutsidedirecto rsincreasedonaboardandintheboard'sauditandcompensationcommittees,thel i k e l i h o o d o f corporatewrongdoingdecreased(Uzun,Szewczyk,&Varma,2004).
Since20/01/2015to30/06/2016,theformerofMTM 23withdrew allthemoneyand assetofcompany,asshowninTable16.Thetacticofwithdrawingistotransfermoneyto
Auditedfinancialstatement2014-MTMcompany thepartnersunderthecover ofthedeposit,capitalcontribution ThentheleadersofMTMw i l l retractandappropriate theassetofcompany.Thedetailsoftacticarebelow:
114,893,694,400 Transferringmoney(including09PO o f year2014and03POofyear2015)tob u y t h e purchasei n v o i c e s o f FIDwi ththevalueupto85,005,646,143V ND.Todealwiththe remaining,FIDa u t o m a t i c a l l y d e l e t e t h e l i a b i l i t y a n d doesnotconfirmandreconcilet h i s liabilitywithMTM.Eventhough,C
EO andChiefaccountantofFIDdon ot endorsetheseaccountingentries. BacCan Mining andMetallurgy JSC
120,000,000,000 Transferringmoney(including12PO,E achPOequals10 billionVND)todot h e capitalc o n t r i b u t i o n o f t h e Lead- Zincp r o j e c t i n S a o Saoo f BacCan However,t h e C E O confirmedt h a t t h at amounto f m o n e y wasw i t h d r e w a n d paidback.
60,000,000,000 Transferringm o n e y t o d e p o s i t t h e received.However,CEOofVCIconfi rmedthatpaid thecashbackforMr DuongDaiVu-CEOMTM.
20,077,130,000 Thisistheamountofmoneythatsoldth einvestmentintheKSSstockofMTM.C h e c k i n g thes t o c k s t a t e m e n t int hestocksecurities,Mr.DuongVu
(1)MrCuongLeVan-theformerChairmanofBoD,(2)MrDuongVuDai-theformermemberofBodand CEO,(3)MrsThuyThaiThiHong-TheformermemberofBoDandvicepresident,(4)MrsVanDuongThi-TheformermemberofBoDandchiefaccountant.
Dai had withdrawn andmisappropriatethat amount of MTM.
Cash in hand on 31/12/2014 59,567,008,776 Thisi s t h e cashi n h a n d accordingt o th ecashreporton3 1 / 1 2 / 2 0 1 4 Mr Du o n gV u Daia n d M r s T h u y T h a i T hi Hongmisappropriatethatamou ntmoneyofMTM.
Withdrawingcashat bank 3,500,000,000 Mr.DuongDaiVuhadwithdrawnand misappropriatedfrom MTM.
M T M Withdrawingcashat bank 200,000,000 MrsLoanTongThi- theformerstaffmisappropriated fromMTM.
Withdrawingcashat bank 280,284,000 Mrs.T r a n g NguyenT h i - t h e f o r m e r staff misappropriatedfrom Withdrawingcashat bank 3,300,000,000 MTM.Mrs.V i n h V u T h i - t h e formers t a f f misappropriatedfrom
Fraudulent behavior within companies often stems from management's focus on a small group of individuals wielding significant power and colluding with one another Research by Mark S Beasley indicates that non-fraudulent companies tend to have a higher percentage of outside directors compared to those involved in fraud The presence of more outside directors correlates with a decreased likelihood of financial statement fraud Additionally, a collusive relationship between the CEO and the board of directors can hinder the establishment of a robust control environment, which is crucial for maintaining internal control This collusion may arise from familial ties or the CEO's influential position, as they often represent the interests of the majority of shareholders.
Ethicalproblems
According to Soltani (2014), the greater the incentive or pressure, the more likely individuals are to rationalize fraudulent behavior With fraudulent activities amounting to hundreds of billions, both former and new leaders will seek the most efficient ways to commit fraud while minimizing damage Soltani's research on six major companies from the United States and Europe reveals that all scandals are rooted in a poor ethical climate and a lack of commitment to ethical principles and deontology Notably, family-run companies like HealthSouth, Parmalat, and Royal Ahold exhibit "clan" characteristics, where decisions are influenced by personal actions.
In Vietnam, the company InMTM is controlled by a small group of individuals who exploit the MTM system to defraud investors, highlighting significant ethical issues This culture is characterized by individual interests, intimidation, abuse of trust, and power dynamics Phuong Chu Danh has sought assistance after being threatened with death for providing evidence to investigators, facing overwhelming pressure from those in control He was promised a return on his investment if he ceased his involvement with the MTM proceedings The influence of these individuals extends beyond their immediate circle, ensuring that MTM remains operational Research indicates that firms engaging in lobbying have a significantly lower risk of fraud detection, evading scrutiny for an average of 117 days longer and being 38% less likely to be caught by regulators (Yu & Yu, 2012).
Inthethesis'perspective,ethicclimateinVietnamisthenegativefactorforminority investors.Theconflictsofinterestsbetweentheminorityandmajority investorss o l v e i n t h e unfairways.A s a result,t h e damageo f t e n belongst o t h e s m a l l e r d u e t h e p o t e n t i a l informationasymmetry,t h e a b u s e o f power,a b u s e o f t r u s t ( f r e q u e n t l y i n t h e financialstatement)and the lobbyculture.
Asshowninthetable17,theconcernisthatnoshareholdersownmorethe5%oft h e co mpany'sstock.No organizationsor fundshold the stock ofMTM.Even theboardmembe rsdonotholdanystockofthecompanythattheyowned.OnlythechiefaccountantVanD u o n g T h i h o l d s 1 0 0 0 0 0 s t o c k (0.32%).N o m a j o r i t y s h a r e h o l d e r i s o n e o f t h e commoncharacteristicoft h e f r a u d f i r m i n V i e t n a m H o l d i n g l e s s t h a n 5 % o f t h e t o t a l stocknumberwouldhelptradingmorerapidlywithoutthepublicdisclosure.Althoughthes t o c k seemsto be scattered but therealowners are stilltheformerBoD.
The foreignsh ar eh ol d
(Source:The list ofshareholderprovidedby VSD on 12/08/2015)
4.2 Theshareholdershold morethan5% ofthe shares: None
MTMaretooyoungtogosteadyintheminingbusiness.Mostofthemhavenoexperienceintheco rebusinessofM T M anddonothaveanyshareofMTM(table12).They seemtobepuppetswhichwerecontrolled by theforcebehind thescene.
Position Name BirthY e a r Degree/Working experience
TiepTranHuu 17/101983 BachelorofBanking/Sale TruongNguyenLe 21/08/1980 BachelorofBanking PhungNguyenThe 02/07/1987 BachelorofBanking NhatThai Khac 19/05/1983 BachelorofTechnicalEngine ThanhLeTien 31/12/1989 HighSchool
CongPhungThanh 12/09/1979 BachelorofEconomics TrungLyQuoc 07/04/1984 BachelorofLanguage ThuNguyenDao 17/12/1982 BachelorofLanguage
24 http://s.cafef.vn/mtm-189734/nhung-nhan-vat-chu-chot-dang-sau-viec-mtm-bien-mat-chi-sau-2-thang-len-san.chn
Thefraudulentbehaviorsin thecaseofMTM
Accordingtotheanalysisofthefraudtriangle,thecontrollingshareholdersshoweds o m e fraudulentbehaviorsthatthecontrollingshareholdersexploitedtherightsandinterestsof minorityshareholders:(1)Thereconstructionofhumanresourcebeforelisted;
(2)Havingnomajorshareholder-holdingmorethan5%ofthecharteredcapital- butthepoweri s concentrated;
( 5 ) N o coreb u s i n e s s o r production,mainlythejointventure orcapitalcontribution;(6) Theexternalauditacceptedd e s p i t e ofthefactthatfinancialstatementshavetheproblems; (7)Thebusinesssituationisnotgoodbut t h e priceand v o l u m e ofs t o c k trading iss ti ll h igh;( 8 ) Taxobligationands o c i a l insuranceare not completed.
2 Havingnomajorshareholder- holdingm o r e than5% of thecharteredcapital -but thepowerisconcentrated
6 Theexternalauditaccepteddespiteoft h e factthatfinancial statementshav ethe problems
7 Thebusinesssituationis notgoodbut thepriceandv o l u m e ofstocktrading is stillhigh
Intervene- Detectingt h e unusual volatilityof priceand volume
8 Taxobligationandsocial insurance ar enot completed
Conclusion
MTMisthetypicalcasethathasthelargernumberoffraudulentbehaviorsintheUp comm a r k e t i n V i e t n a m Byt h e buyingt h e small- capitalcompany,m a n i p u l a t i n g t h e financialstatements,i s s u i n g valuelesss t o c k s a n d s e l l i n g i n t h e Upcom,m a j o r i t y shareholdersexpropriateddispersedinvestors.Ifthepr iceofstockfelltotheextremelowprice,thegroupofscammerswouldbuybackupto75%oft heregulatedcapitaltodotheb a n k r u p t c y procedure.However,m i n o r i t y i n v e s t o r s s u e t h e i r violationsa n d coordinatew i t h r e g u l a t o r y agenciest o t a k e t h e i r i n v e s t m e n t back.T h i s i s t h e f i r s t t i m e t h a t t h e investorstaketheactiverolefortheirpr operty rightsinsteadofwaitingtheresponseofther e g u l a t o r y bodies.
Theweaknessesofr e g u l a t i o n i n Upcomm a r k e t leavest h e d o o r s o p e n f o r fraudu lentbehaviors.Inaddition,theprincipal- principalagencyp r o b l e m s aremainreasonsthatledtothecollapseofMTM.Thecollus ionofcontrollingshareholders,auditc o m p a n y and authorityagenciesdamaged thewealth of minorityshareholders.
Withallfraudulentbehaviorsmentionedabove,somecontentscouldbeintervenedbyp ublicpolicies.NotonlytherolesoftheSSCandotherstockagencies,thecoordinationw i t h other regulatorybodieswouldhelppreventthefraudulentcompaniesandstrengthenm i n o r i t y investorprotections T he thesis highly recommendsHNX toa dj us t theCircular1 8
M o F w i t h t h e m a n d a t o r y equity report.Additionally,H N X a n d o t h e r agenciesneedtoe stablish the mechanism to control theactivities thatrelatedto capitalcontributionsa n d t h e rise oftheregulatedcapital.
Policyrecommendations
Toreducethelikelihoodofexpropriationofm i n o r i t y s h a r e h o l d e r s duetothep rincipal- principalagencyconflicts,thethesishighlyrecommendestablishinganewmechanismtocon trolthecapitalcontributionandchangesofregulatedcapital.Publishingt h e contractsoresse ntialmaterialis agoodwaytoreduceasymmetricinformationbetweenm a j o r i t y shareholdersand minorityshareholders.
MoFwiththemandatoryequityreportiso n e suggestionfromthethesis'sperspective.Therap idriseofregulatedcapitalseemstobe acommoncharacteristicoffraudulentcompany.Iftheauthorityagencieshaveclearvisiono f t h i s process,this kind of companywould not belisted inUpcommarket.
Accordingtothelistoffraudulentbehaviors,HNXshouldputmorecriteriatoscans t o c k s i n Upcommarket.Althought h e s e effortsrequirem o r e resources,i t w o u l d h e l p e l i m i n a t e t h e ghostcompaniesa s a wayt o p r o t e c t m i n o r i t y s h a r e h o l d e r s Ina d d i t i o n , i t wo u l d raisetheconcernandawarenessamonginvestors.
Limitations
Thethesisbasedononecasescenariosothatthescaleissmall.Thecaseisthefirmt r a d i n g on theUpcomsocould notextrapolatetheresultsto theHNXandHOSE.
Theframeworkm o d i f i e d t h e fraudtrianglebyauthorS o l t a n i (2014)s o t h a t t h e b ehaviorsofinvestorsarelimitedintheanalysis.Thetrendofmodernmicroeconomicsism o v i n g toirrationalassumptions.
Thecaseo f M T M i s thel o n g observationfrom2 0 1 4 u p t o now.However,t h e inves tigationo f M T M h a v e n o t f i n a l i z e d yet.T h e allegationsa n d i n d e m n i t i e s f o r therelatedp a r t i e s h a v e n o t beend i s c l o s e d a n d h a v e affectedp o l i c i e s n o t yetimplem ented.Therefore,thedirectionofresearchcompanyMTM isopenedforfurtherresearch.
TheC h i n e s e a n d Vietnameses t o c k marketsh a v e s o m e companiest h a t show eds i m i l a r fraudulentbehaviors.InvestorfraudcasesarealsocommoninChinaandthereisal o t ofdocumentationandanalysis.However,thesematerialsaremainly inChineseandnotw i d e l y available,it is difficult toaccessthesematerialsdirectlybut throughanotherstudy.
Increasingt h e corporategovernancei s t h e v i t a l s o l u t i o n s t o againt h e financia lscandals.Thereisabundantevidencessupportingfortherelationshipbetweenthequality o f governancem e c h a n i s m w i t h t h e c r e d i b i l i t y oft h e financialr e p o r t i n g (Farber,2
0 0 5 ) However,MTMisthesmalland"ghost"company sothecorporate governanceis notin t h e extent ofthiscase.
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Appendix1.Marketcapitalization ofthe Upcommarket since2013 to 1 stquarter 2017
Appendix3.ThedetailofMarketCapitalization andtradingvalue on theUpcommarket
Jan-17 414,645,567,287 16,842,498 391,455,235.8 21,576,141 239,560,426.7Dec-16 303,359,258,269 106,939,012 2,427,764,215.8 136,721,634 1,912,950,052.3Nov-16 253,096,766,377 95,622,061 1,963,136,238.9 54,248,405 1,206,691,203.9Oct-16 151,159,608,532 78,614,623 939,377,077.6 56,658,617 922.288.641,5Sep-16 117,682,186,519 66,951,691 839,135,575.5 69,625,495 1,176,442,895.8Aug-16 112,146,738,476 73,105,125 1,027,566,059.1 47,478,050 918,108,824.9Jul-16 109,677,138,630 85,405,808 1,326,819,371.3 50,373,223 1,023,230,749.3Jun-16 111,185,970,845 177,970,918 2,206,891,659.0 66,628,901 1,179,937,476.3May-16 108,453,093,826 100,154,958 1,059,978,042.4 44,539,121 708.676.820,8Apr-16 100,661,229,869 149,292,586 1,546,895,494.3 66,131,378 1,060,428,757.8Mar-16 104,787,559,734 180,504,686 1,896,724,094.1 133,575,299 3,161,773,359.3Feb-16 68,442,486,132 53,859,343 529,288,569.4 25,569,711 409,160,770.5
DB2017 Vietnamstrengthenedminorityshareholderprotectionsbymakingit easiert o s u e directorsi n casesofprejudicialt r a n s a c t i o n s amongstin terestedparties,byincreasingshareholderrightsandroleinmajorcorp oratedecisions,bystrengtheningtheownershipandcontrolstructuresof c o m p a n i e s a n d byi n c r e a s i n g c o r p o r a t e t r a n s p a r e n c y requirement.
DB2012 Vietnamstrengthenedi n v e s t o r protectionsbyr e q u i r i n g h i g h e r standardof accountabilityfor companydirectors.
DB2008 Vietnamstrengthenedi n v e s t o r protectionsbyi n c r e a s i n g d i s c l o s u r e requirementsfor bot regularandrelated-partytransactions.
Time Name Market Reason Value
Controlingthisstockpricetounderb uyPPC inIPO,theinvestigationagencyprose cutedM a i P h a m
T h i Tuyet,FormerDirectorofCTS, due to themanipulatingstock prices andcausedaloss
3 million ofPPC stockscausedal oss ofaround89bill ion VND ofthenationalb udget
25 http://www.doingbusiness.org/Reforms/Overview/Topic/protecting-minority-investors#vietnam accessedon25/03/2017
IN2007, BBTannounceda boostt o p r o f i t s , howeverthecompanysuffe redheavylosses due to theinefficientbusiness A wayofhidingthefinanciallosses was
7/8/2009, HSX delisted6.84mil lionsharesofBB Tandallof investorshads ufferedlosses. the top Thiscaseraisedawareness of atransperancyin afinancial reportof SJC.
Misuse offundsbyformerdirector.Heusedc ash in handandbankto invest in stockmarketsbuthad lost.
A stockfrom43.000to around 90.000 dongattractedmanyVIPinvestor s With theextremehighl i q u i d i t y in the longperiod andatthe peakprices,Most ofAAAsharesdistributed to publicaftert h e successfulmanipul ation As
StockSecurities cannotsell offAAAshares inmarginaccoun ts.
9/2011 Stock HASC, hasescapedwiththedebts securities uphundredsof billions VND
As one ofthelargestcapitalizationin Vietnam stock market,KLSstopped thebusiness thatrelatedtostock.
PVAannouncedthestock issuingplanto public.Afteranaggressivepropestof minorityinvestorsbys e l l i n g all their shares, PVAcancelledthis plan and themarketpriceincreasedrightafte r that Sothose who sold hadsufferedlosses.
Therewas atrick ofissuerswitho ut thecontrol oflaworHNX.
Thisisparticularlythecaseforall negativecharacteristicso f t h e s t o c k marketi n Vietnamincluding:mar ketp r i c e manipulation, fraudfin ancials t a t e m e n t s ; scaminvestor sandunfairbusiness.
Oneinvestor found out thatKTB,which is the listed companyinUpcom,did notexist.Rightafterthat, KTBwassuspendedtradingbyHNX.
Accordingto the informationabove,KTBhad manyfaketransactionswith MTM