21 November 2017, an Indonesian Court ordered Goldman Sachs to pay USD$ 24 million to an Indonesian tycoon. They decided that shares at PT. Hanson International, Tbk. bought by Goldman Sachs (“PT. Hanson”) must be returned to the Plaintiff, a Mr. Benny Tjokrosaputro (“Benny”).
The USD$ 24 million awarded is only a fraction of the amount originally demanded. Benny asked for USD$ 1 billion, and Goldman Sachs filed a counterclaim for slightly less. Goldman Sachs’ lawyer warns that this case will shed light on how Indonesian law protects foreign investors and will impact trust in Indonesia as a country that is safe for investment, vis-à-vis the integrity of the Indonesian Stock Exchange.
Benny is an infamous stockbroker in the Indonesian stock exchange community, known for his skills in controlling the capital market by making up the value of stocks as he wishes. In this case, Benny claimed that the shares that were sold were actually his and therefore Goldman Sachs should return them.
The illustrious stockbroker
Benny is descended from grandparents who founded a company producing traditional handicrafts and batik. Benny’s enthusiasm for buying and selling shares was not supported by his family, who perceived stock trading as gambling. However, with the land owned by his family originally needed for batik factories and small plantations, it was a short road for Benny to find opportunities in real-estate development. He customised PT. Hanson to facilitate his deals and it became his favourite project.
Today, PT. Hanson is one of the Indonesian companies that owns the largest areas of land for development. Their corporate agenda is to develop commercial real-estate projects located around Jakarta, targeting low and middle-income homebuyers. These projects are undertaken as collaboration between a number of Indonesian business tycoons, with PT. Hanson as the front.
A complex game
Goldman claimed to have bought the shares through CIMB and Maybank, and that the transaction had been cleared by the Indonesian Central Securities Depository (KSEI). Citibank is a co-defendant together with Goldman. Goldman claimed to have no relation whatsoever with Benny and that the lawsuit should be declared inadmissible by the judges because it did not involve the crucial parties, for instance Platinum Partners and Newrick Limited Ltd. The latter allegedly sold the shares to Platinum Partners (which was liquidated and the founder arrested for fraud in the United States), which were then sold to Goldman.
Benny is apparently listed in the Panama Papers as the shareholder in Newrick. He may have been in the middle of a repurchase transaction (commonly known as repo) with Platinum Partners, and then turned to sell the collateral (shares at Hanson International) to Goldman Sachs. Is this a financial structure gone wrong? Did Benny himself sell the shares and is now demanding them back? Why didn’t he sue Newrick or Platinum Partners to return his shares? Is Benny’s loss just a business risk he is trying to avoid by using the court? What actually happened? Have the judges understood the facts?
IDX’s integrity or judges’ expertise?
The transaction(s) took place in the “negotiation market” of the Indonesian Stock Exchange. To put it simply, there are three “markets” in the Indonesian Stock Exchange; the regular, negotiation and cash markets. The regular market is just like any common stock market exchange, as is the cash market. The negotiation market however, is hard to place. It appears to be similar to Over-The-Counter exchanges, but the shares traded at the Negotiation Market could be the same shares traded at the regular market. The difference is that in the Negotiation Market, shares can be valued for less than the minimum requirement (Rp. 50,-/share). This means, players are as free as they can be to negotiate every aspect of the transaction; for instance the price and the terms of transaction, the latter could be so complex that it is hard to understand for judges.
A case of globalisation?
So what will happen next? Will Benny get USD$ 24 million richer and spend that money shopping and gambling at Marina Bay Sands? No, in fact no money will change hands. The certainty of who owns shares at PT. Hanson will continue to be in limbo. At least whilst the case goes to appeal, which could take anything from two years to thirty years. During which time, the excuse of ‘existing lawsuits’ can be used to delay the construction of houses (hopefully for two, rather than thirty years) and the “public facilities” promised surrounding the “new city”. In Bloomberg, investors are trying to find new ways to manoeuver outside the law to deal with the security of contracts, with schemes like Blockchain.
This shows us that the study of financial law is increasing in breadth, but includes very specialised vocabulary that is hard to understand for outsiders (SPV? OTC? repo? Blockchain?); and that small houses in sub-urban Indonesia are tangled up in global transactions and lawsuits. This means that we should also broaden our study of financial law, from the US and Europe to emerging markets, and from contracts to litigation. Because a small plot of land somewhere far away in Asia could have an impact very close to home.