Leiden Law Blog

Indonesian tycoon vs. Goldman Sachs: 1-0

Indonesian tycoon vs. Goldman Sachs: 1-0

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.


Imam Nasima
Posted by Imam Nasima on December 1, 2017 at 21:19

Thanks for your response, Santy. I agree with you that the “game” could in the end involve a larger public than just that of the stock market.

By referring to that rule of good faith purchaser, I did not think of the purchase of houses, but the purchase of shares on the stock exchange, as IDX is also a (supposedly to be reliable) market.

Posted by Santy on December 1, 2017 at 15:07

Thanks for your comment Imam, I understood that you are taking Goldman Sachs’ argument regarding good faith here because they bought the shares through IDX. It is easy and I could relate to it. The aim of this blog is to inform about how complex this global transaction is and hope that readers could be engaged in reflecting on the effect of this “game” to people who aren’t transacting in the stock market.
I agree with the importance of functioning registration system, however I still cannot see the connection of this case with public auction. That’s another issue I think, as most people buy their homes through real-estate developers.

Imam Nasima
Posted by Imam Nasima on November 30, 2017 at 10:27

The writer has an interesting angle to discuss the case, but unfortunately I cannot see any further legal analysis.

It is in essence a simple legal case, not a complex one. The question is, indeed, who owns the shares and whether the holder can be deemed as a good faith purchaser. However, it seems that - one may need to read the decision first, but according to the verdict that has widely been spread in the media - the plaintiff has made use of a tort action and the claim was granted by the court. The result is awkward: the defendant has to give back the shares and it also has to pay compensation (for the shares that are given back?).

Hence, I wonder what kind of reasoning the court made for such a decision. And from a legal point of view, this is certainly an important issue, as the Indonesian Supreme Court has recently restated a quite strong (almost absolute) protection to a good faith land purchaser at the public auction (see: http://www.cilc.nl/cms/wp-content/uploads/2016/05/Penjelasan-Hukum-Pembeli-Beritikad-Baik-Hukum-Perdata.pdf). It is not certain yet whether this rule will also be applicable for the purchaser of shares, but I cannot think the difference. In fact, it involves the same problems, as one will deal with the (dys)function of a registration system in such cases.

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