Malaysia Files Charges Against Credit Lyonnais
International Herald Tribune
December 12, 1997
Thomas Fuller

Three months after Prime Minister Mahathir bin Mohamad warned that he would punish speculators hurting the Malaysian economy, authorities Thursday charged the securities arm of Credit Lyonnais with short-selling the stock market, a criminal offense.

A trader with CIMB Securities Sdn., a company based in Kuala Lumpur, who is alleged to have executed the order for Credit Lyonnais Securities (Asia) Ltd. in Singapore was arrested on three charges of short-selling and released on bail. The charge carries a maximum penalty of 10 years in prison and a fine of 1 million ringgit ($274,000).

Credit Lyonnais and the brokerage both denied the charges and vowed to fight the action in court.

The charges are the latest move in a four-month campaign by Mr. Mahathir against foreign investors, whom he has repeatedly charged with destroying the economies of Southeast Asia by dumping shares.

Short-selling, which tends to put downward pressure on the market, was allowed under certain circumstances until Malaysia banned it in late August in an attempt to prop up a falling stock market.

But the restrictions caused stocks to plunge further as foreign investors became infuriated at the change of rules.

Analysts said the decision to enforce the short-selling law could keep foreign investors away from the Malaysian market because it could be seen as singling out a foreign company over a relatively minor offense.

The charges filed Thursday relate to three deals that took place before the ban on short-selling was announced.

The transactions involved have a total value of about 1.4 million ringgit, according to the Bernama press agency.

The main stock market index fell 7.89 percent Thursday, bringing the drop in Kuala Lumpur so far this year to nearly 70 percent in dollar terms, making the exchange one of the world's worst-performing markets.

The charges are yet another blow for Credit Lyonnais, which in recent years has slid from Europe's biggest bank to a debt-laden basket case. Its Asian business, however, had been a bright spot for the French company. Last year, the bank predicted its Asian asset-management arm would double its portfolio within 12 months.

John Leonard, European banking analyst at Salomon Smith Barney in London, said, "At least before the crisis erupted six months ago, both their investment-banking and securities activities outside Europe had been performing very strongly and really quite independently of all the distress in some of the European operations."

Short-sellers borrow a stock and then sell it with the intention of buying it back later after its price falls. They can then return the stock to the lender and keep the difference between the price they sold it for and the price they paid to buy it back.

Foreign investors and securities companies have incurred Mr. Mahathir's wrath. He has called them "self-serving rogues" and "anarchists."

George Soros, the billionaire financier, has been a special target of Mr. Mahathir's.

He has said Mr. Soros epitomizes the greed of the global securities and finance industry.

In Paris, Credit Lyonnais shares finished 21 francs lower at 314 ($52.37)

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