Taiwan Regulator Recommends Criminal Investigation of Glaucus

Taiwan’s financial regulator asked prosecutors to probe short seller Glaucus Research Group California LLC for allegedly spreading false information about Asia Plastic Recycling Holding Ltd. and for share manipulation.

The Financial Supervisory Commission’s request was received on May 12, Huang Mou-hsin, a spokesman for the Taipei District Prosecutors Office, said yesterday. Huang declined to elaborate on the specifics of the case.

Asia Plastic Recycling, a Taipei-listed foam rubber maker, last month rejected as groundless Glaucus’ allegations that its “financial numbers” were 90 percent lower than stated. The stock has tumbled 27 percent since Glaucus released its first report on April 24.

Prosecutors may probe actions taken by Glaucus as well as the veracity of Asia Plastic Recycling’s financial statements before bringing a case against either party, according to Lai Wenping, a criminal lawyer at law firm Lee and Li. Access to documents, relating to the short seller or to the listed company’s China-based records, could pose a challenge for Taiwan authorities, Lai said.

Soren Aandahl, director of research at Newport Beach, California-based Glaucus, didn’t immediately respond to an e-mail requesting comment sent during U.S. business hours.

Shares of Asia Plastic Recycling fell 4.5 percent to close at NT$63.10 in Taipei yesterday.

Open Letter

FSC Chief Secretary Tung-liang Lin said at a press briefing yesterday the commission had submitted its case to prosecutors. Tseng Ming-chung, the FSC minister, said last week the commission would refer Glaucus to prosecutors on suspicion the firm spread false information and manipulated shares.

Glaucus issued an open letter on May 5 that said it was disappointed with the initial investigation by Taiwanese authorities.

“We fear, based on the investigative process and the hostile stance to our right to discuss our opinions in the public forum, that participants in the Taiwanese market will be deterred in the future from sharing their opinions on a listed company,” Glaucus said in the letter.

Asia Plastic Recycling has said it filed a complaint against the U.S. firm’s employees with Taipei prosecutors. The two complaints will be investigated as one case, Huang said.

Class Action

A separate investor protection agency is registering investors who say they suffered losses for a potential class-action lawsuit against the short seller.

In March 2012, Taiwan prosecutors declined to file a criminal case against a Citigroup Inc. analyst after HTC Corp. alleged that the employee spread misinformation. The analyst said the information was publicly available and therefore he couldn’t be accused of spreading false information, the Taipei District Prosecutors Office said at the time.

Glaucus compared Taiwan’s response to its research reports with that of Hong Kong, where its accusations of data falsification by China Metal Recycling Holdings Ltd. led to regulators discovering the company fabricated sales. Hong Kong’s Securities and Futures Commission sought to liquidate the company in July. Company Chairman Chun Chi Wai said in October the move wasn’t in the public interest and lacks fairness.

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