Misrepresentation about the risk of CDOs

Dear Mr. Tan

After reading the explanations from many financial experts, I realize that the real risk for the minibond is the 150 securities CDO.

Out of the 150 securities, if 11 or more credits events then the investor will loose some of their principal. If 13 or more credit events then investors will lose all of their principal.

The risk for this condition is extremely high because this is equivalent to any 2 credit events out of 23 securities (or any 1 out of 11.5).

Since bank should be much safer than others, it is not unreasonable to assume that on average, the risk of one security is 2 times the risk of one bank Then the risk of 13 or more credit events will be about 23 times (2 x 150/13 = 23.1) the risk of credit event for one bank

Moreover, the pricing statement did not disclose the identities of the 150 securities referenced by the synthetic CDO. This makes it difficult for us to assess the risk. The sales brochures and newspaper advertisements did not even mention the 150 securities CDO.

Can we sue the Financial Institutions for the omitting of these important information in the pricing statement/sales brochures/newspaper advertisements ?

Pang

REPLY
In my view, this omission is material. The investors can sue the financial institution.

It is better for the government to act and take action to enforce the law (i.e. Securities and Futures Act) which requires the seller of securities to provide relevant, reliable and complete information about the securities being sold to the public.