Enhancing the Deterrent Effect of Anti-Fraud Measures in ......Phra Ajarn Preeda who has provided me with the greatest spiritual guidance as well as scholarship funding during my early

EnhancingtheDeterrentEffectof

Anti-FraudMeasures

inThaiSecuritiesLaw

andComplianceProcedures

AbhichonChandrasen

Athesissubmittedforthedegreeof

DoctorofPhilosophy

oftheAustralianNationalUniversity

June,2016

ii

STATEMENT

Thisthesisisentirelymyownworkandallsourcesusedorreferred

tohavebeenappropriatelyacknowledged.

Thisthesisdoesnotcontainanymaterialwhichhasbeenpreviously

submittedoracceptedfortheawardofanyotherdegreeordiploma

fromanyuniversityoreducationalinstitutionand,tothebestofmy

knowledge and belief, it does not contain any material written or

publishedbyanotherperson,exceptwheredueacknowledgementis

madeinthisthesis.

_________________________

AbhichonChandrasen

iii

Abstract

Securities markets have become increasingly important financial institutions in

creating economic growth. Investment from different types of investor - local,

foreign,retail,and institutional - injectsmuch-neededcapital to listedcompanies

toexpandtheirbusinesses.Topersuadeinvestorstoinvestinthosemarkets,oneof

the key conditions is the presence of an effective investor protection regime. In

Thailand, lackof investorprotection isaparticularly important regulatory issue,

especially in cases involving protection of retail investors. This lack of investor

protection can be attributed mainly to Thai retail investors generally lacking

adequateknowledgeandsophisticationtoprotectthemselvesfromcomplexfraud.

Itismoststrikingthatretailinvestorsaremoreoftenthannottakenadvantageof

bytheirownbrokers,whoideallyshouldbetheoneswhoprotecttheirinterests.

This researchattempts toenhance thecurrentThaianti-brokerage-fraudregime

through the use of Donald R. Cressey’s Fraud Triangle Theory to identify

contributing factors - pressure, opportunity, rationalization - leading to the

commission of fraud and regulatory violations by Thai securities brokers, taking

into account Thai cultural and business contexts, and then to develop

recommendations in response to those factors. An empirical approach with

qualitativedataanalysisisemployed.Theresearcherrealisesthatthebestwayto

investigateallrelevantdynamicsistointerviewsecuritiesbrokers,regulators,and

representatives of investors to obtain information about their respective roles in

the securitiesmarket, aswell as their views andperceptions of brokerage fraud,

andtheiropinionsofthecurrentanti-fraudregime.

This thesis focuses on deterrence of four related low-level frauds and regulatory

violations,which–rangingfromlessseveretomostsevere–are:

1) Theoffenceoffailingtoproperlyrecordtradingorders;

2) Theoffenceofmakingtradingdecisionsonbehalfofclients;

3) Theoffenceofusingaclient'saccountforthebroker'sownbenefit;and

4) Theoffencesofdeceptionandmisappropriation.

iv

Proposals to enhance deterrence of the regime, that is, to reduce pressure, to

removeopportunities,andtolimitrationalisations,aredevelopedunderIanAyres

andJohnBraithwaite’sresponsive-regulationapproach,whereeffectiveregulatory

strategiesrespondtotheconductoftheregulateesandtotheindustrycontext. The

recommendations start from education-based and persuasion-based strategies

implementedexternallybygovernmentagencies,andthenescalatetodeterrence-

basedmeasures of administrativeand criminal sanctionswhena lackof positive

response frombrokersand securities companies is evident.Theuseof corporate-

based strategies of fraud prevention and detection through internal control

mechanismsisalsodiscussedinthelatterpartofthethesis.

v

Acknowledgements

Firstandmostimportant,Idedicatethisthesistomyfatherandmylatemother

fortheirwonder-making,indefatigableloveandsupportandimmoveablefaithin

methroughmylongjourneytomyPhD,especiallyattimeswhenIdoubtedmy

abilities. Ialsowant to thankmytwowonderfulbrothers for theirmoraland

their technical support whenever I was in trouble with technological

weaknesses.

I am also indebted tomy supervisor, Associate ProfessorMark Nolan and his

family,forhispatientsupervisionandconstantencouragementinmytimeatthe

AustralianNational University.Without his insightful comments and guidance,

this thesiswould not have been possible. In addition, I am also so grateful to

Professor Stephen Bottomley, Associate Professor Kath Hall, and Dr Prasong

Vinaiphat,asthePhDreviewpanelforalltheirhelpfulguidanceandfeedback.

Also,IwishtoexpressmygratitudetotheOfficeoftheSecuritiesandExchange

Commission,Thailandfortheirgenuineinterestinthisprojectandtheirarchival

supportthroughouttheresearch.IwishalsotothankMissNitivadeeTasuwanin

andDrKanateWangpaichitr,whokindlyagreed tobegatekeepersandcontact

persons of the first and the third interview phases. Thank you too to all

participantswhotookpart in thisstudy. Inaddition, this thesiscouldnothave

beencompletedwithoutthewonderfulsupportofEwenAtkinson,mytruefriend

andthebesteditorIhaveeverknown.

Iwouldalso like tosendspecialgratitude toH.E.ProfessorTaninKraivixien,a

privy councilor, who 15 years ago showed me the beauty of law and justice,

inspiring me to continue my study in the profoundly important areas of

regulationandenforcement.

Special thanks must also go to Dr Romrawee Pornpipatpong, Miss Rujirat

Chittanonda, and Miss Puntip Lertbunnapong whose continual support and

encouragement have kept me going through many difficult times during my

vi

doctoralstudies.TherearealsofriendsandcolleaguesinThailand,Australia,and

EnglandwhomIwouldliketosaythankyoutobutallofwhosenamesIcannot

mentionhere.

Lastbutnotleast,Iwouldliketopaythehighestrespecttothemostvenerable

PhraAjarnPreedawhohasprovidedmewiththegreatestspiritualguidanceas

wellasscholarshipfundingduringmyearlyPhDstudies.Imustalsopayrespect

tothevenerable PhraRajSeelapornandPhraMahaSongkramwhoblessedme

withwisdomandtreatedmewithgreatkindnessduringmypeacefulmonkhood

inCanberraandHobart.

vii

TableofContents

Abstract iii

Acknowledgement v

ListofTablesandFigures xi

Chapter1Introduction 1

IBackground 1

IIResearchQuestionsandHypotheses 5

IIIContributiontotheLiterature 6

IVProposedMethodology 8

VThesisStructure 9

Chapter2TheThaiLegalSystemandtheThaiSecuritiesMarkets 13

ITheThaiLegalandJudicialSystems 13

ATheThaiLegalSystem 13

BTheThaiJudicialSystem 27

IITheThaiSecuritiesMarketsandBrokerageIndustry 32

ASecuritiesMarketsinThailand 32

BSecuritiesCompanies 51

CSecuritiesBrokers 62

Chapter3TheThaiAnti-brokerageFraudRegime 77

IGoverningLaws 77

ASourcesofLawandRegulation 77

BFormsofSanction 85

COffencesCommittedbySecuritiesBrokers 90

IIGoverningBodies 117

ATheSecuritiesandExchangeCommission(SEC) 117

BTheStockExchangeofThailand(SET) 118

CEconomicCrimeInvestigationDivision,theRoyalThaiPolice(ECID)119

DDepartmentofSpecialInvestigation,MinistryofJustice(DSI) 120

viii

EOfficeoftheAttorneyGeneral(OAG) 121

FTheCourtsofJustice 121

GTheAdministrativeCourts 122

HTheAssociationofThaiSecuritiesCompanies(ASCO) 123

IIIEnforcementActivitiesandLegalProceedings 124

APreventiveMeasures 124

BSurveillanceandDetection 129

CAdministrativeProceedings 131

DCriminalProceedings 134

ECivilProceedings 137

IVFocusOffencesforThisStudy 138

ATheOffenceofFailingtoProperlyRecordTradingOrders 139

BTheOffenceofMakingTradingDecisionsonBehalfofClients 144

CTheOffenceofUsingaClient'sAccountfortheBroker'sOwnBenefit148

DTheOffencesofDeceptionandMisappropriation 153

Chapter4TheFraudTriangleandExtendedModels 159

ITheFraudTriangle 159

ADifferentialAssociationTheory 160

BCressey’sOriginalFraudTriangle 163

CRevisedandExtendedFraudTriangleModels 173

DFraudRiskFactorStudies 191

IITheFraudTriangleModelEmployedinthisResearch 199

Chapter5TheEmpiricalResearchontheThaiBrokers’Perceptionsofthe

CausesofBrokerageFraudsandoftheCurrentThai-AntiBrokerage

FraudRegime 204

IResearchMethodology 204

ALiteratureReview 204

BResearchDesign 216

CTheMainInterviewStage 234

DResearchLimitations 237

ix

IIFindingsfromtheEmpiricalResearch 239

ADataAnalysisTechnique 239

BFindingsfromtheFirstInterviewPhase:SecuritiesBrokers 241

CFindingsfromtheSecondInterviewPhase:Regulators 290

DFindingsfromtheThirdInterviewPhase:Investors 308

ESummariesofFindingsinRelationtoFocusOffences 319

IIIConclusion 329

Chapter6RecommendationsandConclusions 341

IExaminationofResearchHypotheses 341

AHypothesisI 341

BHypothesisII 342

CHypothesisIII 343

DHypothesisIV 344

EHypothesisV 345

FHypothesisVI 346

GHypothesisVII 347

HHypothesisVIII 350

IIRecommendations 353

ABreakingTheFraudTrianglewithTheResponsiveRegulation

Approach 353

BStrategiesinEnhancingDeterrenceofFocusOffencesCommittedby

AccidentalFraudsters 388

CStrategiesinEnhancingDeterrenceofFocusOffencesCommittedby

PredatoryFraudsters 399

IIIConclusion 406

Appendix 410

Appendix1RelevantStatutoryProvisions 410

Appendix2TheSECOfficeNotificationNo.KorLorTor.Khor.Wor12/2011417

Appendix3AdministrativeCasesRelatingtoBrokerageFraudand

RelatedViolations:OfficeoftheSecuritiesandExchange

Commission,2001-2013 422

x

Appendix4InterviewQuestions 437

Appendix5ParticipantInformationSheet 447

Appendix6OralConsentRequestStatement 451

Bibliography 453

xi

ListofTablesandFigures

Tables

Chapter2

Table 1: Differences between Compoundable Offences and Non-compoundable

Offences

Table2:TheSETIndexfrom2012-2015

Table3:TotalCapitalizationoftheSETfrom2012-2015

Table4:TotalTurnoveroftheSETfrom2012-2015

Table5:NumbersofTransactionintheSETfrom2012-2015

Table6:NumbersofListedCompaniesintheSETfrom2012-2015

Table7:NumbersofListedSecuritiesintheSETfrom2012-2015

Table8:SlidingScaleBrokerageFeesandBrokerIncomeviaTraditionalChannel

from2010–2011

Table9: Sliding ScaleBrokerageFees andBroker Incomevia InternetChannel

from2010–2011

Table10:TypesofSecuritiesBusinessLicence

Table 11: Types of Securities Companies in Thailand and Their Brokerage

FunctionStatusasofSeptember2012

Table 12: Educational Background, Work Experience, and Examinations

Required for Capital Market Investment Consultant Licence (Securities and

DerivativeInvestment)

Table 13: Educational Background, Work Experience, and Examinations

Required for Securities Investment Consultant Licence (Equity, Debt

Instrument,andFundInvestment)

Table 14: Educational Backgrounds, Work Experience, and Examinations

RequiredforEquityInvestmentConsultantLicence(SecuritiesInvestment)

Chapter3

Table 15: A Comparison of Magnitude of Sanctions between the SEC Office

NotificationsNo.KorLorTor.Khor.Wor12/2011andNo.Thor.Wor.27/2002

Table16:BrokerageOffencesRelatingtoDocumentandPersonalInformation

xii

Table17:BrokerageOffencesRelatingtoDeceptionandMisappropriation

Table 18: Brokerage Offences Relating to Brokerage Practices (Against clients

and/oremployingcompanies)

Table19:BrokerageOffencesRelatingtoUnfairTradingPractices

Table20:BrokerageOffencesRelatingtoMoneyLaundering

Table 21: Brokerage Offences Relating to Brokerage Practices (Against the

securitymarketand/orthegeneralpublic)

Chapter4

Table22:ClassificationsofPressure/MotivationFactorsCompiledfromDifferent

ResearchonFraud

Table23:SummaryofRiskFactorsinThaiOrganizationsThatCanBeControlled

byCorporateGovernanceandInternalControl

Chapter5

Table24:TheDemographicsoftheParticipantsintheFirstInterviewPhase

Table25:TheDemographicsoftheParticipantsintheSecondInterviewPhase

Table26:TheDemographicsoftheParticipantsintheThirdInterviewPhase

Table27:FactorsLeadingtotheCommissionoftheOffenceofFailingtoProperly

RecordTradingOrders(SecuritiesBrokers)

Table28:FactorsLeading to theCommissionof theOffenceofMakingTrading

DecisionsonBehalfofClients(SecuritiesBrokers)

Table 29: Factors leading to the Commission of theOffence ofUsing a Client's

Account for the Broker's Own Benefit without the Account Owner’s

Permission(SecuritiesBrokers)


Account for theBroker'sOwnBenefitwith theAccountOwner’sPermission

(SecuritiesBrokers)

Table 31: Factors leading to the Commission of theOffences ofDeception and

Misappropriation(SecuritiesBrokers)


RecordTradingOrders(Regulators)

xiii


DecisionsonBehalfofClients(Regulators)



Permission(Regulators)



(Regulators)


Misappropriation(Regulators)


RecordTradingOrders(Investors)


DecisionsonBehalfofClients(Investors)



Permission(Investors)



(Investors)


Misappropriation(Investors)

Table 42: Opinions about Factors Operated on Securities Brokers who

Committed the Offence of Failing to Properly Record Trading Orders

(SecuritiesBrokers,Regulators,andInvestors)


Committed the Offence of Making Trading Decisions on Behalf of Clients

(SecuritiesBrokers,Regulators,andInvestors)


Committed the Offence of Using a Client's Account for the Broker's Own

BenefitwiththeAccountOwner’sPermission(SecuritiesBrokers,Regulators,

andInvestors)

xiv


Committed the Offence of Using a Client's Account for the Broker's Own

Benefit without the Account Owner’s Permission (Securities Brokers,

Regulators,andInvestors)


Committed the Offence of Deception and Misappropriation (Securities

Brokers,Regulators,andInvestors)

Figures

Chapter2

Figure1:TheStructureofTheCourtsofJusticeandAvenuesofAppeal

Figure2:AnExampleofSecuritiesCompany’sOrganizationalStructure

Figure3:StructureofInvestmentAnalysisLicences

Figure4:StructureofInvestmentConsultantLicences

Chapter3

Figure 5: The Administrative and The Criminal Proceedings in Brokerage

Offences

Chapter4

Figure6:FraudTriangle

Figure7:TheTriangleofFraudAction

Figure8:TheFraudScale

Figure9:TheFraudDiamond

Figure10:AttributesofthePredator

Figure11:TheNewFraudTriangleModel

Figure12:TheFraudTriangleinInternationalContexts

Figure13:TheRevisedFraudTriangleModel

Figure14:TheRevisedPredatoryFraudsterModel

Chapter5

Figure15:TheStructureoftheEmpiricalPartoftheStudy

xv


Figure17:CodingDiagramme



Chapter6

Figure20:EnforcementPyramid

Figure 21: TheRegulatory Pyramid of The Current Thai Anti-Brokerage Fraud

Regime

Figure 22: TheRegulatory Pyramid of TheRevisedThai Anti-Brokerage Fraud

Regime

Figure 23: The Proposed Regulatory Pyramid in the Offence of Failing to

ProperlyRecordTradingOrders

Figure24:TheProposedRegulatoryPyramid in theOffenceofMakingTrading

DecisionsonBehalfofClients

Figure25:TheProposedRegulatoryPyramid in theOffenceofUsingaClient’s

AccountfortheBroker'sOwnBenefit(WithPermission)

Figure26:TheProposedRegulatoryPyramid in theOffenceofUsingaClient’s

AccountfortheBroker'sOwnBenefit(WithoutPermission)

Figure27:TheProposedRegulatoryPyramid in theOffencesofDeceptionand

Misappropriation

1

Chapter1

Introduction

IBackground

Securitiesmarketshavebecomeincreasingly important financial institutions in

creating economic growth. Investment from different types of investor - local,

foreign,retail,andinstitutional-injectsmuch-neededcapitaltolistedcompanies

to expand their businesses. In order to persuade investors to invest in the

markets, one of the key conditions is the presence of an effective investor

protection regime, where assets of investors are protected from being

expropriatedbymajorshareholdersandmanagementof the listedcompanies.1

Inaddition,theinvestors’assetsthataremanagedbymutualfunds,orunderthe

safekeeping of securities brokerage companies, must be secured from being

misappropriatedorabusedbythefundmanagersand/orthesecuritiesbrokers

who look after the trading accounts.2At the extreme end, there is a gross

malpractice by fund managers commonly known as ‘Ponzi scheme’ where

investorsarepromisedperpetualhighratesof returnwith little risk.The fund

managersthenpayreturnstoitsearlierinvestorsfromnewcapitalinvestedby

new investors, rather than from profit earned through legitimate sources.3As

long as there are new investors and new investments, the scheme continues.

Once the investment slowdown, the scheme collapses and the fundmanagers

vanish with all remaining investment money, leaving the investors with huge

losses. Although not all securities misconduct is as outrageous as the Ponzi

scheme,thereareotherseriouswrongdoingsthatfundmanagersandsecurities

brokersoftencommitagainsttheirclients,suchasdeception,misappropriation,

forgery, unauthorised trading, price manipulation, misrepresentation and

1Rafael La Porta et al, 'Investor protection and corporate governance' (2000) 58(1) Journaloffinancialeconomics3.2Pat Huddleston, The vigilant investor: A former SEC enforcer reveals how to fraud-proof yourinvestments(AMACOMDivAmericanMgmtAssn,2011).3KenFisherandLaraWHoffmans,Howtosmellarat:thefivesignsoffinancialfraud(JohnWiley&Sons,2009).

2

omissions, front running, 4 churning, 5 etc., that regulatory agencies need to

addressinordertoprotecttheinvestors’assetsandtoretaintheirconfidence.6

It is important tonote that fraudandmisconduct in securitiesmarketsdonot

only affect the victim investors. They have profound and far-reaching

consequences for all levels of society. Investors, listed companies, financial

institutions, national economies and global financial systems are all affected

whentheintegrityofsecuritiesmarketsareundermined.7

In developing countries, like Thailand, the lack of investor protection is a

particularlyimportantregulatoryissue,especiallyinthecaseoftheprotectionof

retail investors.8This can bemainly attributed to the fact that retail investors

generally lack adequate knowledge and sophistication to protect themselves

fromcomplexfraud,unlikeinstitutionalinvestors.9Totheresearcher,itismost

strikingthatThairetailinvestorsaremoreoftenthannottakenadvantageofby

their own securities brokers who ideally should be the ones protecting their

interests. There have been numerous incidents where Thai securities brokers

were found to engage in wrongful conduct taking advantage of their clients

and/or the general public and, more seriously, commit outright fraud against

theirtrustedclients.Duetothis,thegrowthofThaisecuritiesmarketshasbeen

hindered and retail investors are often reluctant to invest in the stockmarket

due to the fearofbeingdeceivedby their agents.10Inorder topromotepublic

4Front running practice is an illegal trading practice where a security broker has advancedknowledgeof apending largeorderofhisorherownclient, anddecides to takeadvantageofsuchknowledgebybuyingorselling fromhisorherownaccounts,oradvisingotherclients totradesuchsecuritiesbeforetheexecutionoftheclient’sorder.5Churning is an illegal trading practicewhere a securities broker advises his or her clients tomake excessive numbers of trade to obtain additional trading volume to the detriment of theclientswhohavetopayexcessivetradingfees.6Daniel R Solin,DoesYourBrokerOweYouMoney?: IfYou'veLostMoney in theMarketand It'sYour Broker's Fault--You Can Get It Back (Penguin, 2006); Tracy Pride Stoneman and DouglasJerome Schulz,BrokerageFraud:WhatWallStreetDoesn'tWantYou toKnow (DearbornTradePublishing, 2001); Louis L Straney, Securities Fraud: Detection, Prevention and Control (JohnWiley&Sons,2010);Huddleston,aboven2;FisherandHoffmans,aboven3.7InternationalOrganizationofSecuritiesCommissions,'CredibleDeterrenceInTheEnforcementOfSecuritiesRegulation'(June2015).8Yunyong Thaicharoen and Nasha Ananchotikul, 'Thailand’s experiences with rising capitalflows: recent challenges and policy responses' (2008) Financial Globalisation and EmergingMarketCapitalFlows427.9Ibid.10Kamol Supreyasunthorn, Factors Affecting White-collar Crime Within the Stock Exchange ofThailand(MahidolUniversity,2008).

3

confidence in theThai securitiesmarketand financial services, a credibleanti-

brokerage fraud regime incorporating well-targeted regulations and strong

regulatory institutions that hold individuals and entities accountable and

effectivelydetermisconductareofmostimportance.

In this thesis, the researcher attempts to enhance the current Thai anti-

brokerage fraud regime through theuseofDonaldR.Cressey’sFraudTriangle

Theory11toidentifycontributingfactors-pressure,opportunity,rationalisation-

leadingtothecommissionoffraudsandregulatoryviolationsbyThaisecurities

brokers, taking into account the Thai cultural and business contexts, and to

develop recommendations in response to such factors. An empirical approach

withqualitativedataanalysiswillbeusedinthisthesis.Theresearcherrealised

that the best way to investigate the relevant dynamics was to interview

securities brokers, regulators, and representatives of investors to obtain

information on their respective roles in the securitiesmarket, their views and

perceptions of brokerage fraud, and their opinions of the current anti-fraud

regime.

Since there are different categories of brokerage fraud and securities

misconduct, it is impossible for the researcher to cover all of themwithin the

scopeofthisthesis.Thisresearchfocusesondeterrenceoffourrelatedlow-level

frauds12andregulatoryviolations,whichfromlessseveretomostsevere,are:13



11DonaldRCressey, 'Otherpeople'smoney;a studyof the socialpsychologyofembezzlement'(1953).12 The term ‘low-level fraud’ commonly refers to various frauds committed by low-levelemployees in organisations, including stealing ofmerchandise, removal of cash from registers,payingoffalseinvoicesthroughcollusionwithsuppliers,andforgingofsignatures.Althoughthevalueofeachfraudisusuallysmall,low-levelfraudcanbedangerousastheamountoftengrowsovertime,ifleftunchecked:WSteveAlbrechtetal,Fraudexamination(CengageLearning,5thed,2015). In the context of securities and brokerage fraud, the term refers to frauds and relatedregulatory violations committed by securities brokers and other personnel who are low-levelemployees of securities companies in their course of work. Examples of common low-levelbrokeragefraudincludesubmittingoffalsedocuments,deceptiontogainsharesandfundsfromclients,misappropriationofclients’cash,andtheuseofclients’accountstotradeforoneself.13SeedetailsinChapter3.

4



Another key background to the thesis is that this study has been conducted

amidst thesignificantchange intheThaibrokerage industry.The liberalisation

of securities business took place on 1 January 2012.14One of the significant

changes was the liberalisation of standardised brokerage fees from a sliding

scale structure to being fully negotiable (between clients and securities

companies).Suchchange isexpected tohaveagreat impacton thebusinessof

securities companies and the welfare of securities brokers. Therefore, a

secondary objective of this project is to explorewhether such liberalisation of

brokeragefeeshasanyinfluenceonand/orcorrelationwiththecommissionand

theperceptionofbrokeragefraudandrelatedviolations.

Thelastpointthatshouldbemadeinthissectionistoclarifytheterms ‘broker’

and‘securitiesbroker’,whichareusedthroughoutthisthesis,soasnottoconfuse

the Thai readers. The need for the clarification stems from differences in the

meaningofsuchtransliteratedwordsintheThailanguage,whichdoesnotretain

the exact meaning of the original words in English. In the Thai securities

industry,when ones used theword ‘broker’ (โบรกเกอร)์ or ‘securitiesbroker’ (ซเิคยีวรติี ้

โบรกเกอร์),theyalwaysrefertoasecuritiescompany,nottoanindividualbroker.In

otherwords,Thaisecuritiescompaniesarecommonlycalled ‘broker’ (โบรกเกอร)์ or

‘broke’(โบรก) inshort.ThewordthattheThaisusetorefertoindividualsecurities

brokersisinstead‘marketingofficers’(มารเ์กต็ติง้ ออฟฟสิเซอ่ร)์or‘mar’(มาร)์ inshort,which

hastotallydifferentmeaninginEnglishandintheinternationalbusinesscontext.

Inthisthesis, theresearcherusesthetermsintheiroriginalmeaning, inwhich

‘broker’and‘securitiesbroker’strictlyrefertoanindividual.Whentheresearcher

would like to refer to a securities brokerage company, the terms used are

‘securitiescompany’and‘securitiesfirm’,respectively.

14SeedetailsinChapter2.

5

IIResearchQuestionsandHypotheses

Thestudyasksthreeresearchquestions:

Q1:Whatarekeyfactorsleadingtothecommissionoflow-levelbrokeragefraud

andrelatedviolationsbyThaisecuritiesbrokers?

Q2:Arethereanylocalsocietalfactorsthatinfluencethecommissionand/orthe

awarenessoffraudamongThaisecuritiesbrokers?

Q3:Whatlegalandpreventivemeasurescanandshouldbeemployedtoenhance

deterrencewithinthecurrentThaianti-brokeragefraudregime?

Thestudyposeseighthypotheseswhichareasfollows:

H1:Highworkpressureandunstableincomearethetwomainfactorsleadingto

thecommissionoffraudandregulatoryviolations.

H2:TheliberalisationofthecommissionfeestructurethattheSECintroducedin

January2012hasanimpactonthesecuritiesbrokers'workingbehaviour.

H3: Working conditions, remuneration structures, and work pressure are

different among different types of securities companies (local, foreign, and

commercial-bank related), and are the key factors determiningwhether fraud

andotherviolationswillbecommitted.

H4: It is easier for a broker to rationalise his or her wrongdoing when the

offenceiscommittedagainstthemarketorthepublicthanagainsthisorherown

clients.

H5: Securities brokers have inadequate knowledge and understanding of law

andregulationsduetothelackofadequateethicstrainingandtheirindifferent

attitude.

6

H6:Securitiescompaniesdonotseriouslyenforceacodeofconductandfailto

maintaineffectiveinternalcontrol,givingbrokersopportunitiestocommitfraud

andviolatesecuritiesregulations.

H7: Sanctions imposed upon offending brokers are not adequately severe and

arenotwelltargetedtodeterwrongdoing.

H8:Thecurrentlegalprocedures(criminal,civil,andadministrative)areoverly

complicatedandtherearetoomanyagenciesinvolvedintheprocedures.

IIIContributiontotheLiterature

The anticipated contributions of this study are fourfold. Firstly, in academic

terms, the research aims to broadens the understanding of causes and

antecedent factors leading to the commission of fraud, in particular the

brokeragefraudcommittedbysecuritiesbrokersagainsttheirclientsand/orthe

general public. Secondly, the research further explores the influence of local

societal factors to the commission and the awareness of fraud in the non-

Western and non-Anglo-Saxon setting, as most study on fraud focuses on

problems and solutions inWestern countries.15Thirdly, in practical terms, the

firstpartofthethesisaimstoprovideaunifyingframeworkofthecurrentThai-

anti brokerage fraud regime in the area of low-level frauds, which comprises

administrative,criminal,andcivilproceedingsunderthejurisdictionofmultiple

government agencies. Lastly, the conclusion and recommendations made in

response to this research, if developed further, could be implemented by

relevant government agencies to enhance the current anti-brokerage fraud

regime.Suchapossibility isnotedby theOfficeof theSecuritiesandExchange

Commission (the SEC Office), which has expressed an interest in this project

fromtheoutset,andhaskindlyfacilitatedtheattainmentofrelevantdocuments

and assisted by providing appointments with its officers during the empirical

researchfieldworkstage.15SeedetailsinChapter4.

7

In terms of the expected originality of the research, based on the researcher’s

thorough investigation, Cressey’s Fraud Triangle has not previously been

employedtoexaminebrokeragefraudascommittedbyretailsecuritiesbrokers.

The theory is most often employed to study phenomena of executive fraud,16

accountant fraud,17and occupational frauds.18Secondly, to date, there is not a

single piece of research focusing on the commission of low-level frauds and

regulatorycontraventionsintheThaisecuritiesmarket.Allresearchpreviously

conductedfocusedonhigh-level frauds,19whichare insidertradingandmarket

manipulation, thus leaving a large gap in the research area.20 Finally, the

researcher’sapproachof interviewingThaisecuritiesbrokersontheirviewsof

the current regulations and their work pressure can be considered to be

groundbreaking.LittleiscurrentlyknownabouttheseissuesinThailand.

IVProposedMethodology

The proposed research methodology to be used in this study comprises two

parts,documentaryarchivalresearchandempiricalresearch.Thedocumentary

researchisconductedtogaininsightintothecurrentThaianti-brokeragefraud

16FreddieChooandKimTan,'An‘AmericanDream’theoryofcorporateexecutiveFraud'(PaperpresentedattheAccountingForum,2007);JeffreyCohenetal,'Theroleofmanagers’behaviorincorporatefraud'(PaperpresentedattheAvailableatssrn.com/abstract,2008).17JamesJDoneganandMicheleWGanon,'Strain,differentialassociation,andcoercion:Insightsfrom the criminology literature on causes of accountant'smisconduct' (2008) 8(1)Accountingand the Public Interest 1; Steven Dellaportas, 'Conversations with inmate accountants:Motivation,opportunityandthefraudtriangle'(PaperpresentedattheAccountingforum,2013).18KristyHoltfreter,'Isoccupationalfraud‘typical’white-collarcrime?Acomparisonofindividualand organizational characteristics' (2005) 33(4) JournalofCriminal Justice 353; Association ofCertified Fraud Examiner (ACFE),Report to theNations onOccupational FraudandAbuse (TX:ACFE,2010).19Theterm‘high-levelfraud’commonlyreferstofraudscommittedbyexecutivesandhigh-levelemployees inorganisations.Notable characteristicsofhigh-level fraud, in contrast to low-levelfraud,arethepowerofthefraudsterstooverridethecontrolsystem,thecomplexityofthefraud,and the extent of concealment. Examples of high-level frauds are financial statement fraud,fictitious expense reimbursement, and money laundering: Albrecht et al, above n 12. In thecontextofsecuritiesandbrokeragefraud,thetermoftenreferstofraudsandrelatedviolationscommitted by management of public companies andmanagement of securities companies, aswell as securities brokers who collude with them, in relation to investment activities andsecurities trading. Examples of common high-level securities fraud are Ponzi schemes, insidertrading,andmarketmanipulation:Straney,aboven6.20Yunyong and Ananchotikul, above N 8; Charin Tanchatchawan,TheCivil Liability for InsiderTrading(MasterofLaws)Thesis,RamkhamhaengUniversity,2004).

8

regime and to gather all statutory provisions and regulations relating to

brokerage fraudcommittedbysecuritiesbrokers.Relevantdocuments include:

legal codes, statutes, regulations, guidelines, letters, cases, and statistics. It

should be noted that several limitations on the use of documents were

encounters in the course of this research. Firstly, under the current Thai legal

and enforcement culture, few statistics and guidelines are formally issued by

Thai government agencies, and when available are usually classified. Notable

absences are statistics of reported cases of fraud under the Economic Crime

InvestigationDivision (ECID)of theRoyalThaiPolice,whicharenot available,

and the interpretationandenforcementguidelinesof theSECOffice,whichare

forinternaluseonly,thuscannotbeincludedinthisstudy.Secondly,intheThai

legalsystem,judgmentsoftheCourtsofFirstInstanceandtheAppealCourtsare

considered private, only the parties to the cases can request a copy of the

judgment.21OnlysummaryverdictsoftheSupremeCourtofJusticearepublicly

available.At the timeof this research, no case concerning the focusbrokerage

offenceshadreachedtheSupremeCourt.Asaresult, thedocumentaryanalysis

mainly focusedonadministrative cases and relevant statisticsprovidedby the

SECOffice.

Thesecondpartofthisthesisisaqualitativeempiricalprogrammeconsistingof

three phases: interviews of eighteen Thai securities brokers (Phase One),

interviewsofsixofficersoftheSECOffice(PhaseTwo),andinterviewsofthree

representatives from the Thai Investors Association (Phase Three). The semi-

structuredinterviewswereconductedusingpredeterminedopen-endquestions

with probing questions to explore the participants’ perception of causes,

opportunities,andrationalisationinthecommissionofbrokeragefraudaswell

astheirviewsof thecurrentanti-brokeragefraudregime.The interviewswere

conducted in Thai, from October 2013 to August 2014, and the interview

transcripts were translated into English. The researcher then used the NVivo

qualitativeresearchsoftwaretoconductthematicanalysistoidentifyandrecord

patterns across data sets. Findings from the empirical programme were then

21CivilProcedureCodeS54.

9

reported in details in Chapter 5 and recommendations based on such findings

werepresentedinChapter6ofthethesis.

Four constraints encountered during the interview were of note. The first

limitationwasthetimeconstraintonthepartsof theparticipants.Without the

time limitation, the lengthof the conversation couldbe longer, thus increasing

depth, and strengthening validity and reliability of the study. Secondly, the

interviews in the first phase (November to December 2013) and the second

phases(January2014)wereconductedinthemiddleoftheThaipoliticalcrisis,

which greatly affected the interview settings and the dynamic of the

conversations.Thirdly,astheliberalisationoftheThaibrokerageindustrytook

effectinJanuary2012,changesinthebrokerageindustrywerestilltakingshape

atthetimeoftheinterviewsanditwaslaterconcludedthatitwasprematureto

testtheeffectofsuchchangesontheoccurrenceofbrokeragefraudandrelating

violations.Thefinal limitationwasthatsincemostparticipantswerenot fluent

in English, the interviews had to be strictly conducted in Thai. Such limitation

results in the lengthy translations of the interview transcripts under the

researcher’s and the translatingassistant’sbest attempt to retain the toneand

themeaningoftheconversations.

VThesisStructure

This thesis comprises six chapters. In this chapter, the background of the

research,theissueoflow-levelbrokeragefraudintheThaisecuritiesmarket,is

firstandforemost introduced, followingbyresearchquestionsandhypotheses.

Thenextsectionisadiscussiononthecontributionofthisstudytotheliterature

and the originality of the research. The chapter concludes with a brief

examinationofthemethodologicalpropositionofthestudy.

Chapter 2 provides the introduction to the Thai legal and judicial system. The

firstpartofthechapterdiscussesimportantprinciplesoftheThaicriminallaw,

thecivillaw,andtheadministrativelawinrelationtotheimpositionofsanctions

10

uponoffendingindividualsandbusinessorganisation.Theemphasisisgivento

notablefeaturesoftheThailegalsystemsuchastheavailableformsofsanctions

and remuneration, the ability of the victims topresent criminal charges to the

courts on their own, and the principles of compoundable offences and non-

compoundableoffences.Thestructureof theThai judicial institutions isbriefly

reviewedinthenextsubsection.Thesecondpartofthisintroductorychapterisa

revision of the Thai securities markets and the securities brokerage industry.

Thefirstsubsectionexploreddifferentsecuritiesmarkets inThailandandtheir

regulatoryagencies.TheemphasisisontherolesandthepowersoftheSECand

the SEC Office in regulating the conduct of securities brokers and securities

companies. The next subsection covers organisational structures of securities

companiesandimportantregulationstheyhavetostrictlyfollowtoprotecttheir

clients. The last subsection then discusses employment and career of Thai

securitiesbrokersindetails.

Chapter3of this thesis, adetailed revisionon the currentThai anti-brokerage

fraud system, consisting of four parts. The chapter starts with analyses of

governing laws together with available forms of sanction. All key brokerage

offencesandregulatoryviolationsthenclassifiedintotwocategories,whichare

offences committed against clients and/or employing companies, and offences

againstsecuritiesmarketand/orgeneralpublic.Thesecondpartisanoverview

ondifferentgoverningbodiesand their regulatory roles in thecurrent regime.

The third part continues by discussing enforcement activities and legal

proceedings administered by the regulatory agencies. The fourth and the last

part of this chapter then introduces the four focus brokerage offences of this

study,whichare:(1)theoffenceoffailingtoproperlyrecordtradingorders,(2)

the offence ofmaking trading decisions on behalf of clients, (3) the offence of

usingaclient'saccountforthebroker'sbenefit,and(4)theoffencesofdeception

andmisappropriation. Themanners ofwhich each offence are committed and

therulesgoverningthemarepresentedalongwithexamplecases.

11

Chapter4 is a literature reviewofRonaldD. Cressey’ FraudTriangleTheory22

whichthemaintheoreticalbackgroundofthisstudy.Thechapterbeginswiththe

Differential Association Theory of crime and its early influence on the

developmenttheFraudTriangle.ThecomponentsoftheoriginalFraudTriangle,

pressure,opportunity,andrationalisation,arethendiscussedindetails,following

by revised and extended models proposed by subsequent studies. The

researcher then incorporates core features of the two extended models, the

predatory fraudster23 and the societal-level factors,24 into Cressey’s original

FraudTriangletoformarevisedmodeltoexploreandidentifyfactorsleadingto

the commission of brokerage fraud and regulatory violations by securities

brokers in the context of Thai securitiesmarkets. Themodel is employed as a

guidelineandananalyticaltoolintheempiricalpartofthestudyreportedinthe

nextchapter.

Chapter5 covers the empiricalpart of this study.The chapter isbrokendown

into two sections. The first section is an examination of the research

methodology employed in this study, which is a semi-structured interview of

eighteen Thai securities brokers, six officers of the SEC Office, and three

representativesfromtheThaiInvestorassociation.Theresearchdesignandthe

researcher’s experience during the fieldwork periods are explained in details.

Thesecondsectionofthechapterisareportonfindingsfromtheinterview.The

section startswithdata analysis techniques employed then continueswith the

findings from the brokers’ interviews, the regulators’ interviews, and the

investors’ interviews, respectively. The chapter ends with the summaries of

findings,wherethefindingsfromthethreeinterviewphasesarecomparedand

discussedindetails.

Chapter6,which is the concluding chapterof this thesis, setsoutproposals to

enhance deterrence of the Thai anti-brokerage fraud regime, based on the

22Cressey,aboven11.23Jack W Dorminey et al, 'The evolution of fraud theory' (2012) 27(2) Issues in AccountingEducation555.24JoshuaKCieslewicz,'Thefraudmodelininternationalcontexts:Acalltoincludesocietal-levelinfluencesinthemodel'(2012)4(1)JournalofForensicandInvestigativeAccounting214.

12

findings discussed in the previous chapter. The chapter starts with an

examination of eight hypotheses formulated at the outset of the research. The

researcher then provides a combination of strategies that the SEC Office and

securities companies may implement to reduce pressure, to remove

opportunities, and to limit rationalisations that induce the brokers to commit

brokerage fraud and relating violations. The strategies, proposed under the

responsiveregulationapproach,25includeinformationandeducationinitiatives,

arevisionofcurrentregulations,areformationoftheenforcementstructure,and

an enhancement of the regulatory agency’s legitimacy. The conclusion of the

thesisisthenprovidedinthelastsectionofthisfinalchapter.

The thesis also contains five appendices, inorder toprovideaneasymeansof

reference and checking to the reader. The first contains relevant statutory

provisionsinrelationtobrokerageoffencesfocusedinthisstudy.Thesecondisa

translated version of the SEC Office Notification No. KorLorTor.Khor.Wor

12/2011,which is themainpieceof regulationprescribingunlawfulbrokerage

conduct and accompanies administrative sanctions. The third is a list of

interviews questions and the purpose of each question. The fourth is an

informationsheetgiventotheparticipantsatthestartoftheinterviewsessions.

Thefiveandlastappendixisanoralconsentrequeststatement.

25Ian Ayres and John Braithwaite,Responsive regulation:Transcending thederegulationdebate(OxfordUniversityPress,1992).

13

Chapter2

TheThaiLegalSystemandtheThaiSecuritiesMarkets

ITheThaiLegalandJudicialSystems

ATheThaiLegalSystem

Thailand,formallyknownasSiam,hasarichlegalhistorythatdatesbacktothe

Sukhothai period (1238–1350). The ancient Thai legal system continued until

1897when the countrymodernised its legal systemby incorporatingWestern

legal concepts and procedures into its existing system. The modernisation

startedwhenKingRamaV senthis son,PrinceRabiofRajburi to study lawat

Oxford University in England.When he graduated andwent back to Thailand,

KingRamaVappointedhimastheMinisterofJustice,havingimportantdutiesto

carryoutinjudicialreformandtosetupthecountry’sfirstlawschoolunderthe

Ministry of Justice.26In his capacity as the head of this first law school, Prince

Rabitaughtthen-contemporarymodernisedThai lawaswellasthe lawhehad

learnedinEnglandtotheyoungmembersofthecourt.SincePriceRabiandthe

earlyjudgesstudiedtheEnglishlegalsystem,theyemployedthecommonlawin

trials they presided over and a number of common law principles were

introducedintotheThai legalsystem.Despitethisearlycommonlawinfluence

onThailaw,in1908KingRamaV,afterconsultingwithforeignadvisors,decided

thattheKingdomshouldinsteademploythecivillawsystembecauseitwouldbe

moreefficientaswellastakinglesstimeforthereformcommissiontodraftthe

codesoflawratherthanwaitingfortheruleoflawtobedevelopedthroughcase

law.27Asa resultof the lasting influenceof theearly judgesand legal scholars,

notwithstandingThailandcurrentlyemployingthecivillawsystembasedonthe

four main codes28, certain notable features of the common law system are

evident,suchastheadversarialcourtsystem,theconceptofmensreaandactus

26SansernKraichitti,'LegalSysteminThailand,The'(1967)7WashburnLJ239.27Ibid.28PenalCode,CivilandCommercialCode,CriminalProcedureCode,andCivilProcedureCode.

14

reusin thecriminal law,anda formofdoctrineofprecedentwhere theearlier

SupremeCourt’sdecisionsarereferredtointhecourtverdicts.29

1TheThaiCriminalLaw

Asmentionedabove,Thailandemploysacivillawcodesystem,meaningthatthe

Thai criminal law can be found in the form of rules and provisions in various

codesandstatutes.Twomainsourcesofsuchprovisionsare:(i)thePenalCode,

which has 398 sections prescribing general principles and various criminal

offences,and(ii)Actscontainingprovisionsthat imposecriminal liabilityupon

offenders.

Theprincipal provisionofThai criminal law is section59of thePenalCode. It

setsoutcoreprinciplesofcriminalresponsibilitythattobecriminallyliablefor

anoffenceunderThailaw,apersonmustcommittheprohibitedactoromitfrom

committing certainactswhereheor shehasaduty toact (actusreus)withan

intentiontocommitthewrongfulact(mensrea).Thereareonlyafewparticular

offenceswhere aperson is liable for anoffenceheor she commitswithout an

intentionbutbynegligence30orwherethelawimposesabsoluteliability.31Thai

lawalso imposesvicariouscriminally liability inspecificcircumstancessuchas

whereachild(apersonundereighteenyearsofage)commitsawrongfulact,the

parentsmayalsobecriminallyliable.32

Whenapersonisfoundguiltyofacriminaloffence,heorsheshallbeliabletoa

form or forms of punishments prescribed in Section 18 of the Penal Code; no

other criminal punishment shall be imposed upon an offender. The available

formsofpunishmentare:

(1) Deathpenalty(bylethalinjection);33

(2) Imprisonment;29TaninKraivixien,'ThaiLegalHistory'(1963)49WomenLaw.J.6.30PenalCodes291.31VariousoffencesundertheScaleandMeasurementActB.E.2542(1999).32ChildProtectionActB.E.2546(2003)s26(3).33PenalCodes19.

15

(3) Confinement;

(4) Fine;and

(5) ForfeitureofProperty.34

FineandimprisonmentarethemainformsofsanctionswithinThaicriminallaw

while the death penalty is reserved for few very serious offences, including

premeditatedmurder35and arson.36Confinement is a substitutive sanction for

imprisonment that courtsmay imposeuponoffenderswhoseprison termsare

lessthanthreemonths37andsuchpersonsshallbeheldinadeterminedplaceof

confinement that is not a prisonor a police station.38Confinement can also be

imposedasasubstitutivesanctionupontheoffenderswhofailtopayafine39and

therateforsuchconfinementinlieuoffineisdeemedattwohundredbahtper

day.40Last, in forfeiture of property cases, courts may forfeit (i) the property

used in the commission of an offence, (ii) the property acquired through a

commission of an offence, and (iii) other property prescribed by specific

provisions.41

Apart from the general principles above, there are certain features of Thai

criminallawthatshouldbeexploredindetailforthepurposeofthisthesis:

(a)StandardsofProof

ThefirstfeatureoftheThaiCriminalLawtobeexploredisthestandardofproof

incriminaloffences.Accordingtosections174and227oftheCriminalProcedure

Code,thelawemploysapresumptionofinnocencewhichmeansthatanaccused

isinnocentuntilprovenguiltybeyondareasonabledoubt.42Theprosecutorhas

34Ibids18.35Ibids289(4).36Ibids218.37Ibids23.38Ibids24.39Ibids29.40Ibids30;200bahtisapproximatelyequaltosevenAUD.41Ibids33.42In Thai criminal procedure law, there is no apparent test for what constitute the beyondreasonabledoubtstandardofproof.Judgesemploytheprecedencesetbypreviouscasestogetherwiththeirexperiencetodeterminetheweightofevidencepresentedtothem.

16

a burden to prove that the accused has committed the crime (actus reus) and

with an intention to committed the crime (mens rea).43If an element of an

offence cannot be clearly proved or there is a doubt, the accused shall be

acquitted.44

Incontrast,thestandardofproofincivilcasesisconsiderablylowertothelevel

of preponderance of evidence or on the balance of probabilities.45The plaintiff

onlyhas topresentevidence that ismoreconvincingormore likely tobe true

than the evidence of the defendant for the courts to award damages or civil

injunctions. In relation to the standard of proof in administrative proceedings,

the standard varies greatly between agencies having the responsibility to

regulate different industries under different statutes.Within the scope of this

research, the standard of proof employed by the Office of the Securities and

ExchangeCommission(SECOffice)initsadministrativeproceedingsissaidtobe

at thesame levelas incriminalproceedingsbytheCourtof Justice, i.e.beyond

reasonabledoubt.Theunderlying reasonbehind thishigh standardofproof is

that section 44 of the Administrative Procedure Act B.E. 2539 (1996) together

with the Securities and Exchange Commission's Rule of Practice on Filing,

Consideration,andAdjudicationofAppealontheAdministrativeOrderoftheOffice

of the Securities and Exchange Commission B.E. 2542(1999) both enable the

accusedtofileanappealagainsttheoffice’sadministrativeordertotheBoardof

SecuritiesandExchangeCommissionandtheAdministrativeCourt,respectively.

It is therefore necessary for the SEC Office to employ the highest standard of

prooftoavoidordersbeingoverturnedatappealandlegalofficersbeingsuedfor

wrongfulexecutionofdutyundersection157ofthePenalCode.46

43There is an exception where the law imposes absolute liability in certain offences. In suchcases, theprosecutoronlyhas toprove that theaccusedhascommitted thecrime(actusreus).See,PenalCodes59.44CriminalProcedureCodes227.45CivilProcedureCode s 104; In addition, in cases involving corruption of politicians and highrank government officers, the National Anti-Corruption Commission may, by itself, presentcriminalchargestothecourtsunderconditionssetoutinOrganicActonCounterCorruptionB.E.2542(1999)s80.46InterviewwithSumethVichienchai,SeniorOfficerofTheOfficeofTheSecuritiesandExchangeCommission(Bangkok,31January2014).

17

(b)WhoCanInstituteaCriminalCase

Unlikemanyjurisdictionswhereonlyapublicprosecutorcaninstitutecriminal

proceedings, the Thai Criminal Law system allows both the public prosecutor

andthevictimtopresentcriminalchargestothecourts.47Intheformercase,the

process usually beginswhen the victim files the complaint to the relevant law

enforcement agencies - the Thai Police Force and other agencies in certain

statutoryoffences -whowill conductan investigationandpresent information

aboutthecaseandtheaccusedtothepublicprosecutor.Itshouldbenotedthat

inthecaseofnon-compoundableoffences,48theagencieshavepowertoinitiate

the criminal casewithout a victim’s complaint.49Thepublic prosecutor via the

OfficeoftheAttorneyGeneral(OAG)maypreferthechargebeforethecriminal

courts.Theymaymakeanorderfornon-prosecutionorinstructtheenforcement

agenciestoconduct further investigation if theprosecutordeemsthatthefacts

or theevidencearenotclearoradequate.Basedontheevidencegathered, the

judgewouldeitheracceptthecasefortrialordismissthecharge.50

Incontrast,thevictimmaydirectlypresentthecasetothecourtsbyemploying

criminallawyerstogatherevidenceandprosecutecriminalchargesagainstthe

personallegedtocauseaninjuryorfinancialharm.Thereasonsforproceeding

via private prosecution by the victim are usually lack of cooperation by

enforcementagenciesoranorderofnon-prosecutionbythepublicprosecutor.It

is interesting tonote that under theThai Criminal Law, such anorder of non-

prosecution does not prejudice the victim’s right to institute a prosecution by

himself/herself.51

47CriminalProcedureCodes28.48Seetheexplanationofthetermbelow.49SeedetailsinChapter3.50CriminalProcedureCodes167.51Ibids34.

18

(c)CompoundableOffencesandNon-compoundableOffences

The thirdnotable featureof theThaiCriminalLaw to clarify is themeaningof

and the distinction between compoundable offences and non-compoundable

offences.All criminaloffences,whetherstipulated in thePenalCode or inother

statutes, are classified as one or other of those two types of offence. In the

current system, the majority of offences are non-compoundable, only small

numbers are compoundable. Compoundable offences are offences that are

deemedtobecommittedagainstortothedetrimentofthevictimpersonallyand

not against the state or the public order. The fundamental rule is that the

offences would be compoundable only when the law clearly stipulates in the

relevantprovisions that suchoffences are compoundable.Notable examplesof

compoundable offences are ones relating to disclosure of confidential

information52, offences of deception53, offences of misappropriation54, and all

offencesrelatingtocopyright.55

Whentheoffenceisclassifiedasacompoundableoffence,therearethreemain

legal consequences distinguishing it from non-compoundable offences. First, a

relevant government agency, such as theThai Police Force, cannot initiate the

casebyitself,evenwhenthe evidenceispresented.Onlywhenthevictimfilesa

complaint may the agency start proceedings. Second andmost important, the

current Thai criminal law has employed a limitation period in all criminal

offences,thuslimitingthetimethatthevictimand/orthecompetentagencymay

initiate theproceedingsafter theoffenceoccurred.Thestipulatedperiodsvary

fromoneyeartotwentyyearsdependingonthemagnitudeofthepunishmentin

particular offences, the higher the magnitude the longer the period is. 56

However, in the casesof compoundableoffences, the law further requires that

thevictimmustfilehisorhercasetotheauthoritywithinthreemonthsafterhe

or she discovers that thewrongdoing has occurred and is able to identify the

52PenalCodess322-324.53Ibids341.54Ibidss352-355.55CopyrightAct,B.E.2537(1994)s66.56PenalCodes95.

19

suspect.57If the victim does not file the report within the three months, the

limitation period is terminated. Last, at any time after the change has been

initiated, victims may decide to end the proceedings by withdrawing the

complaintorbyreachingacompromisewithdefendants.

In contrast, non-compoundable offences are offences deemed to be committed

against both the victim and public order. When an offence is said to be non-

compoundable, the relevant authority has the right to initiate proceedings by

themselves; and once the inquiry officer has started the investigation, victims

havenopowertowithdrawthecaseorreachsettlementwiththedefendant.In

addition,fornon-compoundableoffences,victimsarenotrequiredbythelawto

filethecomplaintwithinthreemonthsafterthewrongdoingisdiscovered.The

victimand/orthepublicprosecutormayinstigatethecasetothecourtsatany

timewithintheperiodofprescription.58

For the purpose of this research,most criminal offences relating to brokerage

practice are non-compoundable. The only relevant compoundable offences are

certainoffencesrelatingtofraudandmisappropriationofassetsstipulatedinthe

PenalCode.59

57Ibids96.58CriminalProcedureCodes28.59PenalCodess341,352-354.

20

Table1:DifferencesbetweenCompoundableOffencesandNon-compoundableOffences

Features CompoundableOffences Non-CompoundableOffences

Theoffencesaredeemedtobe

committedagainst

Victimsonly Bothvictimsandthepublic

order

Therelevantgovernment

agencies’powertoinitiate

criminalcases

Onlywhenvictimshavefiled

complaints

Theagenciesmayinitiate

casesbythemselvesatany

time

Limitationperiod Stipulatedperiodofeach

offenceplusarequirement

thatareportmustbefiled

withinthreemonthsafter

theoffencehavebeen

discovered

Onlystipulatedperiodofeach

offenceapplied

Thevictim’srighttoendthe

criminalproceedings

Thevictimmaywithdraw

thecaseorreachsettlement

withthedefendantatany

time.

Oncetheinvestigationhas

started,victimshavenopower

towithdrawthecaseorreach

settlementwithdefendants

(d)CorporateCriminalLiabilities

InThailand, bothnatural and legal persons - such as limitedpartnerships and

limitedcompanies-canbethesubjectsofcriminaloffences.60Underthecurrent

law, once a company is incorporated, it has a separate legal entity from

shareholders and the will of such legal entities is declared through its

representatives,whoareoftendirectorsandmanagers.61Regardingthecriminal

liabilityofalegalperson,theSupremeCourthasruledthatalegalpersoncanbe

thesubjectofcertaincriminaloffencesandcanbecriminallysanctionedaswell

ascivillyliableforcompensationforanydamagedonebyitsrepresentatives.62

60BhornthipSudti-autasilp, 'CorporateCrimeandtheCriminalLiabilityofCorporateEntities inThailand (FromUNAFEI ResourceMaterial SeriesNo. 76, P 94-114, 2008, Grace Lord, ed. SeeNCJ-229030)'(2008).61CivilandCommercialCodes70para2.62Ibids425.Seealso,Sudti-autasilp,aboven60.

21

Under the current Thai criminal law system, criminal offences that can be

appliedtoacorporationarelegislatedinthreedifferentcategories:

(i)Statutoryprovisionsthatimposecriminalliabilityonalegalperson

Anumberofstatutoryprovisionshaveprescribedcriminaloffencesthatdirectly

apply to a legalperson. Suchprovisions clearly state that a legalperson is the

subjectoftheprescribedoffencesandcanbecriminallychargedindependently

fromitsmanagerialofficers.Examplesofthistypeofprovisionaresection41of

the Commercial Banking Act B.E. 2505 (1962)63, section 61 of the Anti-Money

Laundering Act B.E. 2542 (1999)64 , and section 273 of the Securities and

ExchangeActB.E.2535(1992).65

(ii)Statutoryprovisionsthatimposecriminalliabilityonpersonsofcertainstatus

Thesecondcategoryiswherethelegislationstatesthatapersonofcertainstatus

orpositionisthesubjectofacriminaloffence.Inthecasewherealegalperson

canholdsuchlegalstatusorposition,theoffencewillalsobedirectlyappliedto

suchlegalperson.Oneexampleissection54oftheFactoryActB.E.2535(1992)

whichimposescriminalliabilityon‘anypersonwhohasbeengrantedalicence

to operate a factory’.66Such ‘any person who has been granted a licence to

operateafactory’respectivelycanbeeitheranaturalpersonoralegalperson.

63CommercialBankingActB.E.2505(1962)s41:Anycommercialbankwhichfailstoexamineitsregisterof shareholdersor tonotify its shareholders inviolationof theprovisionsofSection5septemormakesafalsestatementorconcealsfactswhichmustberevealedintheconfidentialstatementsorexplanatorynotessubmittedinaccordancewithsection23shallbeliabletoafinenotexceeding100000baht.64Anti-Money Laundering Act B.E. 2542 (1999) s 61: Any legal person who commits offencesundersection5,section7,section8orsection9shallbeliabletoafineof200000bahttoonemillionbaht.65SecuritiesandExchangeActB.E.2535(1992)s273:Anycompanywhichcontravenesorfailstocomplywith section50, section53, section191, section192or section193or contravenes orfailstocomplywiththerulesorproceduresissuedinaccordancewithsection50orsection191shallbeliabletoafinenotexceeding100000bahtandafurtherfinenotexceeding3000bahtforeverydayduringwhichthecontraventioncontinues.66FactoryActB.E.2535 (1992) s 54: any personwho has been granted a licence to operate afactorywhofailstocomplywithsection34paragraphoneshallbeliabletoafinenotexceeding20000baht.

22

(iii)Statutoryprovisionsspecifyingthesubjectofoffencesusingthetermsanyone

orwhoever

Unlikeprovisionsinthetwocategoriesabovewherethelawclearlyspecifiesthe

subjectoftheoffences,amajorityofstatutes,aswellasthePenalCode,usethe

termanybodyorwhoeverasthesubject.Suchtermsgiverisetothecomplicated

question whether a legal person is included as the subject of such criminal

offences. In 1963,TheSupremeCourtDecisionNo. 787-788/2506 laid down an

important precedent that the terms include both a natural person and a legal

person,but inorder for a legalperson tobe criminally liable, three conditions

must be met. First, the representatives of a legal person must act within the

scopeofhisauthority.Second,suchanactisinaccordancewiththeobjectivesof

the legal person. Third, the legal person directly benefits from the act in

question. Therefore, amajority of offences - especially those affecting life and

body such asmanslaughter, assault, and rape - do not apply to a legal person

since the acts arenot in accordancewith the legal person’s objectives and are

outsidethescopeof therepresentativeauthority.Furtherexamplesofoffences

inthiscategorythatthecourtshaveruledcanbeappliedtoalegalpersonarean

offencerelatingtoanimitationofatrademark67,anoffencerelatingtoforgery68,

anoffencerelatingtofraud69,andanoffencerelatingtothemisuseofcheques.70

Althoughalegalentitycanbefoundguiltyofcriminaloffencesasstatedabove,

theapplicablepunishmentsundertheThaicriminal lawarelimited.Section18

of thePenalCode prescribed that the allowable forms of criminal sanction are

death, imprisonment,confinement, fine,andforfeitureofproperty.71Duetothe

natureof thesepunishments, fines and forfeitureofproperty are theonly two

applicableformsofcorporatecriminalsanction.Suchlimitationcombiningwith

a generally low maximum fine amount prescribed by the law, especially by

provisions in the Penal Code, compared to the monetary benefit that a legal

67TheSupremeCourtDecisionNo.787-788/2506(1963).68TheSupremeCourtDecisionNo.1669/2506(1963).69TheSupremeCourtDecisionNo.97/2518(1975).70TheSupremeCourtDecisionNo.59/2507(1964).71PenalCodes18.

23

personmay obtain from a certain economic crime, have led to the important

questionwhetheritisefficientandappropriateforThailawtorelyontheuseof

corporate criminal liability as a tool to prevent corporations from committing

offences72andwhethermorecreativeformsofcorporatesanctionwouldprovide

greaterdeterrencethanunderthecurrentsystem.73

(e)PunishmentMitigationandProbation

In the current Thai criminal law system, all provisions that impose criminal

sanctions upon offenders prescribe first the available forms of sanction, and

secondtheminimumandmaximummagnitudeofsanctionsthatcanbeimposed.

For example, in the offence of misappropriation the prescribed sanctions are

imprisonment not exceeding three years or a fine not exceeding six thousand

baht,orboth.74Presidingjudgesmaybyusingtheirdiscretioneitherimposean

amount of fine, a length of imprisonment, or both sanctions within the

prescribedmagnitude.Suchsentencingdiscretion isusuallybasedonage,past

criminalrecord,education,occupation,behaviour,andhealthoftheoffenders,as

wellasseverityofthewrongdoing.

Aftertheappropriatesentenceisdecided,thejudgeswillthentakeintoaccount

mitigatingcircumstancesifany.Undersection78ofthePenalCode,ifthereisa

mitigating circumstance, the courtmay reduce the punishment up to one half.

Such mitigating circumstances include the offender being in serious distress,

having previous good conduct, being remorseful and trying to minimise the

harmfuleffectoftheoffence,voluntarysurrendertoanofficial,andgivinguseful

information to the court for the benefit of the trial.75The latter is the most

important since it includes where an offender pleads guilty to a charge. As a

result,mostoffenderswhopleadguiltyhavetheirpunishmentreducedbyhalf.

72Sudti-autasilp,aboven60.73Examplesofmorecreative formsof corporatesanctions found inAustraliaareapublicityofthe offence and the penalties imposed on television and in newspapers, a notification to theshareholders and stakeholders of the corporation, and an establishment of a project for thepublicbenefit.CrimesAct1900(ACT)s49E.74PenalCodes352.75Ibids78.

24

Theonlyexceptioniswherethereisampleevidencealreadyandtheconfession

isnolongerbeneficialtothetrial.Thecourtmay,initsdiscretion,notgrantsuch

areductionofpunishment.76

One other important feature of the Thai criminal law is the prevalent use of

probation orders. After the mitigating factors above have been considered,

whether or not the reduction is granted, if the court hands down an

imprisonment sentence of three years or less, the court may at its discretion

suspend the punishment and instead impose a probation order.77Factors that

courtstakeintoconsiderationarecloselysimilartothemitigatingfactorsabove,

ie.age,pastcriminalrecords,education,occupation,behaviour,andhealthofthe

offenders. The persons are then released with or without conditions. The

conditions that the court may impose are: (1) to periodically report to the

officers, (2) to be trained or to carry out an occupation, (3) to refrain from

association or from behaviour that may lead to the re-commission of the

offences,(4)toundergoarehabilitationprogrammeaimedatcuringphysicalor

mental health, or (5) any other conditions that may assist reform or

rehabilitation of the offenders.78Such a probation period shall not exceed five

yearsfromthedaythecourtrendersthejudgment.

2TheThaiCivilLaw

The Civil and Commercial Code together with the Civil Procedure Code are the

primarysourcesofcivillawinThailand.TheCivilandCommercialCodesetforth

general principles and specific rules affecting individuals andwell as business

entities. The code is divided into six books namely: general principles,

obligations,specificcontracts,property,family,andsuccession.Inrelationtothis

piece of research on brokerage frauds, the relevant sections of the Civil and

CommercialCodeareTitleIIContractandTitleIVWrongfulActs,respectively.

76TheSupremeCourtDecisionNo.100/2551(2008).77PenalCodes56.78Ibidss56(1)-56(5).

25

TitleIIContractlaysdowngeneralprinciplesonformation,effect,andrescission

ofcontractsbetweeninvestorsandsecuritiescompanies.However,mostofthese

provisions are only general guidelines provided by the law. The parties may

choosetoagreeotherwiseandsuchagreementsareineffectaslongastheyare

notexpresslyprohibitedbylaworcontrarytopublicorderorgoodmorals.79In

addition, since these contracts between the investors and the securities

companiesareregardedascontractsbetweenconsumersandbusinesses,aswell

as being a standard form contract, they fall within the scope of the Unfair

ContractTermActB.E.2540(1997).TheActstipulatesthatiftermsinacontract

render the business or professional operator an unreasonable advantage over

theotherparty,suchtermsaretoberegardedasunfairandonlyenforceableto

the extent that they are fair and reasonable according to the circumstances.80

Thispieceof lawprovidesjudgeswithgreatdiscretionindeterminingwhether

thetermsarefairornot,andtheextenttowhichtheyshouldbeenforced.

Title IV Wrongful Acts contains provisions on liabilities of individuals and

businesses that, willfully or negligently, causes injuries or damages to body,

health, liberty, property, or any right of another individuals or businesses.81

Duringthecourseofwork,securitiesbrokersmayviolatesecuritiesregulations

oractinbreachoftheirdutiescausingdamagestotheirclients.Clientshavethe

right to sue securities brokers under these wrongful acts for monetary

compensation. In addition, the law prescribes that employing securities

companiesare tobe jointly liablewithsecuritiesbrokers if suchwrongfulacts

arecommittedinthecourseoftheiremployment.82Itshouldbenotedthatthere

isnopunitivedamageconceptintheThaicivil law.TheCourtswillonlyaward

actualdamagestoinjuredplaintiffs,iftheircasesaresuccessful.

79CivilandCommercialCodes150.80UnfairContractTermActB.E.2540(1997)s4.81CivilandCommercialCodes420.82Ibids425.

26

3TheThaiAdministrativeLaw

In Thailand, the exercise of power of the government and its administrative

organsareunderreviewandcontrolbytheAdministrativeCourts.Suchexercise

ofpowercanbeintheformofeitheraby-lawissuedbyanadministrativeagency

orastateofficial,83anadministrativeorder issuedbyanadministrativeagency

or a state official,84or other acts performed by an administrative agency or a

stateofficial.85Inacasewherethecourtsfindsuchby-law,administrativeorder,

orotheracts issuedorperformedbyanadministrativeagencyor stateofficial

unlawful, the courts have a power to revoke suchby-lawor order, or restrain

suchactaswellastoorderthepaymentofmoneyordamagesinconnectionwith

suchwrongfulact.86

In relation to this piece of research, the Securities and Exchange Commission

(SEC),theOfficeoftheSecuritiesandExchangeCommission(SECOffice),andthe

StockExchangeofThailand(SET)areadministrativeagenciesunderthescopeof

theAct,aswellas theircommissionersandofficerswhicharedeemedasstate

officials.Theirby-lawandadministrativeordersare thereforeunder reviewof

theAdministrativeCourts.

83Definitions of ‘by-law’ under the Thai administrative law are a Royal Decree, MinisterialRegulation, Notification of a Ministry, ordinance of local administration, rule, and otherprovisionswhichareofgeneralapplicationandnotintendedtobeaddressedtoanyspecificcaseorperson.See,ActonEstablishmentofAdministrativeCourtsandAdministrativeCourtsProcedureB.E.2542(1999)s3.84Definitionsof ‘administrativeorder’undertheThaiadministrativelaware(1)theexerciseofpower under the law by an official to establish juristic relations between persons to create,modify, transfer, preserve, extinguish or affect the individual’s status of rights or duties,permanently or temporarily, such as giving an order or permission or approval, deciding anappeal, certifying and registering, but shall not include the issuanceof aby-law, and (2)otheracts as prescribed in the Ministerial Regulation. See, Administrative Procedure Act B.E. 2530(1987)s5.85One example of other administrative acts is an administrative real act. For example, a localofficial issued an administrative order to demolish a building that was illegally constructed.However,theownerofthebuildinghasnotcompliedwiththeorderandthattheofficialhastoenforce his or her order by proceeding to demolish such building by the local agency’semployees. See, Administrative Court of Thailand, 'National Report of Thailand: Review ofadministrativedecisionsofgovernmentbytheAdministrativeCourtofThailand'(2010),16.86Act on Establishment of Administrative Courts and Administrative Courts Procedure B.E. 2542(1999)s72.

27

BTheThaiJudicialSystem

ThecurrentThai JudicialSystemcomposesof four typesof court;namely,The

ConstitutionalCourt,TheCourtsof Justice,TheAdministrativeCourts,andThe

Military Courts. In the scope of this thesis, the more relevant courts are the

CourtsofJusticeandtheAdministrativeCourts,respectively.

1TheConstitutionalCourt

The Constitutional Court, established under the 1997 Constitution and later

restructured by the 2007 Constitution, has jurisdiction to determine whether

provisionsofanylaw,rule,orregulationarecontrarytoorinconsistentwiththe

Constitution.87JudgmentsoftheConstitutionalCourthaveabindingeffectupon

allgovernmentagenciesandarenotsubjecttoappealbyanyothercourt.88The

courtcomprisesninejudgeswhoareappointedbytheKingonadvicefromthe

Senate,andserveonenine-yearterm.89

2TheCourtsofJustice

Before 1997, the Courts of Justice was the single main judicial institution of

Thailand. The courts hadbroadpowers to adjudicate all cases expect few that

wereinthejurisdictionoftheMilitaryCourts.TheConstitutionoftheKingdomof

Thailand B.E. 2540 (1997) then established the Constitutional Court and the

Administrative Courts, transferring the jurisdiction of the Courts of Justice in

particularareastothetwonewlyestablishedinstitutions.Atpresent,theCourts

of Justice, therefore,haveadjudicativepoweroverall cases that arenotunder

the jurisdiction of the Constitutional Court, theAdministrative Courts, and the

MilitaryCourts.

Due to the influence of the common law tradition in the early stage of the

modernisation of judicial institutions, the Courts of Justice employ adversarial87ConstitutionoftheKingdomofThailand,B.E.2550(2007)s154.88Ibids27.89Ibids204.

28

procedurewherevictimsanddefendantspresenttheirevidencetotheimpartial

judgeswho ensure the fair play of dueprocess in the proceedings.90However,

the Thai judicial systemdoes not employ juries in trials. The presiding judges

have power to both determine the verdict and to set the penalty and/or

damages.91It should be noted that judges in the Courts of Justice are career

judgeswhomusthaveadegree in law,passtheexaminationof theInstituteof

theThaiBarAssociation,andpasstherigorousjudicialexams.Aqualifiedperson

canapplyforjudgeexamsattheageoftwenty-fiveand,afterbeingappointedas

ajudge,heorsheremainsintheofficeuntiltheageofseventy.

UndertheActofCourtsofJusticeAdministrationB.E.2543 (2000), theCourtsof

Justicecomprisethreelevels:theCourtsofFirstInstance,theCourtsofAppeal,

and the Supreme Court. The Courts of First Instance are trial courts where

victims and state prosecutors instigate their cases. There are three types of

Courts of First Instance: general courts, juvenile and family courts, and

specialised courts.General courts have jurisdiction over civil and criminal

disputes,andaredivided intoCivilCourts,CriminalCourts,ProvincialCourts92

and Kwaeng Courts.93Juvenile and family courts adjudicate cases involving

minors, consisting of the Central Juvenile and Family Court, the Provincial

JuvenileandFamilyCourts,andtheDivisionofJuvenileandFamilyCourtinthe

ProvincialCourts.SpecialisedcourtsconsistoftheLabourCourts,theTaxCourts,

the Intellectual Property and International Trade Courts, and the Bankruptcy

Courts.94Except in the case of the Kwaeng Court where a single judge can

presideover the trial sessionand incertainspecialisedcourtswhereassociate

judges are employed, at least two judges formaquorum in theCourtsof First

Instance.

90BorwornsakUwannoandSurakiartSathirathai,IntroductiontotheThaiLegalSystem(FacultyofLaw,ChulalongkornUniversity,1986).91Ibid.92ProvincialCourtshavejurisdictionoverbothcivilandcriminaldisputes.93Kweang Courts are roughly equivalent to small claims courts. They have jurisdiction overcriminal offences having maximum punishment of three years imprisonment, and a fine notexceeding6000baht,orboth,andcivilcaseswheretheamountofclaimsdonotexceed300000baht.94Thesespecialisedcourtsarepresidedbyjudgeshavingcompetentknowledgeandtrainingintheirrespectivematters.

29

TheCourtsofAppealconsistoftheCourtofAppealandnineregionalCourtsof

Appeal. They have jurisdiction to hear and adjudicate appeals from judgment

andordersoftheCriminalCourts,theCivilCourts,theProvincialCourts,aswell

astheJuvenileandFamilyCourts.TheCourtsofAppeal,underprovisionsofthe

CriminalProcedureCodeandtheCivilProcedureCode,canhearappealsonboth

questionsof lawandfact.At least three judges formaquorumintheCourtsof

Appeal.

The Supreme Court of Justice is the highest court of justice in Thailand. Its

judgmentandorderare final.95ThePresidentof theSupremeCourt is also the

head of the Courts of Justice. The Supreme Court of Justice has jurisdiction to

hearandadjudicateappealsfromtheCourtsofAppealandfromthespecialised

courtsof theCourtsofFirst Instance.TheSupremeCourt,underprovisionsof

theCriminalProcedureCode and theCivilProcedureCode, can hear appeals on

questionsoflawand,incertaincases,onquestionsoffact.96Atleastthreejudges

formaquorumintheSupremeCourt,butincomplicatedorimportantcases,the

President of the SupremeCourtmay call for a plenary sessionwith a quorum

consistingofallactiveSupremeCourtjudges.

95ActPromulgatingtheLawfortheOrganizationoftheCourtsofJusticeB.E.2543(2000)s23.96Ibids27.

30

Figure1:TheStructureofTheCourtsofJusticeandAvenuesofAppeal

3TheAdministrativeCourts

The Administrative Courts were established under the Constitution of the

KingdomofThailandB.E.2540(1997)andwereinauguratedin2001.Underthe

Act on the Establishment of and Procedure for Administrative Courts B.E. 2542

(1999),theAdministrativeCourtshavetwolevels:theAdministrativeCourtsof

FirstInstanceandtheSupremeAdministrativeCourt.

TheActontheEstablishmentofandProcedureforAdministrativeCourtsB.E.2542

(1999)mandatesthegradualestablishmentofoneCentralAdministrativeCourt

TheSupremeCourtofJustice

TheAppealCourts

TheGeneralCourtsofFirstInstance

TheJuvenileandFamilyCourts

TheSpecialisedCourtsofFirstInstance

TheCivilCourts

TheCriminalCourts

TheProvincialCourts

TheKwaengCourts

TheLabourCourts

TheTaxCourts

TheIntellectualandInternationalTradeCourts

TheBankruptcyCourts

Appeal

Appeal Appeal

31

and sixteen Regional Administrative Courts. However, twelve Regional

AdministrativeCourtsare inoperationasofMay2016. IneachAdministrative

Court of First instance, there are President, Vice Presidents, Presidents of

Chambers, and judges of the Administrative Court of First instance. In the

Administrative Court of First Instance, there must be at least three

administrative judges in each chamber to constitute a quorum for trial and

adjudication.97The Supreme Administrative Court is the higher administrative

court. In the Supreme Administrative Court, there are the President, Vice

Presidents, PresidentsofChambers, and judgesof the SupremeAdministrative

Court. There must be at least five administrative judges in each chamber to

constituteaquorumfortrialandadjudication.98

SimilartojudgesintheCourtsofJustice,administrativejudgesarecareerjudges.

However,thebeginningoftheircareerstartsmuchlatersincethelawrequired

thatthejudgeintheAdministrativeCourtofFirstInstancemustnotbeyounger

than thirty-five years of age, and forty-five years of age in the Supreme

AdministrativeCourts.99Thelawfurtherrequiresthecandidatemustbeserving

or, in the past, served in designated positions within the government for a

required period of time, before he or she is eligible for an appointment as an

administrativejudge.100Itisinterestingtonotethatjudgesintheadministrative

courts are not required to have a degree in law. They may graduate with a

degreeinpoliticalscience,publicadministration,economics,socialscience,orin

theadministrationofStateaffairsinaccordancewiththerulesprescribedbythe

JudicialCommissionoftheAdministrativeCourts.101

97Act on Establishment of Administrative Courts and Administrative Courts Procedure B.E. 2542(1999)s54para2.98Ibids54para1.99TheminimumageofjudgesintheCourtsofJusticeistwenty-fiveyearsofage.100ActonEstablishmentofAdministrativeCourtsandAdministrativeCourtsProcedureB.E. 2542(1999)ss13,18.101Ibidss13(3),18(3).

32

4TheMilitaryCourts

TheMilitaryCourtshavejurisdictiontotryandadjudicatecriminalcasesagainst

persons subject to the jurisdictionof theMilitaryCourts; for example,military

officerswhocommitacrimeagainstthemilitarylaworothercriminallaws.The

MilitaryCourtsareundertheMinistryofDefenseandhavethreelevels:

(1) TheMilitaryCourtofFirstInstance;

(2) TheCentralMilitaryCourt;and

(3) TheSupremeMilitaryCourt.

IITheThaiSecuritiesMarketsandBrokerageIndustry

ASecuritiesMarketsinThailand

1History

The history of the Thai capital market dates from July 1962, when a private

group established the country’s first national stock exchange in the form of a

partnership and in 1963 registered it as a limited company in the name of

BangkokStockExchangeCo.,Ltd.(BSE).102Themarketwasdescribedasrather

inactive;reachingitshighestannualtradingvolumein1968at160millionbaht

thenfallingsharplytoaslowas28millionbahtin1971,whichledtoitsdemise

shortly afterwards.Those involvedwith theBSE took theview that the failure

wasmainlyattributable toa lackofgovernment supportand investors’ lackof

understandingoftheequitymarketatthetime.103

Onthegovernmentside,theSecondNationalEconomicandSocialDevelopment

Plan (1967-1971) first proposed that a government-sanctioned securities

market, with appropriate facilities and regulations, should be established to102TheStockExchangeofThailand,HistoryandRoles<http://www.set.or.th/en/about/overview/history_p1.html>.103Ibid.

33

generate required capital to support the country’s industrialisation and

economic development.104The process started in 1969 when the Government

employed Professor Sidney M. Robbins of Columbia University to study and

produce a report titled ‘ACapitalMarket inThailand’ thatwas to be used as a

guideline for the development of the capitalmarket.105Then inMay 1974, the

SecuritiesExchangeofThailandActB.E.2517(1974)waspassedtoestablishthe

stock exchange and put in place regulatory and monitoring frameworks. The

stockexchangeofficiallystartedoperationinApril1975.In1991thenameofthe

marketwasformallychangedfrom ‘TheSecuritiesExchangeofThailand’ to ‘The

Stock Exchange of Thailand (SET)’. The 1974 Act was later repealed and

supersededbytheSecuritiesandExchangeActB.E.2535(1992).Oneofthemost

importantfeaturesof1992ActisanestablishmentoftheSecuritiesandExchange

Commission(SEC)asan independentstateagencytosuperviseandsupportthe

developmentofthecountry’scapitalmarket.106

ThankstothesuccessoftheSET,othertradingboardsandmarketswerefurther

establishedtoaccommodatethetradeindifferentsecuritiesproductsunderthe

management and supervision of SET, sometimes referred together as the SET

Group.TheMarketforAlternativeInvestment(MAI),asecondtradingboardof

the SET, was established in 1999 primarily to create a trading platform for

innovative businesses with high potential growth. 107 The Bond Electronic

Exchange(BEX)wasthenlaunchedbytheSETin2003withthegoaltodevelop

theThaiBondMarketaswell asmakinga step towardsa creationofanAsian

Bond Market.108The most recent alternative market is the Thailand Futures

Exchange Pcl (TFEX).109The TFEX commenced operation in 2004 under the

DerivativeActB.E.2546(2004)withthegoalofbeinganinternationalexchange

fortradingandhedgingofderivativeproducts.

104Ibid.105Ibid.106Seedetailsbelow.107TheStockExchangeofThailand,OrganizationalChart<http://www.set.or.th/mai/en/about/structure.html>.108TheStockExchangeofThailand,Bonds<http://www.set.or.th/en/products/bonds/bonds_p1.html>.109ThailandFutureExchange,AtaGlance<http://www.tfex.co.th/en/about/glance.html>.

34

2TheStockExchangeofThailand(SET)

(a)Structure

The Stock Exchange of Thailand is currently the country’s main secondary

market for the trading of listed securities, under the supervision of The

SecuritiesandExchangeCommission(SEC).TheSET’sprimaryrolesaretoserve

asacentreforthetradingoflistedsecuritiesandtoprovidetheessentialsystem

neededtofacilitatesecuritiestrading,aswellasundertakeanybusinessrelating

totheSecuritiesExchange,suchasaclearinghouse,securitiesdepositorycentre,

securitiesregistrar,orsimilaractivities.

TheSETisgovernedbytheBoardofGovernors,consistingofelevenmembers.

TheBoardisresponsibleforissuingSETpoliciesandrules,aswellassupervising

the operations of the exchange and its subsidiaries. Under the Board of

Governors, there are twomainbranchesof offices: theExchangeFunctionand

the Capital Market Development Function. In addition, there are three legal

entitiesundertheSETumbrellathatfacilitatetheoperationoftheSET:Thailand

Securities Depository Co., Ltd. (TSD), Thailand Clearing House Co., Ltd. (TCH),

and Settrade.com Co., Ltd. TSD is a one-stop centre for post-trade securities

services.TSDoffer three typesofservice(1)securitiesdepositoryservices, (2)

securities registration services, and (3)provident fund registration services.110

TCH isaclearinghouse forall securitiesandderivatives tradedon theSET, the

BEX, the TFEX, and all debt instruments traded on the over-the-counter

market.111 Settrade is a company providing Internet trading platforms and

leverage investment technology for securities companies in order to

accommodateindividualinvestorswithincreasingtradingchannels.112

110TheStockExchangeofThailand,TSD<https://www.set.or.th/tsd/en/about/overview.html>.111TheStockExchangeofThailand,TCH<https://www.set.or.th/tch/en/tch.html>.112SETTRADE,MarketData<http://www.settrade.com/login.jsp?txtBrokerId=IPO>.

35

(b)ImportantStatistics

The tablesbelowshowsix importantsetsof statisticsof theSET from2012 to

2015: SET Index, total capitalisation, total turnover, number of transactions,

numberoflistedcompanies,andnumberoflistedsecurities,respectively.

(i)TheSETIndex

Table2:TheSETIndexfrom2012-2015113

Index 2012 2013 2014 2015

SETIndex

-Close 1391.93 1298.71 1497.67 1288.02

-High 1397.19 1643.43 1600.16 1615.89

-Low 1036.21 1275.76 1224.62 1261.66

SET50Index

-Close 945.39 883.40 1001.01 813.55

-High 951.29 1092.27 1074.80 1074.39

-Low 724.43 873.62 829.89 801.81

SET100Index

-Close 2078.67 1933.11 2212.63 1821.66

-High 2089.35 2436.81 2375.29 2382.15

-Low 1557.14 1911.71 1814.62 1789.59

(ii)TotalCapitalisation

Table3:TotalCapitalisationoftheSETfrom2012-2015114

TotalCapitalisation 2012 2013 2014 2015

ParValue(M.baht) 1649649.64 2296075.62 2771761.65 3009960.15

MarketValue(M.baht) 11831448.07 11496765.17 13856283.31 12282754.70

113 The Stock Exchange of Thailand, Market Statistics <https://www.set.or.th/en/market/market_statistics.html>.114Ibid.

36

(iii)TotalTurnover

Table4:TotalTurnoveroftheSETfrom2012-2015115

TotalTurnover 2012 2013 2014 2015

Volume(M.Shares) 1295611.00 2768476.00 2771230.00 2487472.00

Value(M.baht) 761563796 11777210.10 10193179.07 9997371.75

(iv)NumberofTransactions

Table5:NumberofTransactionsintheSETfrom2012-2015116

Transaction 2012 2013 2014 2015

TotalNumberof

Transactions(Deals) 51439385 79449188 78794503 87879233

DailyAverage

Transaction(Deals) 209956 324282 321610 361642

(v)NumbersofListedCompanies

Table6:NumbersofListedCompaniesintheSETfrom2012-2015117

ListedCompanies 2012 2013 2014 2015

NewlyListed 8 13 17 23

Delisted 4 1 7 9

Total 476 489 502 517

115Ibid.116Ibid.117Ibid.

37

(vi)NumbersofListedSecurities

Table7:NumbersofListedSecuritiesintheSETfrom2012-2015118

ListedSecurities 2012 2013 2014 2015

CommonStocks 518 538 560 582

PreferredStocks 9 9 9 9

Warrants 61 75 74 104

DerivativeWarrant 345 459 926 928

ETFs 11 16 21 21

UnitTrusts 4 2 2 2

Transferable

SubscriptionRight

- - - -

(c)InvestorProfiles

There are fourmain groups of investors in the SET: individual investors, local

institution investors, foreign investors,andproprietarytrading.119Accordingto

themostrecentresearchdata,percentagesofmarketturnoverforeachgroupof

investorareapproximately52%,10%,26%,and12%,respectively.120Compared

to themoreprominentrole that institutional investorsplay inmoredeveloped

markets,121the Thai institution investors play only a minor role in the SET,

althoughtheirtradingvolumehasgraduallyincreasedfrom4%in2002to10%

in2016.122Incontrast, thetradingvolumeofproprietarytradinghas increased

rapidlyinrecentyears,from1%in2002to12%in2016.Proprietarytradinghas

become more active due to a liberalisation of the brokerage fee policy that

118Ibid.119Proprietary trading iswheresecuritiescompanies tradesecuritieswith theirownmoney tomake a profit for themselves, as opposed to the trades that are made on behalf of theircustomers.120 As of 1 January 2016: The Stock Exchange of Thailand, Investor Types<http://marketdata.set.or.th/mkt/investortype.do>.121Theproportionofpublic equitiesmanagedby institutional investorswasat67%ofmarketcapitalisationasof2010.See,MarshallEBlumeandDonaldBKeim,'Institutionalinvestorsandstockmarketliquidity:trendsandrelationships'(2012)AvailableatSSRN2147757.122 The Stock Exchange of Thailand, Investor Types <http://marketdata.set.or.th/mkt/investortype.do>.

38

commenced on 1 January 2012.123The new fee structure makes it no longer

possible for securities companies to rely on the brokerage fee as their only

source of revenues, thus forcing them to increase their proprietary trading

activities in order to maintain profits.124The third group is foreign investors.

They are the second largest group of investor in the SET, although the

percentageof theirmarket turnoverhasbeen inasteadydecline, from34%in

2006to26%in2016.Thereasonforsuchdeclinecanbeattributedmainlytothe

foreign ownership limit rules under Thai law,which is 49%of the total share

capital in most industrial sectors.125Foreign investors investing in the SET

usuallyfocusonstocksofleadingcompanieswithareputationforstablegrowth

and earnings, and as at the beginning of 2010, sixteen stocks in such a class

already have foreign ownership at the maximum level under the law.126Last,

thereareindividualinvestorsaccountingforoverhalfthemarketturnoverofthe

SET.127RecentstatisticsfromtheSETshowthatasofDecember2015,thereare

1 244 907 individual trading accountswith 39 securities companies, ofwhich

286113areactiveaccounts (23%).From the totalnumberof those individual

tradingaccounts,955890are Internet tradingaccounts,ofwhich204063are

active (21%) in 31 securities companies offering Internet trading facilities.

Nevertheless, although 77% of the total individual accounts are Internet

accounts, the value from Internet trading only account for 34.20%of the total

tradingvolumebyindividualinvestors.128

123Seedetailsbelow.124 NuntawunPolkuamdee,‘Brokerstodisclosedailytradedataontheirwebsites’,BangkokPost(online),11June2012<www.bangkokpost.com/print/297510>. 125ForeignBusinessActB.E.2542(1999)ss4(4),8.126The StockExchangeofThailand,Measuresto IncreaseTheInvestmentofForeignInvestors intheStockExchangeofThailand.127Ibid.128The Stock Exchange of Thailand, Securities Companies Statistics <http://www.set.or.th/en/market/securities_company_statistics15.html>.

39

(d)TradingSystemandTradingChannels

(i)TradingSystem

Since1991, theSEThasoperateda fullycomputerised tradingsystemthrough

theAutomatedSystem for theStockExchangeofThailand (ASSET). In 2012 the

SEC introduced the new trading system called “SETConnect” in order to cope

withtheexpansionofThaisecuritiesmarket.Thenewsystemhasbeendesigned

to increase trading efficiency, ease market access with international standard

protocols,andcovernewproductsandothertradinginnovations.129Thetrading

hours of the SET are from 10.00-12.30 and 14.30-13.40 from Monday to

Friday.130

(ii)TradingChannels

TherearecurrentlytwotradingchannelsintheSET:atraditionalchannelandan

Internet trading channel. A traditional channel is where an investor sends a

tradingorder to a brokerwho is responsible forhis orher trading account.131

The broker would then enter the order into SET Connect. After the order is

matched,thebrokerwouldinformandsendrelevantdocumentstotheinvestor

forarecord.Thistraditionalchannelisalwaysaccompaniedbyacomprehensive

investmentadvisory service fromsecurities companies.Thebrokersoftengive

advice to the investoras towhat sharesheor sheshouldbuyor sellbasedon

changingmarketconditions.Forthisreason,thebrokeragefeeofthetraditional

channelisalwayshigherthanthefeefortheonlinetradingchannel.Itshouldbe

noted that the most common method for investors to send trading orders to

brokers is by telephone. However, investors are required to call their brokers

only through the designated securities companies’ phone lines, where

conversationsarerecorded.

129 The Stock Exchange of Thailand, Equities Trading <http://www.set.or.th/en/products/trading/equity/trading_p1.html>.130 The Stock Exchange of Thailand, Equities Trading <http://www.set.or.th/en/products/trading/equity/tradingsystem_p2.html>.131 The Securities and Exchange Commission, Start to Invest <http://www.start-to-invest.com/webedu/content.html?menu_id=133>.

40

Thesecondchannel isan Internet tradingchannel,whichcommenced in2000.

Under thismethod, investors place their trading orders into the computerised

system by themselves via personal computers, PDAs, or smartphones. Unlike

tradingviathetraditionalchannel,InternettradingislimitedtotheAOMmethod

wherebythespecifictradingpriceandvolumehavetobeprovidedandtrading

ordersarematchedautomatically.Althoughonlinetradingismainlyconducted

bytheinvestorsthemselves,securitiescompaniesalwaysassignbrokerstolook

after the accounts of these clients. The brokers’ main task, in this case, is to

ensure that requireddocumentsareproperlykeptandupdated.Clientshaving

Internettradingaccountsarealsoabletoseektradingadvicefromtheirbrokers.

However, such a servicemay not always be readily available compared to the

hands-on advisory service that the securities companies provide to clients

havingtraditionalaccounts.

Another important point that should be noted here is that the three different

types of accounts that clientsmay havewith securities companies are: a cash

account,acashbalanceaccount,andacreditbalanceoramarginaccount.132The

first type is a cashaccount, often referred to in theThai securities industry as

T+3. In this type of account, securities companies provide a certain amount of

trading credit to clients. The clients are first required to deposit 15% of the

amount of the credit limitwith the securities companies before he or she can

place trading orders. When the client purchases shares into his or her cash

account,heorshehastosettlethepurchasepricewiththecompanywithinthree

workingdaysaftermakingthetrade.Similarly,whentheclientsellsshares,heor

shehastowaitthreeworkingdaysforthemoneytobecreditedintohisorher

account. This type of account is suitable for investors who have regular

income.133Thesecondtypeofaccount isacashbalanceaccount. Inthistypeof

account,thesecuritiescompaniesdonotgiveanycredittotheclients.Theclients

have to deposit 100% of the amount of the trading limit with the companies.

After the client purchases or sells shares, the amount will be immediately

132Ibid.133Ibid.

41

debitedfromorcreditedtohisorheraccount.Thistypeofaccountissuitablefor

newinvestorsorinvestorswhohavepoorfinancialrecords.134

Thethirdandlasttypeofaccountisacreditbalanceoramarginaccount.Inthis

typeofaccount,thesecuritiescompaniesallowclientstoborrowmoneytobuy

shares.Theclientsinitiallyputdownthefirst50%ofthevalueofsharepurchase

andborrowtheother50%fromthecompanies.Theloanisthencollateralisedby

the securities and cash in the account. The companies appraise the value of

collateraldaily. If thevalueofcollateral is too low, thecompaniesmayrequire

the clients to put down additional collateral to maintain the value of the

accounts. If theclientsareunable todoso, thecompaniesareentitled to force

the saleof securities in the clientsaccount inorder tobring theaccountvalue

back to the required level. One important practice adopted for credit balance

accountsisthatthesecuritiescompanieswouldallowclientstopurchaseorsell

only the shares that they have approved in order to reduce risks that the

companieshavetoface.Anotherpracticeisthatthecompanieswillalsocharge

interestontheamountofloangiventotheclients.Sincethemarginisleverage

andbothgainsandlossesareamplified,thistypeofaccountcreatesextrariskto

investorsandisonlysuitableforexperiencedinvestors.135

(e)AChangefromFixedBrokerageFeestoNegotiableBrokerageFees

ThemainincomeofThaisecuritiescompanieshasbeenabrokeragefeecharged

toclientsforpurchaseandsaleofsharesaswellasgivingadviceontransactions.

Before2001,theSETimposedasystemoffixedbrokeragefeewhereclientshad

to pay 0.50% charge per value of share purchased or sold to securities

companiesthatconducttransactionsontheirbehalf.136InOctober2001,theSET

drastically changed the fee structure by liberalising the minimum rate that

securities companies could charge their clients. Under the new liberalised

structure, securities companies engaged in fierce competition to lower their

134Ibid.135Ibid.136‘Securities CompaniesHave toAdapt to ChangesOnceAgain’,BangkokPost (online),March2000<http://info.gotomanager.com/news/printnews.aspx?id=655>.

42

brokerage fee in order to attract new clients and retain existing clients. Some

securitiescompanieswentasfaraslaunchinga0%brokeragefeecampaignand

the average fee in themarket dropped to as low as 0.14%, resulting in heavy

losses to a large number of securities firms. 137 Due to such unhealthy

competition,inJanuary2002,theSETdecidedtorevertbacktoafixedbrokerage

feeandtheminimumbrokeragefeewassetat0.25%.

In November 2006, the SEC announced a roadmap for the liberalisation of

securitiesbusiness.138Inregardtothebrokeragefee,itwasannouncedthatfrom

1January2012onwards,thesecuritiesbrokeragefeewouldbefullynegotiable.

The SEC gave the reasons for the liberalisation of the brokerage fee as

follows:(1) an abolition of monopoly and a promotion of competition in

securitiesbusinesseswouldleadtosustainabledevelopment,reductionofcosts

borne by investors, and better products and services would be offered; (2) a

0.25%minimumbrokeragefeeemployedbeforetheimplementationofasliding

scale fee was higher than the average brokerage fee employed in other stock

marketsallover theworldat0.1653%;and(3)ASEAN, towhichThailand isa

foundingMemberState,wouldbecometheASEANEconomicCommunity(AEC)

in 2015, where capital markets of all Member States would be linked closely

together, and brokerage fees in Thai stock markets should be in line with

regionalstandards.139

Takinglessonsfromthefailedattemptin2001,theSECgaveanimplementation

periodoffiveyearstosecuritiescompaniestoexpandtheirbusinesscapabilities

and lessen their reliability on the brokerage fee. During such implementation

period,theSECsetoutthatduringthefirstthreeyears,from14January2007to

13 January 2010, the existing minimum brokerage fee (0.25%) continued to

apply.Then during the following two years, from 14 January 2010 to 31

December2011,a slidingscalebrokerage feewas tobe implemented.Another

137Securities and Finance Corner, Special Repor: Securities Companies and the Way Forward<http://www.efinancethai.net/spreport/report/r_tiger.asp>.138The SEC Board Resolutions No.12/2549 (2006) and The SEC New Release No. 81/2006, 10November2006.139‘TheWarBetween theSECand theMinistryofFinance: theLiberalizationof theBrokerageIndustry’,Thairath(online),9April2012<http://www.thairath.co.th/content/251918>.

43

importantchangewasthatfrom14January2007onwards,thebrokeragefeefor

theInternettradingchannelwassetat60%ofthefeesofthetraditionaltrading

channel(viabrokers).Inaddition,itwasstipulatedthatabrokerwhoexecuted

trading orders for clients who have the traditional accounts would receive a

27.50%shareofthebrokeragefeethattheclientspaidtohisorheremploying

securitiescompany,whereasheorshewouldreceivea13.75%sharefororders

made by clients having the Internet trading accounts.140A summary of the

slidingscalebrokeragefeesforstocktradingbetween2010-2011isshowninthe

tablesbelow.

Table8:SlidingScaleBrokerageFeesandBrokerIncomevia

TraditionalChannelfrom2010-2011

TradingValueviaTraditional

Channel(bahtperday)

MinimumCommissionRates

PaidtoSecuritiesCompanies

BrokerIncome(27.50%of

CommissionRates)

0–5000000 0.25% 0.069%

5000000–10000000 0.22% 0.061%

10000000–20000000 0.18% 0.050%

Morethan20000000 FullyNegotiable DependingontheNegotiated

Fees

Table9:SlidingScaleBrokerageFeesandBrokerIncomevia

InternetChannelfrom2010–2011

TradingValuevia

InternetChannel(baht

perday)

MinimumCommissionRatesPaid

toSecuritiesCompanies

BrokerIncome(13.75%of

CommissionRates)

Cash

Account

CashBalance

Account/Credit

BalanceAccount

Cash

Account

CashBalance

Account/Credit

BalanceAccount

0–5000000 0.20% 0.15% 0.028% 0.021%

5000000–10000000 0.18% 0.13% 0.025% 0.018%

10000000–20000000 0.15% 0.11% 0.021% 0.015%

Morethan20000000 FullyNegotiable DependingontheNegotiatedFees

140 Kultida Somjaiwong, Atinuth Chalermpong and Kitti Suttiattasilp, 'Bottlenecks in ThaiSecuritiesMarket'(CMRI,December2012).

44

Fromthetablesabove,itcanbeseenthatasthevalueoftradeincreasedabove

certainthresholds,thebrokeragefeeswerereduced.Likewise,thepercentageof

share earnedby brokers giving advice and executing trading orderswere also

reduced.Inaddition, if theclientmadeapurchaseviatheInternetchannel,the

brokeragefeesthatheorshewouldhavetopaywouldbe lowerdependingon

thetypeoftradingaccountheorshehadwiththesecuritiescompanies.

During the five-year implementationperiod (2006-2011), securitiescompanies

tookdifferentapproachesinpreparationforthenewsystem.Thefirstapproach

taken was to reduce companies’ reliability on the brokerage fee as the main

income by increasing their proprietary trading volume aswell as givingmore

emphasisoninvestmentconsultancyandmergerandacquisitionservices.141The

secondapproachtakenbysmallersecuritiescompanieswastomergewithother

localsecuritiescompaniesinordertoenlargetheirretailinvestorportfoliosand

market share. There was a strong speculation that only securities companies

havingmorethana2%marketsharewouldsurviveaftertheliberalisationofthe

brokeragefee.142OneexampleisamergerbetweenSyrusSecuritiesPCL,Finansa

SecuritiesLimited,andACLSecuritiesCo.,LtdtocreateFinansiaSyrusSecurities

PC in June 2009. 143 Third, numerous securities companies entered into

arrangementswithorbecamesubsidiariesoflargeforeignsecuritiescompanies.

For example, Malayan Banking Bhd (Malaysia) acquired Kim Eng Securities

(Thailand)PlcandchangedthenametoMaybankKimEngSecurities(Thailand)

Public Company Limited in November 2011. Fourthly, a number of securities

companies, especially those focusing on retail investors, have invested in

Information Technology (IT) to allow their clients to access the companies’

websites and conveniently conduct trade via Internet trading channel. They

believed that online trading could help cutting operating costs as well as

expanding their client base to include younger investors who prefer online

141Manager 360° Weekly, ‘Thai Brokers are fighting for their life: the need for proprietarytrading’, Manager (online), 12 May 2011 <www.manager.co.th/mgrWeekly/ViewNews.aspx?NewsID=9540000058170>.142 ‘Hot News: No More Patience’, Efinance Thai (online), 10 March 2009,<http://www.efinancethai.com/hotnews/hot/h_100309h.asp>.143 Saovaluk Euayporn, ‘Securities and Finance News’, Infoquest (online), 27 April 2009,<www.ryt9.com/s/iq05/562410>.

45

trading to the traditional channel.144Last, since Thai investors usually have a

closerrelationshipwithbrokerslookingaftertheiraccountsthanwithsecurities

companies145, there has recently been a growing trend for large securities

companies to adversely acquire the contracts of brokers working for smaller

companies. As brokers move to rival companies, they often take clients with

them,thus increasingtheacquiringcompanies’clientbaseandtradingvolume.

RecentexamplesincludetheadverseacquisitionoftheleadingteamofFarEast

Securities Company Limited by Phillip Securities (Thailand) Plc and the

acquisitionofmorethanthirtybrokersofGloblexSecuritiesCompanyLimitedby

KGISecurities(Thailand)Plc.146

On 1 January 2012, the brokerage fee became fully negotiable under the new

liberalisedsystem.Afterfouryearsofimplementation(asofJanuary2016),the

competitionlevelissaidtobemoderate.147Most,ifnotall,securitiescompanies

stillemploytheslidingscalefeestructure.However,theaveragebrokeragefeein

the market has come down to 0.16% in the traditional trading channel and

0.12% in Internet trading channel.148The other notable change is a significant

growth inonline trading.From130226newlyopen tradingaccounts in2016,

122 680 accounts are Internet trading accounts.149It should be noted that

although the new liberalised fee structure has now been fully implemented,

therehavebeenstrongrequests fromsecuritiescompanies,viatheAssociation

of Thai Securities Companies (ASCO), to the SEC and the Thai government to

reviewtheliberalisationpolicyandrevertbacktotheslidingscalefeestructure

employed in2010-2011.150The reasonsgivenby securities companiesare that

144Pralongyuth Pongngoy, ‘Special Report: Brokers’ Destiny before the Liberalization’,EfinanceThai (online), 28 April 2009 <http://www.efinancethai.com/spreport/frame_detail_report.aspx?name=r_280409r>.145Manager 360° Weekly, ‘The Liberalization of Brokerage Fees’,Manager (online), 5 January2012<http://www.manager.co.th/iBizChannel/ViewNews.aspx?NewsID=9550000001586>.146‘War: The Liberalization of Brokerage Industry’, Prachachat Business (online), 4 February2012<www.reic.or.th/news/news_detail.asp?nID=40548&p=1&s=15&t=43>. 147 Association of Thai Securities Companies, Information Centre <http://www.asco.or.th/datacenter2-inner.php?id=381>.148‘TiscoHopesSecuritiesCompaniesCeasethePriceWar’,Neawna (online),18February2016<http://www.naewna.com/business/202915>.149The Stock Exchange of Thailand, Securities Companies Statistics <http://www.set.or.th/en/market/securities_company_statistics15.html>.150‘Securities CompaniesHave toAdapt to ChangesOnceAgain’,BangkokPost (online),March2000<http://info.gotomanager.com/news/printnews.aspx?id=655>.

46

(1)theThaicapitalmarketandtheThaieconomyhavebeeninrecessiondueto

recent financial crisis in theUnitedStatesandEurope; (2) thevolumeof trade

andthesizeofinvestorbaseintheSETaretoosmallforthecompetitionamong

securities companies to be beneficial to the investors151; (3) it is likely that

securities companies would engage in a fierce competition similar to the

situationin2001whichdrovemanycompaniesoutofbusiness152;and(4)since

securities companies have to cut costs to maintain profits, the quality of

securitiesresearchandanalysiswouldsufferandtheinvestorswouldbeworse

off.153The SEC and the SET, however, have taken a firm stance and strongly

refusedtoconsiderareversiontotheoldsystem.

In termofbroker’s incomeandwelfare, the single fixedbrokerage feeand the

fixedslidingscalefeeemployedduring2010-2011wassaidtogiveadegreeof

certainty to securities brokers about their earnings and job prospects. The

systemmadeitcleartothemhowmuchtheywouldearnfromacertainvolume

of trade. In contrast, the new liberalised system, where securities companies

havetocompetewithothersontherateofbrokeragefee,makesthebrokers’job

securitymorevolatilesincethecompetitionforclientsisincreasingandthefee

paidtosecuritiescompaniesandthebrokersisdecreasing.

The potential impacts of the fully negotiable fee upon brokers could be as

follows: (1) thenumberof brokers in the incentive schemewoulddecrease as

manywouldmove back to earn fixed salaries from employing companies; (2)

brokerswholookafteraccountsofa fewmajorclientswouldbemoreaffected

by the change than brokerswho look aftermultiple smaller clients, since fees

thatcompanieschargemajorclientswouldlikelybelowerthanretailinvestors’;

(3) due to the growth of online trading, brokerswould likely need to take on

larger numbers of clients but the relationship between them would be more

151Thailand currently has approximately 286 000 active investors from a population of sixty-seven million. See, The Stock Exchange of Thailand, Securities Companies Statistics<http://www.set.or.th/en/market/securities_company_statistics15.html>.152ASTVManagerOnline,‘TheSECAsksSecuritiesCompaniesReducingCommissionFeestoGiveExplanations’ Manager (online), 16 October 2015 <http://www.manager.co.th/iBizChannel/ViewNews.aspx?NewsID=9580000115980>.153Ibid.

47

detached; (4) brokerswould then need to relymore on research and analysis

fromsecuritiesanalystsinordertoadviselargernumbersofclients;(5)brokers

would likely to givemoremargin to clients and encourage them to takemore

risksinordertoincreasetradingvolume154.Thusriskmanagementcapabilities

ofsecuritiescompanieswouldbemoreimportantafterthechange;and(6)only

brokers who could adjust to the industry’s new environment and regulations

wouldsurvive.155Underthescopeofthisresearch,itisinterestingtoobservethe

extentthatthe impactof thenewsystemwouldhaveonnumbersandtypesof

brokerageoffences.

3TheSecuritiesandExchangeCommission(SEC)

TheSecuritiesandExchangeCommissiontogetherwithitssub-committeesand

offices are the main regulatory bodies of the Thai capital market. The

CommissionwasestablishedbytheSecuritiesandExchangeActB.E.2535(1992)

tosuperviseanddevelopthecountry’scapitalmarket.TheSEC’smainrolesare

to formulate policies and rules regarding the supervision, promotion, and

development of securities markets, securities businesses, as well as other

activities relating to securities businesses, as stipulated in the Securities and

ExchangeActB.E.2535(1992)andtheDerivativesActB.E.2546(2003).

As stipulated in the Act, the SEC comprises the Chairman appointed by the

Cabinet, the Permanent Secretary of the Ministry of Finance, the Permanent

SecretaryoftheMinistryofCommerce,theGovernoroftheBankofThailandand

at leastfour,butnotexceedingsix,expertsappointedascommissioners.156The

termofoffice is fouryearsandmembersmaybere-appointedbutshallnotbe

appointed for more than two consecutive terms.157The SEC largely operates

independently from the intervention of the government. However, in practice,

154Margintradingisapurchaseofsecuritieswithcashborrowedfromasecuritiescompanybyusingothersecuritiesascollateral.155Manager 360° Weekly, ‘Thai Brokers are fighting for their life: the need for proprietarytrading’, Manager (online), 12 May 2011 <www.manager.co.th/mgrWeekly/ViewNews.aspx?NewsID=9540000058170>.156SecuritiesandExchangeActB.E.2535(1992)s8.157Ibids10.

48

since thecabinetdirectlyappoints theChairmanand thereare representatives

from the Ministry of Commerce, the Ministry of Finance, and the Bank of

Thailand,theSECoftencloselyfollowstheThaiGovernment’spolicies.158

TheSECisaself-regulatoryorganisationaswellasaquasi-judicialorganisation

sinceithasboththepowertoformulaterulesandregulationsandthepowerto

judgewhetheranyactivitiesofpeopleandentitiesinsecuritiesbusinesseshave

contravenedtheirrules.159Intermsofregulatoryfunctions,theCommissionhas

sevenmainareas:

(1) Regulationofissuancesandbusinesstakeovers;

(2) Regulationofsecuritiesbusinesses;160

(3) Regulationofinvestmentmanagementbusinesses;

(4) Regulationoftheexchange;

(5) Regulationofunfairsecuritiestradingpractices;

(6) Regulationofderivativesbusiness;and

(7) Regulationoftrustbusiness.

Licensing of securities firms and personnel, as well as the regulation of

brokerageconduct,areintheareasoftheregulationofsecuritiesbusinessesas

well as the regulation of unfair securities trading practice. Nevertheless, in

practicethecommissiondoesnotdirectlyadministertheseparticularfunctions

by itself, but has delegated duties and power to three subordinate bodies: the

Capital Market Supervisory Board (CMSB), the Office of the Securities and

Exchange Commission (SEC Office), and the Capital Market Personnel

DisciplinaryCommittee(CMPDC).

158NontawatNawatrakulpisut et al, 'Research for Studying Forms of Policy Corruption' (NACCResearchCenter,2008).159Prapart Suwanjitaree,CivilLiabilities inPublicOfferingofSecurities (Master of Laws Thesis,ChulalongkornUniversity,2003),13.160 Which includes securities brokerage, securities dealing, investment advisory service,securitiesunderwriting,securitiesborrowingandlending,andinter-dealerbroker.

49

(a)TheCapitalMarketSupervisoryBoard(CMSB)

The CapitalMarket Supervisory Board is a regulatory body created under the

fourth amendment of the Securities and Exchange Act in 2008.161The CMSB

supplements the function of the SEC on the issuance of rules and regulations

governing securities business, securities issuance and offerings, the securities

exchange, the securities depository centre, the clearing house, the securities

registrar, any associations related to securities business, and securities

acquisition for business takeovers.162The Board is periodically required to

reportitsactivitiestotheSEC163andmayfurtherbeassignedtocarryoutother

activitiesrelatingtothesupervisionofthecapitalmarket.164

The underlying reason for the creation of the CMSB is that since Thailand’s

capitalmarkethasbeenrapidlyexpandedtoenablethetrade inmarketsother

thantheequitymarket(suchasthebondmarket,thederivativemarket,andthe

foreignexchangemarket),aswellastogrowthedifferentbranchesofsecurities

businesses (such as securities dealing, securities underwriting, securities

borrowing and lending, derivative agency, asset management, and investment

advising). The SEC is burdened with onerous duties to effectively regulate

different markets and business practices. The CMSB was therefore created to

lessentheregulatorydraftingdutyofthecommission.Itshouldbenotedthatthe

rulemakingfunctionoftheSECandtheCMSBdifferinthewaythatSECnowonly

focuseson thepolicy frameworkof regulationwhile leaving the formulationof

detailedrulesandguidelinestotheCMSB.165

(b)TheOfficeoftheSecuritiesandExchangeCommission(SECOffice)

The Office of the Securities and Exchange Commission is an agency that is

responsible for thedevelopmentof the capitalmarket and themanagementof

161SecuritiesandExchangeActB.E.2535(1992)s16/1.162Ibids16/6(1).163Ibids16/6(2).164Ibids16/6(3).165SecuritiesandExchangeCommission,KeySummariesofThe4thAmendmentBill.

50

rules and regulations at the operational level as well as ensuring compliance

with any policy objectives laid down by the SEC.166The Office has four main

missions:

(1) todevelopthecapitalmarketinordertomakeitanimportantcapital

sourceforinvestorsandbusinesses;

(2) tostrengthentheinvestorprotectionmechanismsinordertoprovide

betterprotectiontoinvestors;

(3) to maintain confidence of all those involved in the operation of all

governmentagenciesandbusinessinthecapitalmarket;and

(4) to operate as an honest, transparent, business-oriented, and timely

organisationaswellasastrictandfairregulator.167

The Office is headed by a Secretary-General who is appointed by the Cabinet

withtherecommendationoftheSEC.TheSecretary-Generalshallholdtheoffice

for a term of four years and may be reappointed but for no more than two

consecutive terms.168Under themandate of the SEC, the Office has the power

anddutytoformulaterulesaswellasissueguidelinesintheformofnotifications

and circulars to governmental units and securities firms. Unlike regulations

proclaimedbytheSEC,whichlaydownbasicprinciplesorprimarilyfocusonthe

policy and structural level, regulations formulatedby theOffice are often very

detailedandprovidestepsthatsecuritiesfirmsarerequiredtocomplywith.The

mainareasofregulationandtoolsthattheOfficeemploystosupervisesecurities

firmsandemployeesare: screeningofqualificationsand issuanceof licence,169

internal compliancemechanisms, regulations onbusiness practices,170and risk

assessments.171

166Ibid.167TheStockExchangeofThailand,SummariesofSecuritiesandDerivativeLaw.168SecuritiesandExchangeActB.E.2535(1992)s16/3.169SeedetailsinChapter3170SeedetailsinChapter3171Consistingofprudentialrisk,operationalrisk,andcustomerriskassessment.

51

(c)TheCapitalMarketPersonnelDisciplinaryCommittee(CMPDC)

TheCapitalMarketPersonalDisciplinaryCommitteeisnewlyestablishedunder

theSECOffice.172TheCommitteehaspowerandresponsibilitytoconsiderfacts

andevidenceofanyoffencerelatingtocapitalmarketregulationsandtoprovide

recommendations to the Office on the proper forms and magnitude of

administrativesanctions173thatshouldbeimposeduponsuchoffenders,aswell

as setting up the general punishment guideline that theOffice shall employ in

subsequent cases.174The Committee comprises not more than five members,

appointed by the Office with the approval of the CMSB. Among those five

members, at leastone shallbea representativeof investors, one shallhavean

extensive experience in stock trading, and two shall be qualified persons

proposedbyassociationsrelatingtosecuritiesbusiness.175

BSecuritiesCompanies

1DefinitionandLicences

Section 4 of the Securities and Exchange Commission Act B.E. 2535 (1992)

provides a definition of a security company as: ‘any company, or financial

institutionlicencedtoundertakesecuritiesbusinessunderthisActasfollows:

(1)Securitiesbrokerage;

(2)Securitiesdealings;

(3)Investmentadvisoryservices;

(4)Securitiesunderwriting;

(5)Mutualfundmanagement;

(6)Privatefundmanagement;and

172The CMPDC was established in September 2010 by the Capital Market Supervisory BoardNotificationNo.TorThor/Nor/Kor.37/2010.173The available forms of sanction are a reprimand, probation, a suspension of licence, and arevocationoflicence.174TheCMSBNotificationNo.TorThor.37/2010cl13.175Ibidcl13para2.

52

(7)OtherbusinessesrelatingtosecuritiesasspecifiedbytheMinisterof

FinanceuponrecommendationoftheSEC.

Under section 90 of the Act, a securities company in Thailand can either be a

limited company, a public company, a commercial bank, or other financial

institution that obtains a relevant licence or licences from the Minister of

Finance upon recommendation of the SEC.176It should be noted that before

2012, the SEC limited the number of securities brokerage companies in the

market,andsothelicencesweretransferredatanextraordinarilyhighprice.177

However, due to the liberalisation of securities business and brokerage fee

startingfrom1January2012,thereiscurrentlynolimitonthenumberofnew

licencesprovidingthattheapplicantsmeetthe‘fitandproper’requirementsfor

each category of licences being applied for. 178 The SEC also replaced the

precedingmultiple licensingschemeswithasingle licensingschemecoveringa

rangeofsecuritiesservices.Asummaryoflicencesandrequirementsisshownin

thetablebelow.

Table10:TypesofSecuritiesBusinessLicence179

Licence AllowingBusinessOperations Minimum

Registered

Capital

LicenceFee

FullServices Operationofalltypesofsecurities

businesses,i.e.,securitiesbroker/dealer/

underwriter,derivativesbroker/dealer,

mutualfundmanagement,privatefund

management,derivativefundmanagement,

venturecapitalfundmanagement,

investmentadvisorandderivativeadvisor,

andsecuritiesborrowingandlending.

500millionbaht 20millionbaht

176SecuritiesandExchangeCommissionActB.E.2535(1992)s4.177PunnopTungsriwong,‘PriceofSecuritiesCompanyLicensesAreAbouttoSkyrocket’,Manager(online),July2002<http://info.gotomanager.com/news/printnews.aspx?id=3303>178TheSECNewsRelease,No.86/2006,10November2006.179Ibid.

53

Licence AllowingBusinessOperations Minimum

Registered

Capital

LicenceFee

BoutiqueDebt

Services

Operationofdebtsecuritiesbusinesses,i.e.,

debtbroker/dealer/underwriter,

investmentadvisor,andsecurities

borrowingandlending.


Boutique

Derivative

Services

Operationofderivativessecurities

businesses,i.e.,debtbroker/dealer,

derivativesfundmanagement,and

derivativesadvisor.


BoutiqueAsset

Management

Services

Operationofassetmanagementbusinesses,

i.e.,mutualfundmanagement,privatefund

management,venturecapitalfund

management,investmentadvisorand

derivativeadvisor,andlimitedbrokerdealer

underwriter(LBDU).


Thisthesisfocusesonthesecuritiesbrokeragefunctionofcompaniesrequiring

full service licences. As of October 2013 at the time the empirical part of this

studywasconducted,therewere38securitiescompaniesoperatinginThailand

that hold such licences. Nevertheless, only 21 companies operated their

brokeragefunction.Forthepurposeofthisresearch,thesesecuritiescompanies

were further classified into three groups based on their shareholding and

management structures: local securities companies (14), securities companies

associatingwith commercial banks (8), and foreign securities companies (16).

Securitiescompaniesassociatingwithcommercialbanksareoneshavinghalfor

moreof their capital sharesheldbycommercialbanksandare included in the

commercialbankbusinessstructuresassubsidiaries.Thesecompaniesareoften

consideredtobemorefinanciallysecuredduetolargercapitalandsupportfrom

parent commercial banks. Their potential client bases are also larger since

securities products are generally offered to all the banks’ clients. Foreign

securitiescompaniesarethoseregisteredinThailandbuthavinghalformoreof

their capital sharesheldby foreign individualsor foreign companies.Theyare

usually subsidiaries of large international securities companies or foreign

commercial banks that expand their businesses into the Thai financial and

54

securitiesmarkets.Itshouldbenotedthatduetotherecentliberalisationofthe

securities business and the brokerage fee, many local securities companies

mergedtogetherorweresoldtoforeigninvestorsandbecameforeignsecurities

companiesinordertosurvivethegrowingcompetitioninthemarket,resulting

inthegrowingnumberofforeignsecuritiescompaniesintheSET.Detailsofthe

securitiescompaniesandthestatusoftheirbrokeragefunctionareshowninthe

tablebelow.

Table11:TypesofSecuritiesCompaniesinThailandandTheirBrokerageFunctionStatusasof

November2013180

No. NameofSecuritiesCompany Type Brokerage

FunctionStatus

1 ASIAPLUSSecuritiesPublicCompanyLimited Local Active

2 CountryGroupSecuritiesPublicCompanyLimited Local Active

3 PhatraSecuritiesPublicCompanyLimited Local Active

4 TrinitySecuritiesCompanyLimited Local Active

5 CapitalNomuraSecuritiesPublicCompanyLimited Local Active

6 FinansiaSyrusSecuritiesPublicCompanyLimited Local Active

7 IVGlobalSecuritiesPublicCompanyLimited Local Active

8 AIRASecuritiesPublicCompanyLimited Local Active

9 MerchantPartnersSecuritiesPublicCompanyLimited Local Inactive

10 UnitedSecuritiesPublicCompanyLimited Local Inactive

11 ACLSecuritiesCompanyLimited Local Inactive

12 GloblexSecuritiesCompanyLimited Local Inactive

13 SeamicoSecuritiesPublicCompanyLimited Local Inactive

14 TSFCSecuritiesPublicCompanyLimited Local Inactive

15 KasikornSecuritiesPublicCompanyLimited Bank Active

16 KrungsriSecuritiesPublicCompanyLimited Bank Active

17 KTZMICOSecuritiesCompanyLimited Bank Active

18 SCBSecuritiesCompanyLimited Bank Active

19 ThanachartSecuritiesPublicCompanyLimited Bank Active

20 BualuangSecuritiesPublicCompanyLimited Bank Active

21 KiatnakinSecuritiesCompanyLimited Bank Active

22 TISCOSecuritiesCompanyLimited Bank Inactive

23 CreditSuisseSecurities(Thailand)Limited Foreign Active

24 MaybankKimEngSecurities(Thailand)PublicCompany Foreign Active

180The Securities and Exchange Commission, List of Licensee <http://market.sec.or.th/public/orap/COMPANYPROFILE03.aspx?lang=en&licno=1&grptype=&lcstype=&>.

55

No. NameofSecuritiesCompany Type Brokerage

FunctionStatus

Limited

25 KTBSecurities(Thailand)CompanyLimited Foreign Active

26 KGISecurities(Thailand)PublicCompanyLimited Foreign Active

27 CIMBSecurities(Thailand)CompanyLimited Foreign Active

28 OSKSecurities(Thailand)PublicCompanyLimited Foreign Active

29 DBSVickersSecurities(Thailand)CompanyLimited Foreign Inactive

30 CLSASecurities(Thailand)Limited Foreign Inactive

31 PhillipSecurities(Thailand)PublicCompanyLimited Foreign Inactive

32 CiticorpSecurities(Thailand)Limited Foreign Inactive

33 MerrillLynchSecurities(Thailand)Limited Foreign Inactive

34 MacquarieSecurities(Thailand)Limited Foreign Inactive

35 UBSSecurities(Thailand)Limited Foreign Inactive

36 UOBKayHianSecurities(Thailand)PublicCo.,Ltd. Foreign Inactive

37 CIMBSecuritiesInternational(Thailand)PublicCompany

Limited(CIMBI)

Foreign Inactive

38 JPMorganSecurities(Thailand)Limited Foreign Inactive

2LawandRegulationsofSecuritiesBrokerageOperation

Inorderforsecuritiescompaniestoengageinasecuritiesbrokerage,theyhave

tocomplywithvariouslawandregulations.Themainregulationissection113

of theSecuritiesandExchangeActB.E.2535 (1992)prescribingthatasecurities

companyshallcomplywiththerules,conditionsandproceduresasspecifiedinthe

notification of the CMSB. The notification that is currently in effect isNo.TorThor

63/2009 on Requirements, Conditions, and Procedures in Conducting Securities

BrokerageandSecuritiesDealingBusiness.Apart fromsuchCMSBnotifications, the

securitiescompaniesalsohavetocomplywithnotificationsoftheSECandtheSET.

Theregulationscanbesummarisedasfollows:

(a)NetLiquidCapitalRules(TheSECNotificationNo.GorThor.18/2006andNo.

SorThor.23/2006)

To ensure that a securities company can promptly satisfy the claims of

customers and other liabilities, the company is required on a daily basis to

maintainitsminimumnetcapitalof15millionbahtor25millionbahtifitalso

56

holds a derivatives agent licence, togetherwith theminimumnet capital ratio

(NCR)of7%ofthegeneralindebtednessspecifiedbytheSEC.NCRiscalculated

asfollows:

NCR=LiquidAssets(haircutadjusted)-TotalLiabilities

GeneralIndebtedness(asspecifiedbySEC)

(b)ClientProtectionandSegregationRules(TheCMSBNotificationNo.TorThor.

43/2009andNo.TorThor.63/2009)

Inordertoprotectclients,securitiescompaniesarerequiredtosegregateclients’

funds and assets from the companies’ funds and assets, and access to clients’

assets is forbidden unless there is written authorisation from clients. The

companies are also required to maintain accurate and current records of

customers’assetsaccountsandmonthlystatementsmustbesenttoallclients.

(c) Loans to Customers and Credit Balance Rules (The CMSB Notification No.

TorThor.25/2009andtheSECNotificationNo.SorThor.42/197)

In the case of credit balance ormargin trading accounts, securities companies

arerequiredtocallforadditionalfundsormarginablesecuritiesfromclientsto

ensure that themarket value of collateral assets is not less than 50% of total

debitbalancesinclients’tradingaccounts.Collateralsecuritiesshallbemarked

to market to reflect trading limits and a broker is required to monitor such

balancestoensurethatclients’tradesdonotexceedtradinglimits.

(d) Books & Records Requirements Rules (The CMSB Notification No. TorThor.

63/2009)

Securitiescompaniesarerequiredtokeepevidenceofadvicetheygivetoclients

andtaperecordingsofclients’ordersforaminimumperiodofthreemonths,or

longeruntilanycomplaintsrelatedtosuchmattersareresolved.Companiesare

alsorequiredtomaintainandkeepcurrentbooksandrecordsofclients’trades,

57

assets,andcomplaintsforaminimumperiodoffiveyears.Thisinformationmust

be kept in an easily accessiblemanner for the first two years of that five-year

period.

(e)ReportMakingandSubmissionRules

Securitiescompaniesarerequiredtoprepareandsubmitvariousreportstothe

SECOffice. There aremandatoryweekly,monthly, quarterly, semi-annual, and

annualreports,andotherreportsinspecificcircumstances.

(f) Compliance and Risk Assessment Requirement Rules (The CMSBNotification

No.TorThor.63/2009)

Securities companies are required to establish effective internal compliance

control and risk management programmes. Internal compliance programmes

should be comprehensive and enable compliance units and internal audits to

independently perform their functions. Risk management programmes should

addressallaspectsofriskassociatedwithundertakingsecuritiesbusiness.

(g)InternalStructureRules(TheCMSBNotificationNo.TorThor.63/2009andthe

SECNotificationNo.SorThor.11/2008)

Securitiescompaniesarerequiredtoseparatebusinessfunctionsthatmayhave

conflicts of interest into different departments, i.e., a brokerage department, a

proprietary department, and an investment advisor department. In addition,

companies are required to separate securities business departments (front

office)fromsupportdepartments(backoffice),andputinplaceinternalcontrol

mechanismswhere business operations and personnel conduct are constantly

monitored andmeasured. An informational firewall between departments and

personnelmustalsobeestablishedinordertopreventinsidertradingandabuse

ofsensitiveinformation.

58

(h) BrokerConductRules(TheCMSBNotificationNo.TorThor.63/2009andNo.

TorThor.37/2010)

Securities companies are required to ensure that personnelwhomake contact

with retail clients regarding securities trading and advisory services have

obtainedrelevantlicencesfromtheOfficeofSEC(AnalystLicencesorConsultant

Licences).181The companies are also required to ensure that such personnel

complywithregulationsoftheSECandtheSETincluding:(1)notgivingfalseor

misleading advice or statements of a material fact, and not engaging in any

activity intended todefraud investors; (2)notgivingadvice inorder to induce

clients to increase their trades, thus increasing their remuneration (churning);

(3)executingordersinaccordancewiththespecificationsreceivedfromclients,

as well as their authorised persons; (4) treating client information as

confidential;(5)dealingfairlywithclientsbydisclosingallmaterialinformation

andpossible conflicts of interests, includingwhen taking the opposite sides of

clients' orders (duty of fair dealing); and (6) seeking to obtain the most

favourabletermsavailableatthetimeordersareplacedforthebestinterestof

clients(dutyofbestexecution).

(i)Client'sAccountOpeningRules(TheCMSBNotificationNo.TorThor.63/2009)

Securitiescompaniesarerequiredtoconductclientduediligencereviewto:(1)

verifythatclientsarethesamepersonspresentedinthedocumentsprovidedat

accountopening;(2)verifythebeneficialownerofsuchclient’strades;(3)verify

theclient’sfinancialcapabilitybeforeprovidingrecommendationsandexecuting

securities transactions; and (4)verify clients’ investmentobjectivesandassess

theirunderstandingofandexperience in securities investment.Companiesare

further required to keep up-to-date client records and to frequently review

clients’financialcapability.

181Seedetailsbelow.

59

(j) Client Complaint Rules (The CMSB Notification No. TorThor/Khor/Dor/Nor.

62/2009)

Securities companies are required toput inplace systems to efficientlyhandle

customercomplaints.

3SecuritiesCompanyOrganisationalStructure

Contrastedwith ordinary companies, the organisational structure of securities

companies can be described as relatively flat with few layers between the

managementandpersonnel.Personnelinbusinessunits(financialadvisorsand

brokers)areusuallyempoweredtomakedecisionstoserveclients’needsunder

codes of conduct prescribed by regulatory agencies and the companies

themselves.

At the top of the structure, similar to most companies, there is a board of

directors overseeing a company’s broad policies and objectives, as well as

appointing executives and reviewing the performance of management. The

CMSB requires that one-quarter of boardmembers in the securitiesbrokerage

companies must be external directors.182It is becoming more common for

securities companies in Thailand to follow corporate governance best practice

principlessetoutbytheSEC.183Manyhavesetupcommitteesoverseeingaudits,

compensation, and risk management, and a committee to improve corporate

governancepractices.

At the operational level, a securities company canbedivided into two groups:

businessunits (frontoffice)andsupportunits (backoffice).Businessunitsare

usually divided into departments according to function, although the division

may vary in structure and name. The usual departments are retail sales, local

institutional sales, foreign institutional sales, security dealings, investment

182TheCMSBNotificationNo.TorThor.63/2009s7.183TheSecuritiesandExchangeCommission,Directors’Handbook(ThaiInstituteofDirectors).

60

banking,derivatives,andbusinessdevelopment.Thisresearchfocusesonretail

salesdepartmentsofsecuritiescompanies.

It should be noted that the current CMSB regulations require certain

departmentstobeseparatedandhaveaninformational firewallput inplacein

ordertoavoidpotentialconflictsofinterest.184Forexample,allsecuritiestrading

and dealing departments should be separated from business development

departments,andretailsalesshouldbeseparatedfromsecuritydealings.Ineach

department, teams of personnel having specific knowledge in that particular

areawork closely together.The size andnumberof teams in eachdepartment

dependontheimportanceoftheirfunctiontothecompany.Forexample,alarge

securities company focusing itsbusinesson retail investorsmayhavemultiple

officebranchesalloverthecountry.Fromsuchstructure,therewouldbeahead

ofretailsalesdepartment,severalbranchmanagers,severalsupervisorsorteam

leaders, anda largenumberofentry-levelbrokersgivingadviceandexecuting

tradingordersforclientstowhomtheyareassigned.

Although there seems to be a hierarchical chain of command in such

departments, in practicemanagers and supervisors do not havemuch control

overhowbrokersexecutestheirtaskstomeettradinggoalssetbythecompany.

Thebrokers,aslicencedprofessionals,haveconsiderablediscretionandfreedom

intheirwork.Managersandsupervisors inthiscaseactmainlyasexperienced

personsgivingadviceandensuringthatteammembershavecompliedwiththe

lawandthecompany’sinternalregulations,aswellasco-signingdocumentsthat

require multiple verifications, such as forms for withdrawing money from

clients’accounts.

Certainsupportunitsofsecuritiescompaniesareconsideredequallyimportant

tothebusinessunits,namely,acompliancedepartment,aresearchdepartment,

and a risk assessment department. First and foremost is the compliance

department.TheCMSBandtheSECregulationsrequireallsecuritiescompanies

tosetupacompliancedepartmentandestablisheffectivecomplianceguidelines184TheCMSBNotificationNo.TorThor.63/2009s9.

61

forcompanies’stafftoadhereto.TheCMSBregulationfurtherspecifiesthatthe

head of the compliance department of each securities company must have a

specific educational background and work experience, 185 and his or her

appointment or resignation must be reported to the SEC Office. 186 The

compliancedepartmentplayscentralrolesinregulatingemployee’sconduct,as

well asdisseminatingnewsandnotifications from theauthority.Theyarealso

responsible forproviding legaladvice toemployeeswhenquestionsonhowto

comply with the law arise. In addition, the department often acts as an

intermediarybetweenaccusedbrokersandSECofficersduringaninvestigation,

proceedings, and any imposition of sanctions. In relation to this research,

compliance officers have an important duty to make sure that all telephone

conversationsbetweenclientsandbrokersaswellasonlinetradingordersare

fullyrecorded.Suchrecordsareemployedasprimaryevidencewherethereare

disputes between clients and companies and where there are regulatory

infringementsonthebrokers’part.

The second important support unit is the research department. The research

department, where securities analysts work, provides securities analyses and

research to thebusinessunits.Brokers in retail salesdepartment relyon such

analyses to give trading advice to clients. The better and more accurate the

analyses are, the more likely that clients gain profits from trades. The third

important department is the risk assessment department. Risk management

programmesofsecuritiescompaniesarerequiredtoaddressallaspectsofrisks

associated with undertaking securities business: market risk, credit risk, and

operational risk. Apart from the three departments mentioned, the other

commonsupportunits arehuman resources, accounting, treasury, information

andtechnology(IT),andlegaldepartments.

185TheCMSBNotificationNo.TorThor.39/2012s6.186Ibids7.

62

Figure2:AnExampleofSecuritiesCompany’sOrganisationalStructure

CSecuritiesBrokers

In Thailand, securities brokering is a profession under the regulations of the

CMSB, the SEC and the SET. The current principal regulations are the CMSB

NotificationNo.TorThor.37/2010ontheProhibitiveCharacteristicsofPersonnel

BoardofDirectors

ChiefExecutiveOfticer

Research

RetailSales

InstitutionalSales

SecuritiesDealings

InvestmentBanking

Derivatives

FinancialProductDevelopment

ChiefOperationalOfticer

ChiefFinancialOfticer

Accounting

Treasury

Informationand

Technology

Legal HumanResources Operation

AuditCommittee

InteralAudit&Compliance

RiskManagementCommitee

63

inSecuritiesBusiness andNo.TorLorThor.3/2012ontheApprovalofInvestment

AnalystandInvestmentConsultant.

For a person towork legally as a broker in a securities company, he or she is

requiredto(1)obtainrelevantbrokeragelicence(s)issuedbytheSECOfficein

order to solicit and give advice to clients and (2) registerwith the SET as an

‘authorised person in the trading system’ in order to place the clients’ trading

ordersintheSETtradingsystem.Thefollowingsectionscoverimportantissues

relating to legal requirements and careers of Thai securities brokers: (1)

structures and types of brokerage licence, (2) qualifications and examinations,

(3)tradingsystemregistration,and(4)employmentandcareer,respectively.

1StructureandTypesofBrokerageLicence

Regulation of brokerage licences in the Thai capitalmarket has recently gone

through a major change. Before 1 April 2012, there were two main types of

brokerage licence: a Type A Investor Contact Licence and a Type B Investor

ContactLicence.187ATypeALicenceallowslicenceholderstoperformsecurities

analysesaswellasbuyingandsellingsharesforclients.188Ontheotherhand,a

TypeBLicenceonlyallowslicenceholderstobuyandsellsharesforclients.189In

advisingclients,TypeBLicenceholdershavetorelyonanalysesmadebyTypeA

Licenceholdersworkingforthesamecompany.

On 1 April 2012, classifications of brokerage licence along with qualifications

requiredwererestructured.Therearecurrentlytenbrokeragelicencescovering

different investment services and products.190First, the Type A Investment

Contact Licence was renamed ‘Investment Analyst Licence’ with three sub-

187Type A Licence can be further divided into Type A Investor Contact Licence on SecuritiesTradingandTypeAInvestorContactLicenceonDerivativeTrading,whereasTypeBLicencecanbedividedintoTypeBInvestorContactLicenceonSecuritiesTrading,TypeBInvestorContactLicenceonDerivativeTrading,TypeBInvestorContactLicenceonGoldExchange-tradedFunds(ETFs),andTypeBInvestorContactLicenceonPreciousMetalTrading;TheSECNotificationNo.SorKor.49/2009cl3;TheSECNotificationNo.SorKor.25/2005cl4.188TheSECNotificationNo.SorKor.49/2009cl2(3).189Ibidcl2(4)190TheCMSBNotificationNo.TorLorThor.3/2012.

64

categories:(1)SecuritiesInvestmentAnalyst,(2)DerivativeInvestmentAnalyst,

and (3) Capital Market Investment Analyst. The first two licences allow the

holderstoperformanalysisandconducttradeoneachrespectiveproduct,while

the third is a super licence allowing holders to perform analysis and conduct

trade on both products. Second, the Type B Investor Contact Licence was

renamed‘InvestmentConsultantLicence’withafurthersevensub-categories:(1)

Equity Investment Consultant, (2)Debt Instrument Investment Consultant, (3)

Fund Investment Consultant, (4) Precious Metal Investment Consultant, (5)

DerivativeInvestmentConsultant,(6)SecuritiesInvestmentConsultant,and(7)

Capital Market Investment Consultant. The first five licences allow holders to

exclusively conduct trade and give advice to investors on each respective

investment product, while the sixth allows holders to conduct trade and give

adviceonallsecurities-relatedproducts:equity,debt,andinvestmentfunds.The

seventhisasuperconsultantlicenceallowingholderstoconducttradeandgive

adviceonallinvestmentproductsexceptpreciousmetalinvestment.

Figure3:StructureofInvestmentAnalysisLicences

CapitalMarketInvestmentAnalystLicense

SecuritiesInvestmentAnalystLicense DerivativeInvestmentAnalystLicense

65

Figure4:StructureofInvestmentConsultantLicences

Since this research focuses on securities brokerage offences committed by

brokersintheSET,therelevanttypeoflicencesandthenumbersoftheholders

of the respective licences as of May 2016 are Securities Investment Analyst

Licence (939), Capital Market Investment Analyst Licence (158), Equity

InvestmentConsultantLicence (100),Securities InvestmentConsultantLicence

(49 425), and Capital Market Investment Consultant Licence (6 911),

respectively. 191 It should be further noted that brokers holding consultant

licences aremore likely to commit brokerage offences against retail investors

thantheircolleaguesholdinganalystlicences.Thisisbecausebrokerswhohold

analystlicencesusuallyworkinresearchdepartmentsand/orsecuritiesdealing

191 The Securities and Exchange Commission, Statistics of approved investment analysts/investmentconsultants<http://market.sec.or.th/public/orap/IC05.aspx?lang=en>.

CapitalMarketInvestmentConsultantLicense

SecuritiesInvestmentConsultantLicense

EquityInvestmentConsultantLicense

DebtInstrumentInvestmentConsultantLicense

FundInvestmentConsultantLicense

DerivativeInvestmentConsultantLicense

PreciousMetalInvestmentConsultantLicense

66

departments, or hold executive positions in securities companies rather than

workingcloselywithretailinvestorsinretailsalesdepartments.

2QualificationsandExaminations

Currentregulationstipulatesthatforapersontoapplyandsuccessfullyobtaina

securities analyst or consultant licence, he or she must: (1) not possess any

prohibited characteristics, (2) have the required educational background and

workexperience,and(3)passdifferentlicensingexaminationsaccordingtothe

typesoflicenceheorsheisapplyingfor.

(a)ProhibitiveCharacteristics

The CMSB Notification No. TorThor. 37/2010 provides extensive rules on

prohibitedcharacteristicsofpersonnel in thesecuritiesmarket. Inessence, the

prohibited characteristics can be classified into three categories. The first

category is a person who has been declared by the Court of Justice to be

insolvent or to be an incompetent person, to have been subjected to any legal

sanctionsunderthelawgoverningthecapitalmarket,tohavebeennamedinany

criminal complaint initiated by the SEC Office, or possesses untrustworthy

characteristics according to the SEC Notification No. KorChor 8/2010 on the

Determination of Untrustworthy Characteristics of Company Directors and

Executives.192The second category is a person who has been found guilty of

deceitful,fraudulent,ordishonestmanagementofassets,andisstillwithinthree

years of the date of completion of their criminal punishment.193The third

category is a personwho, on reasonable grounds, is considered to possess or

exhibit improper behaviours that couldnegatively affect clients, securities and

listedcompanies,thefinancialmarket,orthecapitalmarket.194Theexamplesof

suchimproperbehavioursaredisclosureordisseminationoffalseormisleading

information to investors, a failure to honestly perform duties in providing

securities services, and a lack professional accountability. If an applicant for a192TheCMSBNotificationNo.TorThor.37/2010cl3(1),4.193Ibidcl3(2),5.194Ibidcl3(3),6.

67

brokeragelicenceisfoundtohaveprohibitedcharacteristicsinanyofthethree

categories, theSECOfficewould refuse toapprovea licenceapplicationon the

groundthatthepersonpossessesprohibitedcharacteristics.195

(b)LicensingExaminations

Apart from not having prohibitive characteristics as mentioned above, for a

person to obtain a brokerage licence, he or she must have the requisite

educational background and work experience, as well as passing licensing

examinations according to the type of licence he or she is applying for. The

Thailand Securities Institute (TSI) and its associated institutes regularly hold

these licensing examinations and provide training courses for interested

membersofthepublic.196

Forthosewantingtoapplyforanalystlicences,allowingholderstobothperform

securitiesanalysesand tradesecurities for clients, theeducationalbackground

and work experience required are rigorous. Applicants must have either

CharteredFinancialAnalyst(CFA)197,CertifiedInvestmentandSecuritiesAnalyst

(CISA)198,CertifiedFinancialPlanner(CFP)199,orFinancialRiskManager(FRM)

195Ibidcl7.196ThecurrentassociatedinstitutesareAssociationofThaiSecuritiesCompaniesTrainingCentre(ATI)andAssociationofInvestmentManagementCompanies(AIMC).197TheCharteredFinancialAnalyst (CFA) isan internationalprofessional credentialofferedbytheCFAInstituteto investmentandfinancialprofessionals.Therearethree levels fromLevel1(easiest) to 3 (hardest). The curriculum for the CFA program comprises ethics, quantitativemethods, corporate finance, financial reporting and analysis, securities analysis, and portfoliomanagement. The examinations are conducted in English. See, CFA Institute<www.cfainstitute.org>.198TheCertifiedInvestmentandSecuritiesAnalystProgram(CISA)isaCFAequivalentcredentialofferedbytheSecuritiesAnalystsAssociation(SAA-Thai).ThecurriculumismodeledafterCFAwiththeadditionsofThairegulationsandSAA-Thai’sCodeofEthicsandProfessionalStandards.Thereare three level fromLevel1 (easiest) to3 (hardest).Theexaminationsareconducted inThai. See, Investment Analyst Association, Differences between CISA and CFA <www.saa-thai.org/eng/cisa_cfa.html>.199TheCertifiedFinancialPlanner(CFP)isaprofessionalcredentialforfinancialplannersofferedby theCertified Financial PlannerBoard of Standards (CFPBoard)in theUnited States and23other organisations affiliatedwith Financial Planning StandardsBoard (FPSB). The curriculumincludes general principles of finance and financial planning, insurance planning, employeebenefits planning, investment and securities planning, state and federal income tax planning,estate tax, gift tax, and transfer tax planning, asset protection planning, retirement planning,estateplanning,financialplanningandconsulting.See,CFPBoard<www.cfp.net>.

68

qualifications200with at least one-year work experience in fields relating to

investment analysis, such as investment consultancy or risk management.201

Applicantsthenhaveto-exceptincertaincases-takeafurtherexaminationin

Thaisecuritiesanalysisregulationsandethicsbeforeapplyingforalicence.

For consultant licences, which apply to a majority of Thai securities brokers,

educational and work experience requirements are less rigorous. The new

licensing structure, which took effect on 1 April 2012, introduced new

examination arrangements. The examinations are now divided into four

modules: Basic Knowledge, Regulations and Ethics, Knowledge of Specific

Investment Instruments (Equity,Debt,Fund,orDerivative),andRegulationsof

Specific Investment Instruments, inwhichapplicantsmust achieveaminimum

scoreof70%.Applicantsmusttakethefirsttwomodules;thentheymaychoose

to either take all or certain parts of the third and fourth modules, which

determine the type of licence they will receive. Details of educational

background,workexperience,andexaminationsrequiredforconsultantlicences

canbefoundinthetablesbelow.

200The Financial Risk Manager (FRM) is a professional certification offered by the GlobalAssociationofRiskProfessionals.Thecurriculumincludesmarket,credit,operational, liquidity,and integrated risk management, quantitative methods, capital markets, investmentmanagement and hedge fund risk, and relevant regulatory and legal issues essential to riskprofessionals. See, Global Association of Risk Professionals, Become an FRM<http://www.garp.org/#!/frm>.201AttachedTablesoftheCMSBNotificationNo.TorLorThor.3/2012.

69

Table12:EducationalBackground,WorkExperience,andExaminationsRequiredforCapital

MarketInvestmentConsultantLicence(SecuritiesandDerivativeInvestment)202

Educational

Background

WorkExperience ExaminationModules

Basic

Knowledge

Regulations

andEthics

Knowledgeof

Specific

Investment

Instruments

Regulations

ofSpecific

Investment

Instrument

Lowerthan

bachelor

degree

Morethanfour

yearinrelated

fields,andwithin

sevenyears

precedingthedate

ofapplication

Yes Yes Equity,Debt,

Fund,and

Derivative

Equity,Debt,

Fund,and

Derivative

Bachelor

degreeand

higher

Notrequired Yes Yes Equity,Debt,

Fund,and

Derivative

Equity,Debt,

Fund,and

Derivative

CISALevel1or

higher

Notrequired Notrequired Notrequired Notrequired Notrequired

CFALevel1or

higher

Notrequired Notrequired Yes Notrequired Equity,Debt,

Fund,and

Derivative

Table13:EducationalBackground,WorkExperience,andExaminationsRequiredforSecurities

InvestmentConsultantLicence(Equity,DebtInstrument,andFundInvestment)203

Educational

Background


Basic

Knowledge

Regulations

andEthics

Knowledgeof

Specific

Investment

Instruments

Regulations

ofSpecific

Investment

Instrument

Lowerthan

bachelor

degree

Morethanfour

yearinrelated

fields,andwithin

sevenyears

precedingthedate

ofapplication

Yes Yes Equity,Debt,and

Fund

Equity,Debt,

andFund

202Ibid.203Ibid.

70

Educational

Background


Basic

Knowledge

Regulations

andEthics

Knowledgeof

Specific

Investment

Instruments

Regulations

ofSpecific

Investment

Instrument

Bachelor

degreeand

higher

Notrequired Yes Yes Equity,Debt,and

Fund

Equity,Debt,

andFund

Table14:EducationalBackgrounds,WorkExperience,andExaminationsRequiredforEquity

InvestmentConsultantLicence(SecuritiesInvestment)204

Educational

Background


Basic

Knowledge

Regulations

andEthics

Knowledgeof

Specific

Investment

Instruments

Regulations

ofSpecific

Investment

Instrument

Lowerthan

bachelor

degree

Morethanfour

yearsinrelated

fields,andwithin

thesevenyears

precedingthedate

ofapplication

Yes Yes Equity Equity

Bachelor

degreeand

higher

Notrequired Yes Yes Equity Equity

Itisinterestingtonotethattheexaminationsinregulationsandethics,although

fromtwoseparatemodules,RegulationsandEthicsandRegulationsofSpecific

Investment Instruments, only constitute a small part of the whole test. In

addition, the form of the current examinations is multiple-choice (from four

answerchoices),makingitdifficulttotrulyexaminetheextentoftheapplicants’

knowledgeandunderstandingofcurrentregulationsandethics.

204Ibid.

71

(c)LicenceRegistrationandRenewalProcedures

Applicantswhodonothaveprohibitedcharacteristicsandpasstheexaminations

requiredmay apply for analyst or consultant licences by lodging their request

with the SECOffice via the agency’swebsite. The SECOfficemay request that

applicants provide further evidencewithin the prescribed period, and the SEC

Office must post the results on its website within thirty days of receiving all

requireddocuments.205InacasewheretheSECOfficerefusestograntalicence,

itwillinformtheapplicantinwritinggivingreasonsforrefusal.Boththeanalyst

andtheconsultantlicencesarevalidfortwocalendaryearsandlicenceholders

mayapplyforarenewalbyattendingaknowledgerefreshercourseandsubmit

their application for renewalwith the SEC Office.206This refresher course is a

fifteen-hour-minimum training course covering various issues, including

business knowledge, accounting standards, corporate governance, compliance,

andanupdateonregulationsandethics.207Theregulationandethicspartmust

constituteatleastthreehoursofthetotaltrainingtime.

3RegistrationwiththeSET

Themain tasks performed by Thai securities brokers can be divided into two

parts.Byobtainingbrokeragelicences,securitiesbrokerswill legallybeableto

performthefirstpartoftheirtask,whichistosolicitandgivetradingadviceto

investors.Forthesecondpart,whichistoplacetradingordersintheSETtrading

system for clients, brokers are further required to register with the SET as

authorisedpersonsinthetradingsystemandobtainpersonaltraderIDsforthe

purpose.208

205TheCMSBNotificationNo.TorLorThor.3/2012cl15,16.206Ibidcl19.207 ASCO Training Institute, Guideline on The Renewal of Analyst and Consultant Licences<http://www.ati-asco.org/license_page.php?keysname=license02>.208There is another type of securities personnel in the Thai brokerage industry that aresometimesconfusedwithsecuritiesbrokers.Theselow-levelemployeesofsecuritiescompaniesare registeredwith the SET but do not possess a broker licence. Their sole function is to keyclients’ tradingorders intothecomputerisedtradingsystem. If it is foundthat thesepersonnelsolicitsorgivesadvicetoclients,theywouldbesubjecttoaprobation,afinefrom10000to100000 bath, or a suspension of registration not exceeding one year: Clause 4 of thePunishmentAnnexoftheSETNotificationontheRelevantPersonintheTradingSystem,2012.

72

TheSETNotificationNo.BorSor/Saw01-28/2012ontheRelevantPersons inthe

TradingSystem is themainregulationstipulatingproceduresandqualifications

requiredforapersontoregisterasanauthorisedpersoninthetradingsystem.

In essence, the regulation requires that an applicant: (1)must be over twenty

years old, (2) havenot been subject to a revocation of registrationwithin five

years at the time of an application, (3) must be a full-time employee of a

memberedsecuritiescompany,(4)mustbeable tomanifest thatheorshehas

left his/her former employing securities companywithout anywrongdoing or

damage,where that applicanthadbeen registeredpreviously as anauthorised

person under another securities company, (5) possesses required educational

background such as a bachelor degree from an accredited institution, and (6)

does not possess prohibited characteristics of personnel in the securities

market.209

As an authorisedperson in the trading system, a securities broker has further

dutiestocomplywithvariousSETregulationsinrelationtothetradingsystem,

inadditiontohisorherdutiesundertheCMSBandtheSECOfficeregulations.

Notabledutiesunder theSET regulations include: (1)notdisclosinghisorher

own trading ID to other persons,210 (2) not entering trading orders in an

impropermanner,211and (3) not using clients’ information for his or her own

benefitorforanythirdparty’sbenefit.212

4EmploymentandCareers213

In Thailand, as of May 2016, there are over 62 000 holders of analyst and

consultant licences working in the financial and securities industries. 214

Securitiescompaniesandcommercialbanksarethemostcommonemployersof

this licencedpersonnel.Theholdersofconsultant licencesareusuallyassigned

209TheSETNotificationontheRelevantPersonsintheTradingSystem,2012cl13.210Ibidcl21.211Ibidcl23(5).212Ibidcl23(6).213InformationinthissectionisderivedfromRegulationsoftheSEC,RegulationsoftheSET,datafromthepilotinterviews,andtheresearcher’sownexperiences.214 The Securities and Exchange Commission, Statistics of approved investment analysts/investmentconsultants<http://market.sec.or.th/public/orap/IC05.aspx?lang=en>.

73

to work in retail sales departments of securities companies and commercial

banks.Theirmaintasksaretobuyandsellsharesasinstructedbyclientsaswell

as giving investment advice based on analyses done by the organisation’s

researchdepartment.Holdersofanalyst licencescanwork invariouspositions

and capacities within the organisation, from securities dealers in proprietary

trading departments, securities analysts in research departments, fund

managers in fund management departments, to executives of securities

companies. It is uncommon for holders of analyst licences to provide retail

brokerageservices,withtheexceptionofprovidingthoseservicestokeyclients.

Careersof securitiesbrokers inThailandusuallybeginafter graduationwitha

bachelor’s degree from a university. Although current regulation does not

require any specific degree, most prospective securities brokers graduate in

related fields suchasaccounting, finance,oreconomics since suchbackground

knowledgeprovidesthemwithfundamentalskillsrequiredtoworkassecurities

brokers.Theprospects thenpreparethemselves for the licensingexaminations

bystudyingtextbooksandmanualsprescribedbytheTSIand/orbyenrollingin

preparationcoursesofferedbyvariousinstitutions.Aftertheyhavesuccessfully

obtainedconsultantlicencesfromtheSECoffice,theysubmitjobapplicationsto

securities companies and commercial banks. The application process usually

comprises interviews and background checks. If offered a job,most would be

assigned to retail sales departments as trainee brokers.215 Duration of the

probationperiodisnormallythreetosixmonthsandduringsuchperiodsmost

companies provide induction training to new employees on the organisation’s

codeofconductandpractices,onhowtoeffectivelyadviseclients,andonhowto

submit trading orders to the trading system, for example. After training and

probation,theyarefullyemployedassecuritiesbrokerswiththeirprincipaljob

description including giving advice and conducting securities trading to retail

clients.Thesenovicebrokersnormallyworkinateamoffiveorsixunderateam

leader who is an experienced broker. The team leader has duties to monitor

team members’ work and manages team expenses in addition to conducting215The other department that the consultant licence holders are sometime assigned to is theinvestmentfunddepartmentwithajobdescriptionofsellingmutualfundunitstoclients.Thisismorecommoniftheemployersarethecommercialbankswithlargemutualfunds.

74

tradesforhisorherownclients.Thedepartmentalhierarchyabovesupervisors

normally includes several branch managers and the head of the retail sales

department. It is interestingthatpromotionfromteammembertoteamleader

tobranchmanagerandtoheadoftheretailsalesdepartmentismainlybasedon

thetradingvolumeheldbythebroker.Workexperienceandteammanagement

skills are often taken into consideration but are not deemed as important as

tradingvolumeinmostcases.

InThailand, the incomeofbrokersworking in retail salesdepartmentsmainly

dependsontheirshareofthebrokeragefee(27.5%fortradeviathetraditional

channel and 13.75% for trade via the Internet channel).216The greater the

volumeoftradeconductedfortheirclients,themorefinancialcontributionthey

make to their team and the company, which in turn determines their own

incomethroughacomplicatedremunerationsystem.Althoughthecompensation

system of each securities company may vary in detail, there are two general

compensation schemes: ‘the salary-based scheme’ and ‘the incentive scheme’.

Thesalary-basedscheme,whichisalwaysappliedtotraineeandnovicebrokers,

isasystemwherebythecompanygivesaretaineror fixedamountofsalary to

thebrokersregardlessofthevolumeoftradegeneratedbytheminthatcalendar

month.217The incentive scheme, in comparison, is a system where securities

companiesgiveminimumfixedretainersassalarytobrokersonthescheme.218

The broker’s income instead relies on their shares of brokerage fees they can

generate each month. In other words, the higher the volume of trade they

conductfortheirclients,thehighertheincomethebrokerswillearn.However,

theyalsoruntheriskofhavingverylowincomeiftheycannotconvinceclients

toengageintrade.Inaddition,ifthesebrokerscannotgenerateadequatevolume

tocovertheirsalaries,itiscommonforthecompaniestostartputtingpressure

onthemtofindwaystogeneratemorevolume,eithertofindnewsclientsorto

216 Association of Thai Securities Company’s guideline on the Compensation of InvestmentConsultants,TeamLeaders,andManagersofSecuritiesCompaniesNo.3.217UnderthecurrentAssociationofThaiSecuritiesCompany’sguideline,thehighestsalarythatsecurities companies can give to the salary-based scheme brokers is 25 000 baht per month(approximately800AUD).Seeibid.218UnderthecurrentAssociationofThaiSecuritiesCompany’sguideline,thehighestsalarythatsecurities companies can give to the intensive scheme brokers is 15 000 baht per month(approximately500AUD).Seeibid.

75

convince existing clients to trade more. If the situation occurs regularly, the

company is likely to ask a broker to leave, imposing enormous pressure on

brokerstoperform.Thisschemeispopularamongexperiencedbrokerswhoare

moreorlesscertainthattheyalwayshavealargeandsteadytradingvolumeto

generateadequateincome.

Apart from the broker’s income from commissions or from salaries as fixed

retainers as described above, a number of securities companies give a team

bonus, which potentially has a significant influence on the team members’

incentive and work environment. The team bonus scheme is a bonus system

whereasecuritiescompanysetsa trading target thata teamofbrokershas to

collectively achieve each month. If the team is able to a meet or surpass the

targetaftertheoperatingcostsarededucted,thecompanywillgiveteamleaders

certainamountsofbonustomanage.Theteamleaderhasthepowertoallocate

thebonusasheorsheseesfit.

Since brokers’ income is totally based on the trading volume of their clients

(especially in incentive schemes), finding new clients and retaining existing

clients remain key to their career success.Networking and servicing skills are

thereforeimportant.Researchersinthefieldofbusinessandmanagementhave

noted a special relationship between Thai brokers and their clients in this

regard. They have found that Thai people rate communication and personal

interactionshighly.219Thaiinvestorsarehighlydependentonsecuritiesbrokers

andprefertohavecloserelationshipswithbrokerswholookaftertheirtrading

accounts. 220 For these reasons, Thai securities brokers often form a close

relationshipwithclientsinordertoretaintheirbusinessandtoencouragethem

to buy or sell shares. However, such close relationships may lead to difficult

219PhallapaPetison and LalitM Johri, 'Dynamics of themanufacturer-supplier relationships inemerging markets: A case of Thailand' (2008) 20(1) Asia Pacific Journal of Marketing andLogistics76;RavipaLarpsiriandMarkSpeece,'Technologyintegration:PerceptionsofsalesforceautomationinThailand'slifeassuranceindustry'(2004)22(4)MarketingIntelligence&Planning392.220OpasPiansoongnernandPacapolAnurit, 'AGlobalCompetitivenessStudyofThaiSecuritiesIndustry: A Case Study of Factors Influencing Investors' Loyalty to Securities Companies inBangkok'(2007)8(1/2)GlobalJournalofFlexibleSystemsManagement1.

76

situations,suchasaconflictofinterest,alackofprofessionalism,oranabuseof

trust,whichmayresultinaninfringementoflawandregulations.221


77

Chapter3

TheThaiAnti-brokerageFraudRegime

IGoverningLaws

ThischapterfirstoutlineskeyissuesrelatingtothecurrentThaianti-brokerage

fraudregimeandoffencesonwhichthisresearchfocuses:(1)sourcesoflawand

regulationthatregulateconductofsecuritiesbrokers,(2)formsofsanctionthat

can be imposed upon offending brokers, (3) an overall picture of offences

committed by securities brokers during the course of their work as well as

specific regulations that regulate such offences,222and (4) four particular low-

leveloffencesanalysedforthispieceofresearch.

ASourcesofLawandRegulation

Fourmain sources of law and regulations exist in the current anti-brokerage-

fraud regime: (1) regulations issued by the Capital Market Advisory Board

(CMSB) and the Office of the Securities and Exchange Commission (the SEC

Office) under theSecuritiesandExchangeActB.E.2535 (1992), (2) regulations

issuedby theStockExchangeofThailand(SET), (3) criminal lawprovisions in

the Penal Code and the Securities and Exchange Act B.E. 2535 (1992), and (4)

provisionsoftheCivilandCommercialCodeprovidingcivil liabilitiesrelatingto

thecommissionofwrongfulactsaswellasbreachofcontractbetweensecurities

companiesandtheirclients.Thesefoursourcesprovideadministrative,criminal,

and civil deterrencewith corresponding proceedings in different offences and

circumstances.

222InformationinthissectionisderivedfromthePenalCode,theSecuritiesandExchangeActB.E.2535(1992),RegulationsoftheSEC,RegulationsoftheSET,datafromthepilotinterviews,andtheresearcher’sownexperiences.

78

1RegulationsoftheCMSBandTheSECOffice

TheSecuritiesandExchangeActB.E.2535(1992)isthemainstatutecoveringall

aspectsoftheThaisecuritiesmarketandrelatingsecuritiesbusiness.Chapter4

of the Act specifically lays down rules regulating different types of securities

businessincludingsecuritiesbrokerage,securitiesdealings,investmentadvisory

services, securities underwriting, mutual fund management, and private fund

management, respectively. This research focuses on the securities brokerage

businessinwhichsection113oftheActstipulatesthat:

In operating the business of securities brokerage, a securities company shall comply

withtherules,conditions,andproceduresasspecifiedinthenotificationoftheCapital

MarketSupervisoryBoard.

TheCMSBNotificationsarethereforethemainsourceofregulationprovidinga

frameworkforhowsecuritiesbrokeragecompaniesmayconducttheirbusiness

andhowtheiremployingbrokersmaylegallybuyandsellinvestmentproducts

fortheirclients.Therearefurtherregulationsandguidelinesattheoperational

level issued by the SEC Office, who is tasked with a duty to enforce CMSB

Notificationsaccordingly.

At the framework level, there are currently three main CMSB Notifications

relating to the securitiesbrokeragebusiness.The first is theCMSBNotification

No.TorThor.63/2009onRequirements,Conditions,andProceduresinConducting

SecuritiesBrokerageandSecuritiesDealingBusiness.This laysdownprocedures

that a securities company must follow in conducting securities brokerage

business aswell and internalmeasures that the companyhas to implement to

protect clients’ and the public interest, such as separating business units from

supporting units, establishing credible internal control and risk management

mechanisms, establishing an information firewall between different business

units,establishinganindependentcomplianceunit,andensuringthatalltrading

orders and are fully recorded and having them permanently available for

inspection. The notification also provides broad guidelines on the duty of

79

securitiescompaniesinthesupervisionoftheiremployees’conduct,especiallyin

relation to solicitationof clients.Under thisnotification, if the SECOffice finds

thatanysecuritiescompanyfailstocomplywithanyrequiredprocedureorfails

toestablisheffectiveinternalmeasures,theSECOfficehasdiscretiontorequire

thecompanytocorrectorimproveitsproceduresorinternalmeasureswithina

givenperiod223aswellastoimposeafineuponthecompany.224

ThesecondrelevantnotificationistheCMSBNotificationNo.TorThor/Nor/Khor.

37/2010ontheProhibitiveCharacteristicsofPersonnelinSecuritiesBusiness.The

notificationprescribes, indetails,prohibitedcharacteristicsofpersonnel in the

Thai capital market industry. Personnel regulated by this notification are

management, fund managers, property fund managers, securities brokers,

derivatives investment managers, and derivatives brokers.225In essence, such

personnelmustnothave the following characteristics: (1)havingdeficiency in

legal competence, is being subject to any legal proceeding under the law

governing the capital market, or having untrustworthy characteristics as

specified, (2) having any record of deceitful, fraudulent, or dishonest

management of assets, or (3) having any improper behaviour which has

materially affected clients, investors, employing company, shareholders, or the

capitalmarketasawhole.226

The third notification is the CMSB Notification No. TorLorThor. 3/2012 on the

ApprovalofInvestmentAnalystsandInvestmentConsultants.Thiscomprisestwo

parts. The first part lays down procedures on how a person may apply for

relevantlicencesinordertoworkassecuritiesbrokersandhowtorenewtheir

licences. 227 The second part then provides broad frameworks of standard

practicesthatbrokersshouldadheretointhecourseoftheirwork,whichare(1)

bona fide performance of duties and services, (2) performing duties

professionally, attentively, and prudently as well as treating every investor

223TheCMSBNotificationNo.TorThor/Nor/Khor.37/2010cl1.224SecuritiesandExchangeActB.E.2535(1992)ss113,282.225TheCMSBNotificationNo.TorThor/Nor/Khor.37/2010cl2(4).226Ibidcl3.227SeedetailsinChapter2.

80

uniformly,(3)complyingwithallcapitalmarketregulations,(4)complyingwith

professional ethics and standards set by recognised professional associations,

and (5) refraining from committing any unfair trade practices or taking

advantage of investors, or supporting any third party in doing so.228 If any

securitiesbrokerfailstoadheretothesestandards,heorsheisdeemedtohave

improperbehaviourmateriallyaffectingclients,investors,securitiescompanies,

or the capital market as a whole, constituting prohibited characteristics

according to theCMSBNotificationNo.TorThor/Not/Khor.37/2010 above. The

SECofficemaythensuspendorrevokehisorherlicenceasdeemedappropriate.

Attheoperationallevel,theSECOfficehasissuedanumberofnotificationsand

recommendationstoclarifyandimplementtheframeworkslaidoutinthethree

CMSB Notifications above. The most important is the SEC Notification No.

KorLorTor.Khor.Wor12/2011.Thisnotificationclarifiesandcategoriseswrongful

brokerage practices into six categories and designates the minimum level of

administrative punishment in each category.229This SEC Office Notification,

which entered into force in 2011, has significantly increased the level of

minimumadministrativepunishment inanattempttoreducebrokeragefrauds

and regulatory contraventions in the Thai capital market. Before 2011, the

applicable notificationwasNo.Thor.Wor.27/2002,which imposed less serious

228TheCMSBNotificationNo.TorLorThor.3/2012cl20.229The first and most serious category (Group 1.1 of the Notification) is the commission ofembezzlementorfraudandtheconcealmentofinformationorsubmissionoffalseinformationinthe licenceapplicationprocess.Thesecondcategory(Group1.2) isbreachof fiduciarydutybytakingadvantageof investorsorseeking improperbenefits,suchas frontrunning,churning,orunauthoriseduse of clients’ accounts. The third category (Group2.1-2.2) is the commission ofunfair tradingpracticesundertheSecuritiesandExchangeActB.E.2535 (1992)andother laws,suchasinsidertrading,marketmanipulation,andmoneylaundering.Thefourthcategory(Group2.3-2.4) is the contravention of the SET regulations on improper trading orders and thecontraventionoftheSECOfficeregulationsandprofessionalethics,suchasafailuretoproperlyrecordtradingordersorproviding incompleteor improperadvicetoclients.Thefifthcategory(Group3.1)isafailuretomeetprofessionalstandards,suchastradingwithoutclientinstructionsor making trading decisions on behalf of clients, asking for trading fees that clients are notrequiredtopay,actinginsupportorcooperatingwithclientsinconductingfinancialtransactionsthatarenotsuitabletotheclients’financialconditions,andhelpingclientstosecureoff-marketloans for the purpose of securities trading. The sixth and last category (Group 3.2) is actingwithoutadequatecare,suchasdisclosingpersonaland/ortradinginformationofclientstothirdparties, taking trading instructions from third parties, acting beyond duties assigned byemployingsecuritiescompanies,givingassurance toclientson futureprofits fromtrading,andinterferingwithclients’assets.

81

penaltiesuponoffendingbrokers.Detailsofchangesintheminimummagnitude

ofsanctionareshowninthetablebelow.

Table15:AComparisonofMagnitudeofSanctionsbetweentheSECNotifications

No.KorLorTor.Khor.Wor12/2011andNo.Thor.Wor.27/2002

CategoriesofWrongful

BrokerageConducts

AdministrativeSanctionsStipulated

intheSECNotificationNo.

KorLorTor.Khor.Wor12/2011

AdministrativeSanctions

StipulatedintheSECNotification

No.Thor.Wor.27/2002

Commissionof

EmbezzlementorFraud

-Revocationoflicenceanda

prohibitiononre-applicationforfive

yearsatminimum

-Publicationofanoffender’snameand

hisorheremployingsecurities

company’sname

-Revocationoflicence

BreachofFiduciaryDuty - Suspension of licence for sixmonths

atminimum



company’sname

-Probation

-Suspensionoflicencefortwoyear

atmaximum


CommissionofUnfair

TradingPractices

-Revocationoflicenceanda

prohibitiononre-applicationfortwo

yearsatminimum



company’sname


ContraventionoftheSET

RegulationsonImproper

TradingOrdersortheSEC

OfficeRegulationsand

ProfessionalEthics

-Suspensionoflicenceforonemonth

atminimum



company’sname

-Reprimand

-Probation

-Suspensionoflicenceforoneyear

atmaximum

FailuretoMeet

ProfessionalStandards

-Suspensionoflicenceforthree

monthsatminimum



company’sname

-Reprimand

-Probation


atmaximum

ActingwithoutAdequate

Care

-Suspensionoflicenceforonemonth

atminimum



company’sname

-Reprimand

-Probation


atmaximum

82

It should be noted that the SEC Office has recently issued a new notification,

which isNo.KorLorTor.BorThor.(Wor)44/2013.Thenotificationstipulated that

from1January2014onwardstheOfficewouldfurtherincreasethemagnitudeof

sanctioninitssentencingdeliberationofprevalentoffencessuchasafailureto

properly record trading orders, unauthorised use of clients’ accounts, trading

withoutclientinstructions,andmakingtradingdecisionsonbehalfofclients.In

this notification, the SEC Office also issued a strong warning to securities

companiesthattheyhaveadutytoensurethatemployeesfullycomplywiththe

regulations.Iftheyfailtodoso,theSECOfficewilldeemthatthecompanieshave

failedtomaintaineffectiveinternalmechanismsandtheywouldbesubjecttoa

correctiveorder230and/oracorporatefine.

The other important SEC Office Notification is No. KorLorTor.BorThor.

3947/2013. This notification provides a ‘Do and Don’t Checklist’ for securities

brokers to use as a guideline in their work. The checklist is divided into four

headings;namely,(1)AccountOpening,(2)GivingAdviceandExecutingTrading

Orders,(3)Post-tradingProcedures,and(4)EmployeeBestPractice.

2RegulationsoftheSET

Asmentioned in Chapter 2, Thai securities brokers’ job description comprises

twomainactivities.Thefirstistosolicitandgivetradingadvicetoclients,which

isregulatedbytheSECOfficeundertheCMSBandtheSECOfficeregulationsas

covered in theprevious section.The second is toenter tradingorders into the

SETtradingsystemasinstructedbytheclients.Thisactivityisregulatedbythe

SET under various SET Notifications. The main piece is No. BorSor/Saw 01-

28/2012 on the Relevant Persons in the Trading System. This notification

prescribes duties that securities brokers, as authorised persons in the trading

systemhavetocarryoutwhentheyentertradingorders.Inessence,theyhave

legaldutiesnotto(1)disclosetraderIDstootherpersons,231(2)usetraderIDs

230TheSECOfficehaspowertoissueacorrectiveorderrequiringasecuritiescompanytoreviewandchangeprocedures thataredeemed tocontravene theSECand theCMSBregulations.See,SecuritiesandExchangeActB.E.2535(1992)s19(2).231TheSETNotificationNo.BorSor/Saw01-28/2012cl21.

83

of other persons, 232 (3) place improper trading orders that create false

markets,233(4)exploitclients’ informationortradinginformationfortheirown

oranythirdpartybenefits,234and(5)entertradingordersfortheirownorany

thirdpartybenefitsusingtheirclient’accounts.235

3CriminalLawProvisionsinthePenalCode,theSecuritiesandExchangeActB.E.

2535(1992),andtheAnti-MoneyLaunderingActB.E.2542(1999)

ThethirdsourceofrulesinthecurrentThaianti-brokeragefraudregimeisthe

PenalCode,theSecuritiesandExchangeActB.E.2535(1992),andtheAnti-Money

Laundering Act B.E. 2542 (1999) that criminalise various acts relating to

brokeragepractices.Theseprovisionsprovidecriminalsanctionsuponoffenders

inadditiontoadministrativesanctionsundertheCMSB,theSECOffice,andthe

SET regulationsmentioned in the previous sections, given that the regulatory

agenciesand/orthevictimsdecidetoinitiatefurthercriminalproceedings.

InthePenalCodetherearetwogroupsofgeneralcriminalprovisionsthatcanbe

applied to wrongdoing committed by securities brokers during the course of

their work. The first group includes provisions relating to a fabrication of

documents and/or a forging of signatures in sections 264 to 269. The second

makes provisions relating to deception and/or misappropriation of asset in

sections341to348and352to356.

TherearemanycriminalprovisionsintheSecuritiesandExchangeActB.E.2535

(1992), however most provisions deal with offences committed by public

companiesthatofferforsaleorsellsecuritiestothepublicorexecutivesofsuch

publiccompanieswhofailtocomplywithdutiesprescribedintheAct.Theonly

criminalprovisions thatapply tosecuritiesbrokersaresections238to244on

unfairsecurities tradingpractices,whichessentiallycover threemainoffences:

232Ibidcl22.233Ibidcl23(5).234Ibidcl23(6).235Ibidcl23(7).

84

(1) dissemination of false statements and false news,236(2) insider trading,237

and(3)marketmanipulation.238

ThethirdstatuteimposingcriminalliabilityuponsecuritiesbrokersistheAnti-

Money Laundering Act B.E. 2542 (1999). During the course of their work, a

securities broker may knowingly or unknowingly assist his or her clients in

launderingmoneybyfacilitatingorcommissioningthepurchaseand/orsaleof

shareswithmoney fromunidentifiedsources. If thebroker,withknowledgeof

the client’s intent to laundermoney, gives suchassistance,heor shewouldbe

guiltyasanaccessoryto thecrime.Unlikeanyothercriminalprovisions in the

Thailegalsystem,239section7oftheAnti-MoneyLaunderingActprovidesthatan

accessoryshallbeliabletothesamepenaltiesasaprincipal.240

4CivilLawProvisionsintheCivilandCommercialCode

Thelastsourceoflawandregulationrelevanttoestablishingtheanti-brokerage

fraudregime is thesetofcivil lawprovisions in theCivilandCommercialCode,

whichprovidecivilsanctionandcivilremedy.Inpractice,injuredclientsusually

startthecivilprocessbylodgingtheircomplaintsinordertosetupnegotiations

and settlements with the employing securities companies. The securities

companieshave a strong incentive to reach settlementswith injured clients in

ordertopreventtheclientsfromraisingthecaseswiththeSECortheSET,which

wouldresultinformalinvestigations,andalsotoprotecttheirreputationwithin

the industry and in the eyes of the public. If the injured clients cannot reach

settlementwiththecompanies,theyhaveoptionstoeithersubmittheircasesto

the SEC Office for an arbitration procedure to settle their disputes given that

prescribed conditions are met,241or they can initiate their cases in the civil

236SecuritiesandExchangeActB.E.2535(1992)ss238-240.237Ibidss241-242.238Ibidss243-244.239AllcriminalprovisionsintheThailegalsystem,exceptthoseintheAnti-MoneyLaunderingActB.E.2542 (1999),areunderthepurviewofsection86ofthePenalCodewhichprovidesthatanaccessory shall be liable to the two-third of thepunishment as provided for such offence. See,PenalCodes86.240Anti-MoneyLaunderingActB.E.2542(1999)s60.241Seedetailsbelow.

85

courts on three grounds: tort, breach of agency provisions,242and breach of

contract.

In tort, clients may sue for the damage caused by the brokers, willfully or

negligently,totheirpropertiesoranyright.243Thelawfurtherstipulatesthatan

employer is jointly liable with his or her employee for the consequences of a

wrongful act committed by the employee in the course of his or her

employment.244Therefore,injuredclientsmaysueboththesecuritiescompanies

and their employing securities companies for compensation. Apart from the

wrongfulactprovisions,injuredclientsmayalsoinitiatecasesundertheagency

provisions.Section812oftheCivilandCommercialCodeprescribesthatanagent

isliableforanyinjuryresultingfromnegligence,non-executionoftheagency,or

actsdonewithoutorinexcessofauthority.Furthermore,subagentsaredirectly

liable to theprincipals, according to section814. In this context, the securities

companies and their employees are agents and subagents for clients in share

transactions as well as in other activities relating to their businesses. If the

clientsareinjuredasaresultofnegligenceorfromwrongfulexecution,theymay

seek compensation under these provisions in addition to the wrongful act

provisionsstatedabove.

BFormsofSanction

The current Thai anti-brokerage fraud regime employs multiple types of

sanction todeter brokerage frauds at different levels of severity. The formsof

sanction, which correspond to the proceedings employed, can be classified as

administrativesanctions,criminalsanctions,andcivilsanctionsrespectively.

1AdministrativeSanction

Administrative sanctions imposed by the SEC Office upon offending securities

brokersaretheprimaryandmostprevalentsanctionsofthecurrentanti-fraud242CivilandCommercialCodess797-832.243Ibids420.244Ibids425.

86

regime. At the moment, the available forms of administrative sanction are a

suspensionandarevocationofbrokeragelicence.Before2011,areprimandand

aprobationaryorderwerealsoavailableas less severesanctions for first-time

offenders and/or less-serious incidents. However, due to the concern that the

sanctions were not severe enough to effectively deter wrongdoings, the SEC

OfficeissuedtheSECNotificationNo.KorLorTor.Khor.Wor12/2011toreclassified

categoriesofoffencesandincreasethemagnitudeofsanctionsineachcategory.

Aprobationaryorderhasbeenabolishedwhileareprimandisnowconsidered

asanadministrativeactionratherthanasasanction,whichmeansthattheSEC

Officemay issuea reprimand toanysecuritiesbrokeratany timeandwithout

having to initiate any formal proceedings. Due to such change, the minimum

administrativesanctionhasbeenincreasedtoaone-monthsuspensionoflicence

and themaximum is a revocationof licence togetherwith aprohibitionon re-

applicationfor10years.Whenabrokeragelicenceisbeingsuspended,heorshe

maynot engage in brokerage activities. Thismeans the offender cannot solicit

clients, give trading advice, or enter trading orders in the system, during the

prescribed time period. As a result, he or she would not receive from the

companytheusualfixed-salaryplusashareofcommissionfees.

Inadditiontotheincrementinthemagnitudeofsanctionabove,undertheSEC

NotificationNo.KorLorTor.Khor.Wor12/2011, the SEC Office also introduced a

namingandshamingschemetoimposeadditionalcostuponoffendersaswellas

toraisepublicawarenessofharmfulbrokerageconduct. Inthecaseofaminor

infringement,theSECOfficewillonlypublishthenameoftheoffendingbroker.

Forseriousoffences,thenamesofhisoremployingsecuritiescompanywillalso

berevealed.

It is important to note that the SEC only has power to impose licence-related

sanctions that are a suspension and a revocation of licence upon offending

brokers. The agency is not empowered to impose an administrativemonetary

87

fine.245 In contrast, in the specific offences where the SET is the primary

regulator, such as offences relating to improper trading orders and offences

relating to use of trader IDs, the SEThas a power to directly impose both the

licence-relatedandthemonetarypunishmentsuponoffendingbrokersandtheir

securitiescompanies.

2CriminalSanction

TheThaiPenalCodespecifiestheavailableformsofcriminalsanctioninSection

18, that are, from the most to least severe: death sentence, imprisonment,

confinement, fine, and forfeiture of property.246For brokerage offences, the

applicable forms of criminal sanction are limited to imprisonment, fine, and

forfeitureofproperty.Imprisonmentandfinearethemainsanctionsusedinthe

criminalbranchoftheregimewhileforfeitureofpropertyisonlyavailableinthe

specificoffenceofinsidertradinginwhichtheregulatorhastherighttocallon

theoffenderstodelivertothemthebenefitgainedfromtheoffence.247

There are two further features relating to the use of criminal sanctions for

brokerage offences to be noted. First, although the law has stipulated that a

sanctionofimprisonmentisavailableformanyseriousoffences,inpractice,the

courts rarely impose a jail term upon offenders due to the consideration that

these persons are not criminal in nature and can easily be rehabilitated.248

Therefore,theThaicourtshaveatendencytoputtheseoffendersonprobation

with the requirement of probationary supervision.249This extensive use of the

245However,theymayimposecriminalcorporatefineuponemployingsecuritiescompaniesonthegroundthatsuchsecuritiescompaniesfailtoestablishandmaintaineffectiveinternalcontrolmechanismtoprotectclientsandregulatetheiremployees’conduct.246PenalCodes18.247SecuritiesandExchangeActB.E.2535(1992)s241.248Similar to most economic criminals, the brokerage-fraud offenders often have no priorcriminal records and have good education and occupation backgrounds that satisfy therequirementsofprobationgrantingunderSection56ofthePenalCode.249According to the statistics publishedby theCourt of Justice in the year2014, theCourts ofFirstInstanceimposedimprisonmentupon121082individuals(17.04%)andgrantedprobationto299558 individuals (42.16%) from the total numbers of 710531 accusedwhowere foundguilty.Inaslightlysimilarratios,intheyear2015,fromthetotalnumberedof724606convictedaccused, 103 231 (14.25%) were subject to imprisonment, whereas 303 861 (41.93%) weregrantedprobation: Office of Judiciary, 'Annual Judiciary Statistics, ThailandB.E. 2557' (2014),26.

88

probationary order has inevitably weakened the deterrent value of the anti-

brokeragefraudregime.

Second, there is a limited scope for corporate criminal liability in the current

anti-brokeragefraudregime.Inessence,therearetwogroupsofprovisionsthat

impose criminal liability upon securities companies that employ offending

brokers.The first provision,whichdirectly and generallydesignates corporate

sanctions upon brokerage companies, is section 113 of the Securities and

ExchangeActB.E.2535(1992)whichprescribesthat:

In operating the business of securities brokerage, a securities company shall comply

with therules, conditionsandproceduresasspecified in thenotificationof theCapital

MarketSupervisoryBoard.

Section 282 of the Securities and Exchange Act B.E. 2535 (1992) further

prescribesthatanysecuritiescompanywhichfailtocomplywithsection113is

liabletoa finenotexceeding300000bahtanda further finenotexceeding10

000 baht for every day during which the violation continues. The usual

circumstancewheresections113and282arebeingenforced to finesecurities

companies iswhereofficersoftheSECOfficecarryoutroutineinspectionsand

findthatthecompanieshavefailedtoestablishand/ormaintaininternalcontrol

andriskmanagementmechanismsasrequiredbytheCMSBregulations.Inother

words,theSECOfficecannotmerelyusetheincidentofbrokerageoffencesasa

ground to impose a fine upon securities companies. Onlywhen such incidents

are a direct result of the company’s failure to establish andmaintain effective

internal control and risk management mechanisms can such fine be imposed

undersections113and282.

The second group of provisions that potentially impose corporate criminal

liabilityuponsecuritiesbrokeragecompaniesregulatesunfairsecuritiestrading

practices.Thesepracticesare:disseminationoffalsenews250,insidertrading251,

250SecuritiesandExchangeActB.E.2535(1992)ss238-240.251Ibidss241-242.

89

and market manipulation. 252 If such offences are committed by directors,

executives,oranypersonresponsiblefortheoperationofasecuritiescompany

andforthebenefitsofthecompany,thelawdeemsthatthesecuritiescompanies

asalegalpersonhascommittedsuchoffencesandshallbecriminallypunished

byacorporatefine,whichcannotexceedtwotimesthebenefitreceivedorwhich

shouldhavebeenreceivedbysuchpersonasaresultofsuchcontravention,but

shallnotbelessthan500000baht.253

In the scope of this brokerage fraud research, the application of the corporate

criminalliabilityisverylimited.Itishighlyunlikelythatretailsecuritiesbrokers,

onwhichthisthesisfocuses,wouldholddirectorshipsorexecutivepositionsof

securities companies that would risk their wrongful acts to be deemed as an

offencecommittedbythecompaniesthemselvesinthecaseofunfairsecurities

tradingpractices.Therefore,onlyacorporatefineduetoafailureinestablishing

and/ormaintaining internal controlmechanisms is relevant to this thesis and

applicable in practice. Note also that as for other applicable criminal offences

stipulated in the Penal Code, such as fabrication of false documents or

embezzlementbysecuritiesbrokers,duetothenatureofthewrongdoing,such

offencesundertheThailawarehighlyunlikelytoconstitutecorporatecriminal

liability since the acts fall outside the scope of securities companies’ business

objectivesaswellasdonotcreateanydirectbenefittotheorganisations.254

3CivilSanction

The last categoryof sanction in theThai anti-brokerage fraud regime is a civil

sanctionintheformoffinancialremunerationandotherapplicableinjunctions.

Nevertheless, the civil sanction is currently regarded only as a supplementary

tool to deter brokerage fraud in addition to the more government-based

administrativeandcriminalsanctions.TheSECandtheSEThavetakentheview

that a civil remedy is a private matter between injured clients and securities

brokersaswellastheiremployers.Thusgovernmentagencieswouldnotseeka252Ibidss243-244.253Ibids296.254TheSupremeCourtDecisionNo.1669/2506(1963).

90

civil remedy on behalf of clients and leave clients tomake their own decision

whethertonegotiateforsettlement,submitthecaseofanarbitrationprocedure,

or pursue the civil proceedings in the civil court. Therefore, the role of civil

sanctioninthedeterrenceregimeislimited.

If an injuredclient cannot reacha settlementwitha securities company,heor

shehasoptionstosubmitthecasetotheSECOfficeforanarbitrationprocedure

orinitiatehisorhercaseinthecivilcourts.DuringtheSECarbitrationprocess,

the arbitrator will always attempt to reconcile the dispute. However, if the

reconciliationisunsuccessfuland itisfoundthatasecuritiesbrokerand/orhis

orheremployingcompanyhaswrongfullycauseddamagetotheinjuredclient,

thearbitratormayorderthebrokerand/orhisorheremployingcompanytopay

fordamagesnotexceedingonemillionbahtperoneclient.255

Iftheinjuredclient,however,decidestoinitiatehisorhercaseinthecourts,he

or she may do so on three grounds: tort,256breach of agency provisions,257

and/orbreachofcontract.Nomatteronwhatgroundthecaseisbrought,ifthe

judgesagreewith theplaintiff, the judgeshaveawidediscretion todetermine

theamountofcompensationanddamagestobeawardedtotheplaintiffbutnot

overtheamountstatedinthestatementofclaim.258 ItshouldbenotedthatThai

law has no concept of punitive damages. The court will only award actual

damagestotheinjuredplaintiffs.259

COffencesCommittedbySecuritiesBrokers

There are numbers of offences that Thai securities brokers may commit,

knowingly or unknowingly, during the course of their work. The section

attempts tobrieflyexplore themtogiveacoherentpictureof thecurrentThai

255If the damages or the amount in dispute is exceeding one million baht per one client, theinjuredclientmaynotsubmitthecasetotheSECOfficeforanarbitrationprocedure.Heorshehastoinitiatethecaseinthecivilcourts.256CivilandCommercialCodess420,425.257Ibidss797-832.258Ibids438.259Ibid.

91

anti-brokeragefraudregime.Inthissection,thebrokerageoffencesareclassified

intotwogroups:(i) thosethatarecommittedagainstclientsand/oremploying

securities companies, and (ii) those that are committed against the securities

marketandthepublicingeneral.Thereasonsfortheclassificationarethatmost

offences committed against clients are often considered serious offences,

whereas most offences committed in violation of the market regulations are

consideredminorinfringements,exceptinthecaseofoffencesrelatingtounfair

tradingpracticeundertheSecuritiesandExchangeAct.260

1OffencesCommittedAgainstClients

(a)OffencesRelatingtoDocumentandPersonalInformation

One of the more prevalent forms of wrongdoing by securities brokers are

offencesrelatingtodocumentationandsignature.Inthecourseofworking,the

brokers always handle or are in possession of various important public and

private documents, especially personal documents of clients such as bank

accounts, copies of personal identification cards, addresses, etc., which should

notbeusedforpurposesotherthanforbuyingandsellingshares,andshouldnot

berevealedtounauthorisedpersons.Inaddition,manyofthosedocumentshave

signaturesofclientsand/orthirdpartiesthatareatfurtherriskofbeingforged.

It is therefore very important that the brokers are deterred from using these

documentsunscrupulouslyorabusively.ThecurrentThaianti-brokerage fraud

regime has recognised the potential damage of such harmful wrongdoing and

hassoughttoachievedeterrencebyemployingbothcriminalandadministrative

punishmentsasfollows.

The firstoffencerelates to fabricationofdocumentsor forgingofsignatures. If

foundguilty,offendingbrokersaresanctionedadministrativelybyarevocation

oflicenceandaprohibitiononre-applicationforfiveyearsatminimumaswell

260Theoffenceofdisseminationof falsenews, theoffenceof insider trading,andtheoffenceofmarketmanipulation.

92

as publication of their names and the names of their employing companies.261

Apart from the administrative sanction, under section 264 of the Thai Penal

Code,iftheinjuredclientdecidestoinstitutecriminalproceedingsinthecriminal

courts, offending brokers who fabricate clients’ documents or forge clients’

signaturesandusesuchdocumentstothedetrimentof theirclients,suchasto

open new trading accounts or to engage in any transactions unknown to the

clients,willbesubjectedtoapunishmentof imprisonmentnotexceedingthree

years, or a fine not exceeding 6 000 baht, or both. In addition, under section

265,262if such a document or its copy is a document of right263or an official

document,264the applicable penalty is increased to six months to five years’

imprisonment and a fine of 1 000 to 10 000 baht. Section 266265 further

increasesthepenaltyupontheoffenderstoonetotenyears’imprisonmentanda

fineof20000to200000bahtwherethefabricateddocumentisadocumentof

right that is also an official document266 , a share certificate, a debenture

certificate, a share warrant, or a debenture warrant. Offences of fabricating

documentsandforgingsignaturesarenon-compoundable.267

The second typeofoffence relating todocuments that securitiesbrokersoften

commit is disclosure of personal or trading information to unauthorised third

parties.Itismostimportantthatthebrokerskeeptheinformationordocuments

in confidence and reveal them only to the personswho have the authority to

access such information or documents under the law or under the brokerage

contract.Theanti-brokeragefraudregimehasdesignatedsuchwrongdoingasan

administrative offence with the punishment of a suspension of licence for 1

261TheSECNotificationNo.SorKor.49/2009cl14;No.KorWor.12/2011(Group1.1Dishonesty).262PenalCodes265.263Documentsthatclearlymanifesttherightofpersonsuchasloanagreement,saleagreement,andleaseagreement.264Documentsthataremadebygovernmentofficersoragenciessuchaspersonalidentificationcard (TheSupremeCourtDecisionNo.317/2521(1978)), passport (TheSupremeCourtDecisionNo.3942/2529(1986)), house registration (TheSupremeCourtDecisionNo.100/2523(1980)),birthcertificate(TheSupremeCourtDecisionNo.5969/2530(1987)),anddegreecertificate(TheSupremeCourtDecisionNo.2479/2522(1979).265PenalCodes265.266Documents of rights that are created by government officers such as land title deeds (TheSupremeCourtDecisionNo.1970/2530(1987)).267TheSupremeCourtDecisionNo.828/2528(1985).

93

monthatminimum,and topublish theirnamesasoffenders and thenamesof

theiremployingcompanies.268

The last infringement in this section is not perpetrateddirectly against clients

but rather against the employing securities companies. Before any individual

investors canpurchaseor sell shares in themarket, theyhave toopen trading

accountsheldbythesecuritiescompanies.Inordertoopenthoseaccounts,the

investors have to submit various personal and financial documents to the

companies who make an assessment of the background and risk profiles of

potentialclients,andareabletosetthepropercredit limit. Ifanybrokershelp

their clients to conceal crucial information from or submit false documents to

securitiescompanies, theywouldbeadministrativelypunishedbyarevocation

oflicenceandaprohibitiononre-applicationforfiveyearsatminimum,andby

publicationofnamesofoffendersandtheiremployingcompanies.269

Table16:BrokerageOffencesRelatingtoDocumentandPersonalInformation

Section(s) Offence Typeof

Offenceand

Proceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

264ofthe

PenalCode

Fabricationoffalse

documentsorforging

signatures

Criminal Imprisonmentnot

exceeding3yearsorafine

notexceeding6000baht,

orboth

Criminal

Courts

No,the

Supreme

Court

DecisionNo.

828/2528

(1985)

265ofthe

PenalCode

Fabricationof

documentsofright

Criminal Imprisonmentfrom6

monthsto5yearsanda

fineof1000to10000

baht

Criminal

Courts

No,the

Supreme

Court

DecisionNo.

828/2528

(1985)

268The SEC Notification No. SorKor. 49/2009 cl 14; No. KorWor. 12/2011 (Group 3.2 ActingWithoutAdequateCare).269TheSECNotificationNo.SorKor.49/2009cl14;No.KorWor.12/2011(Group1.1Dishonesty).

94


Offenceand

Proceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

266ofthe

PenalCode

Fabricationofshare

certificates,debenture

certificates,share

warrantcertificates,or

debenturewarrant

certificates

Criminal Imprisonmentfrom1to

10yearsandfineof20

000to200000baht

Criminal

Courts

No,the

Supreme

Court

DecisionNo.

828/2528

(1985)

TheSEC

Notification

No.KorWor.

12/2011,

Group1.1

Dishonesty+

No.SorKor.

49/2009,

Clause14

Concealingrequired

informationor

submittingfalse

documentsto

securitiescompanies

tohelpclientssetting

uptradingaccountsor

increasingcreditlimit

Administrative Revocationoflicenceand

aprohibitiononre-

applicationfor5yearsat

minimum,andthe

publicationofthe

offender’snameandhisor

heremployingcompany

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

TheSEC

Notification

No.Kor/Wor.

12/2011,

Group3.2

ActingWithout

AdequateCare

+No.SorKor.

49/2009,

Clause14

Disclosingpersonal

and/ortrading

informationofclients

tothirdparties,unless

suchdisclosureis

requiredbylaw

Administrative Suspensionoflicencefor1

monthatminimum,and

thepublicationofthe


heremployingcompany

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

(b)OffencesRelatingtoDeceptionandMisappropriation270

Thesecondcategoryofbrokerageoffencesagainstclientsisoffencesrelatingto

fraud and misappropriation. Beginning with the administrative side of the

regime,therearetwoadministrativeprovisionscurrentlybeingenforcedbythe

SECOfficetodeterfraudandmisappropriation.Thefirstprovisionderivesfrom

the SEC Notification No. SorKor. 49/2009, clause 14 together with No.KorWor.

12/2011 (Group1.1Dishonesty). They provide that any securities brokerswho

commitoractinsupportofmisappropriationorfraudshallbeadministratively270Theseoffencesarethefocusoffencesofthisresearch.Seedetailbelow.

95

punishedbyarevocationof licenceandaprohibitiononre-application for five

years at minimum as well as publication of their names and their employing

companies. The second provision is the SEC Notification No. SorKor. 49/2009,

clause 14 together with No. KorWor. 12/2011 (Group 3.1 Failure to Meet

Professional Standards) which stipulate that any securities brokers who

dishonestlyaskforhighertradingfeesthantheratesetbysecuritiescompanies,

or for other fees that clients arenot required topay, shall be administratively

punished by a suspension of licence for threemonths at minimum as well as

publicationoftheirnamesandthenameoftheiremployingcompanies.

Onthecriminalside,therearemultipleprovisionsundertheThaiPenalCodeand

theSecuritiesandExchangeActB.E.2535(1992)thatprovidecriminalsanctions

to deter brokerage fraud andmisappropriation. Beginningwith section 341 of

the Penal Code that is the general provision of the offence of deception. It

providesthat:

Whoever,dishonestly271deceives a person with the assertion of a falsehood or the

concealment of facts which should be revealed, and, by such deception, obtains a

propertyfromthepersonsodeceivedorathirdpersontoexecute,revoke,ordestroya

document of right, is said to commit the offence of cheating and fraud, and shall be

punishedwith imprisonment not exceeding three years or fined not exceeding 6 000

baht,orboth.

Section352ofTheThaiPenalCodecriminalisesmisappropriationbystipulating

that:

Whoever,beinginpossessionofpropertybelongingtotheotherperson,orofwhichthe

other person is a co-owner, dishonestly transfers such property to himself or a third

person, is said to commitmisappropriation, and shall bepunishedwith imprisonment

notexceedingthreeyearsorfinednotexceeding6000baht,orboth.

271The term ‘dishonesty’ as present in sections 352 and 353 is defined in section 1(1) of thePenal Code as: ‘Dishonesty’ means in order to procure, for himself or the other person, anyadvantagetowhichheisnotentitlesbylaw’.

96

Themaindifferencesbetween these twoprovisionsare that, first, thescopeof

section341iswiderthansection352.Section341includesvariousoutcomesof

fraud: transferringproperty,andexecuting, revoking,ordestroyingdocuments

of right,whereassection352onlycovers the transferofownershipof thesaid

propertyfromonepersontoanother.Second,thetransferofpropertyinsection

341 is due to deception, whereas in section 352, the transfer of property

happenedbeforehandandthesaidpropertyisrightfullyinthepossessionofthe

offenders.Theoffenceiscommittedonlyafterpossessorsillegallytransfersuch

propertytohimselforherself.

Section353isaminorvariationofsection352.Itprovidesthat:

Whoever,beingentrustedtomanagetheotherperson'spropertyorpropertyofwhich

theotherpersonbeingtheco-owner,dishonestlycommittinganyactincontrarytoone's

duty, causing detriment to the property of that other person, shall be punished with

imprisonmentnotexceedingthreeyearsorfinednotexceeding6000baht,orboth.

Thedifferencebetweensection353andsection352 is that thosewhocommit

offences against section 353 need not actually possess the property and

misappropriate it for themselves.Tobecriminallypunished, theyonlyneed to

be entrusted to manage such property and act against their duties causing

damagetothatproperty.Section354furtherincreasesthemagnitudeofpenalty

uponspecificoffenderswhohaveoccupationsorbusinessesthatinvolvepublic

trustandhavecommittedoffencesinsection352and353toimprisonmentnot

exceedingfiveyearsorfinednotexceeding10000baht,orboth.Withregardto

securities companies and brokers, the Thai Supreme Court has made a

clarification that securities companies and their employees are entrusted to

manage the clients’ property (stocks) as well as being persons who have

occupation and businesses and persons that hold public trust.272Therefore if

securities brokers commitmisappropriation under section 352 or section 353

respectively, they will be punished withmore severe sanctions in accordance

272TheSupremeCourtDecisionNo.2481/2528(1985).

97

with section 354.273 Unlike offences relating to documents in the previous

section,offences relating todeceptionandmisappropriation in this sectionare

compoundable.274

Notable cases related to theoffencesofdeceptionandmisappropriation in the

contextofsecuritiesandbrokeragefraudsareasfollows:

TheSupremeCourtDecisionNo.2689/2526(1983)

Three directors and two employees of a securities brokerage company jointly

sold a plaintiff’s shareswithout an instruction from the plaintiff, and for their

ownbenefit.Thecourt laiddownthattheplaintiffwasavictimunderboththe

provisions of the Penal Code (section 341 Deception and sections 352-354

Misappropriation) and the provisions of the Securities and Exchange Act B.E.

2517 (1974) (section 21 (2) and section 42). As a result, the plaintiff had the

right to institute the proceeding in the criminal courts under both laws.

Defendant one, a securities company and amember of the Stock Exchange of

Thailand,wasfoundtobeinbreachofsection42oftheSecuritiesandExchange

Act B.E. 2517 (1974) and was subject to a corporate fine.Defendant two and

defendant three, directors of the securities company, were found to have

committedactsofdeceptionandmisappropriation,aswellasabreachofsection

42of the act.Defendant four, amanagingdirector, anddefendant six, a senior

manager,were found tohavecommitteddeceptionandabreachof section42.

273UndertheThaicriminallawsystem,eachoffenceisaccompaniedbyminimumandmaximumpenalties that judges can impose upon the convicted. For example, in the offence ofmisappropriation (section 352 of the Thai Criminal Code), the prescribed penalties areimprisonmentnotexceedingthreeyearsorafinenotexceeding6000baht,orboth.Thejudgescanusediscretionindeterminingsentences,fromaslowafineofseveralhundredbahtwithnojailtermtoashighas3yearsimprisonmentandafineof6000baht.Inpractice,however,itiswellknownthattheCourtofJusticehasaninternalguidelinerecommendingappropriateformsand magnitude of the sanctions based on circumstances in each case, including age, criminalrecord, education, occupation, behaviour, and health of the offenders, as well as the financialvalueofthefraud.Nevertheless,thisinternalguidelineisnotavailabletothegeneralpublicandtherearenopublishedstatisticsonthelengthoftheimprisonmentactuallyimposed.Forthesereasonsitishardtodeterminewhethertheactuallengthofimprisonmentishighorlowbytheinternationalstandardofpunishment.ItcanonlybesaidthatthemaximumpenaltiesundertheThaicriminallawarecomparativelylowbyothercountries’standards,includingAustralia’s.274PenalCodess348,356:Compoundableoffencesareoffencesthataredeemedtobecommittedagainstortothedetrimentofthevictimpersonallyandnotagainstthestateorthepublicorder.SeedetailsinChapter2.

98

Defendant five, head of the company’s research section, was found to have

committedabreachof section42only.Defendants two to fiveweresentenced

withtermsofimprisonmentofvaryinglengths.

The implication of this decision to the current anti-brokerage fraud regime is

that victims may pursue criminal proceedings against the offending brokers,

executives,directors,and/orsecuritiescompaniesunderthegeneralprovisions

ofthePenalCodeandthespecificprovisionsoftheSecuritiesandExchangeAct,

notjustundertheprovisionsofthePenalCodeasallegedbythedefendants.


A branchmanager and twodeputy branchmanagers of a securities brokerage

company jointly deceived a plaintiff to buy shares in the Stock Exchange of

Thailand at an inflated price. The three employees were found to have

committed deception under section 241 of the Penal Code and subject to

imprisonment. The securities company, as an employer and a member of the

Stock Exchange of Thailand, was fined under section 42 of the Securities and

ExchangeActB.E.2517 (1974).Twodirectorsof thesecuritiescompanieswere

acquitted on the ground that they had rightfully delegated their securities

tradingdutytothebranchmanagerandhadnoknowledgeofthedeception.


that securitiescompaniesare liable tomonetarysanctionsunder theSecurities

and Exchange Act, if their employees are found to commit deception and/or

misappropriation against their clients. Nevertheless, directors of securities

companies are not held vicariously liable if they can prove that they have no

knowledgeofthedeceptionandhaverightfullyengagetheirsupervisionduty.

TheSupremeCourtDecisionNo.3711-3712/2538(1995)

Theoffenceofmisappropriationcanbe jointlycommitted.Nevertheless,which

sectionsofthePenalCodearetobeappliedtoeachdefendantdependonhisor

99

heroccupationand/orhisorherduties to thevictim.Defendantsoneand two

jointly fabricated documents to misappropriate funds from a plaintiff’s bank

accounts. Defendant onewas a commercial bank branchmanager, deemed an

occupation that holds public trust. Defendant one was therefore a principal

under section 354, which carries higher penalties. Defendant two was not an

employee of the bank, and did not have an occupation holding public trust.

Therefore,defendanttwowasnotanaccessorytotheoffenceundersection354

butaprincipalundersection352,whichcarrieslesserpenalties.


thatemployeesof thecommercialbank,aswellasofsecuritiescompanies,are

consideredashavingoccupationsthatholdpublictrust.Whentheseindividuals

committheoffenceofmisappropriation,theyareliabletohigherpenaltiesthan

ordinaryindividuals.


Theplaintiffopenedamarginaccountwithdefendantone,asecuritybrokerage

company.Inthistypeofaccount,thesecuritiescompanyallowedtheplaintiffto

borrowcompanyfundstobuysharesbyputtingdownthefirst40%ofthevalue

ofsharepurchaseandborrowingtheother60%fromthecompany.Theloanwas

thencollateralisedbysecuritiesandcash in theaccount.TheSEC issuedarule

requiringthecompanyto forcethesaleofsecurities intheclients’accountson

thenexttradingday,whentheratiooftheequityoftheaccountminustheloan

divided by the value of the collateral is equal or below fifteen per cent. The

purposeof this rule is toprotect thebenefitsofbothsecuritiescompaniesand

investors in the SET. On 17October 1996, the collateral ratio of the plaintiff’s

accountfellto7.0511percent.Thecompany,however,didnotforcethesaleof

shares as required by law. Instead it sent a notice to the plaintiff, asking the

plaintifftopaytheloanamountordepositadditionalcollateralintotheaccount.

SuchactionwasabreachoftheSECRegulationcausingdamagetotheplaintiff’s

asset.Defendantstwotosixweredirectorsofthesecuritiescompanyentrusted

to manage the plaintiff’s asset. As they did not fulfill their duties causing

100

substantialdamagetotheplaintiff’sasset,theyweredeemedtohavecommitted

theoffenceofmisappropriationundersections353and354of thePenalCode.

Nevertheless,since theoffenceofmisappropriation isacompoundableoffence,

under section 96 of the Penal Code, the plaintiff had to file the report to the

authority within three months after discovering that the wrongdoing had

occurredandwasabletoidentifythesuspect.Sincetheplaintiffdidnotfilethe

reportwithin such period, the limitation period had expired and the casewas

dismissed.


that directors of securities companies, who do not rightfully fulfill their

supervision duty, can be held vicariously liable for the offence of

misappropriation committed by the companies and/or their employees. In

addition,judgesinthiscaseconfirmedthattheoffenceofmisappropriationisa

compoundableoffence,meaning that victimsofbrokerage fraud,whose shares

and/orfundshavebeenmisappropriated,havetofilethereporttotheauthority

withinthreemonthsaftertheydiscoverthewrongdoingandareabletoidentify

theoffenders.Iftheyfailtodoso,thelimitationperiodwillexpireandtheircases

wouldbedismissed.

Table17:BrokerageOffencesRelatingtoDeceptionandMisappropriation


Offenceand

Proceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

341oftheThai

PenalCode

Deceptioninorderto

obtainproperty,orto

execute,revoke,or

destroydocumentsof

right


exceeding3yearsorfine


orboth

Criminal

Courts

Yes,section

348ofthe

ThaiPenal

Code

352oftheThai

PenalCode

Misappropriation Criminal Imprisonmentnot



orboth

Criminal

Courts

Yes,section

356ofthe

ThaiPenal

Code

101


Offenceand

Proceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

353oftheThai

PenalCode

Personswhoare

entrustedtomanage

otherpersons’

propertydishonestly

actagainsttheirduties

causingdamageto

suchproperty




orboth

Criminal

Courts

Yes,section

356ofthe

ThaiPenal

Code

354oftheThai

PenalCode

IfoffencesinSections

352and353are

committedbyaperson

havingoccupationsor

businessesthat

involvepublictrust



notexceeding10000

baht,orboth

Criminal

Courts

Yes,section

356ofthe

ThaiPenal

Code

TheSEC

Notification

No.Kor/Wor.

12/2011,

Group1.1

Dishonesty+

No.SorKor.

49/2009,

Clause14

Committingoracting

insupportof

misappropriationor

fraud

Administrative Revocationoflicenceand

aprohibitiononre-


minimum,andthe

publicationofthe


heremployingcompany

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

TheSEC

Notification

No.KorWor.

12/2011,

Group3.1

FailuretoMeet

Professional

Standard+No.

SorKor.

49/2009,

Clause14

Askingfortradingfees

orotherfeesthat

clientsarenot

requiredtopayto

securitiescompanies

Administrative Suspensionoflicencefor3

monthsatminimum,and

thepublicationofthe


heremployingcompany

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

102

(c)OffencesRelatingtoBrokeragePractices

The last type of offence often committed by securities brokers against their

clients includes various offences relating to brokerage practice.275This type of

offenceisgenerallyconsideredlessdamaging,sotheregulatoryagenciesdonot

criminalise the offences; only administrative sanctions are imposed upon

offendingsecuritiesbrokers.

Thereare twelveoffences thatcanbeclassified in thiscategory.The first isan

offence of committing front running practices.276Front running practice is an

illegal trading practice where a security broker has advanced knowledge of a

pending largeorderofhisorherownclient, anddecides to takeadvantageof

such knowledge by buying or selling from his or her own accounts, securities

company’saccounts,oranyaccountsofthirdpartiesbeforeexecutingtheclient’s

order. The current Thai regime considers this trading practice damaging and

imposes the administrative penalty of a suspension of licence for 6months at

minimum, and publication of the name of the offender and the employing

company.

Thesecondoffenceiswhereasecuritiesbrokeruseshisorherclients’accounts

fortheirownbenefit.277Theoffencecanbecommittedwithandwithoutconsent

oftheclients.Incaseswherethebrokerusesclients’accountswithoutconsent,

he or she essentially engages in unauthorised trades for the purpose of

increasing his or hermonthly trading volume and a share of commission fees

respectively. In the casewhere the broker uses clients’ accounts to engage in

tradeswiththeclients’consent,theoffenceismainlyconducttoavoidtherules

of theAssociationofThaiSecuritiesCompanies (ASCO) that regulatesecurities

trading of employees of securities companies. 278 Under the current rules,

275The Thai securities law and the criminal laws do not consider offences in this group to becriminal frauds, but merely regulatory violations. As a result, offending brokers are onlysanctionedadministratively.276TheSECNotificationNo.KorLorTor/Kor/Wor.12/2011,Group1.2LackofFiduciaryDuty.277Ibid.278Notificationof theAssociationofThaiSecuritiesCompaniesRe:RulesonSecuritiesTradingofEmployeesandDirectorsofSecuritiesCompanies.

103

securitiesbrokershavetofollowrigorousproceduresbeforetheycanengagein

securities trading for themselves. As a result, some securities brokers collude

withclientstocircumventsuchrestrictionsbyusingclients’accountsinsteadof

theirown.Thisoffenceispunishablebyasuspensionoflicenceforsixmonthsat

minimum, and publication of the name of the offender and the employing

company.

The third offence is knownas ‘churning’.279Churning occurswhen a securities

brokeradviseshisorherclientstomakeexcessivenumbersoftrade.Forevery

purchaseorsaleofshares,theclientshavetopayatradingfeetothesecurities

companywhere they have accounts and the securities brokerwould receive a

portionofthefeefromhisorheremployingcompanies.Asaresult,adishonest

brokermayunethicallyencouragehisorherclientstoengageinfrequenttrades.

Thiswillmean that thebrokerwill earnmore commission to thedetrimentof

theclients,whohavetopayexcessivetradingfees.Similartotheaboveoffence,

this is punishable by a suspension of licence for sixmonths atminimum, and

publicationofthenameoftheoffenderandtheemployingcompany.

Thefourthtypeofwrongdoinginthisgroupoccurswhensecuritiesbrokersgive

incompleteorimproperadvicetoclients.280Thisminoroffenceispunishableby

asuspensionoflicenceforonemonthatminimum,andpublicationofthename

oftheoffenderandtheemployingcompany.

The fifth involves a securitiesbroker engaging in tradewithhisorher client’s

instruction tomake tradingdecisionson theirbehalf.281Theunderlyingreason

behindthiswrongdoingisthatthesecuritiesbroker’sresponsibilitiesarelimited

togivingadviceontheprospectofinvestmentandexecutingtheclient’strading

decisions. This wrongdoing is punishable by a suspension of licence for three

months at minimum, and publication of the name of the offender and the

employingcompany.

279TheSECNotificationNo.KorLorTor/Kor/Wor.12/2011,Group1.2LackofFiduciaryDuty.280 Ibid, Group 2.4 Contravention of Securities and Exchange Commission Regulations andProfessionalEthics.281Ibid,Group3.1FailuretoMeetProfessionalStandard.

104

The sixth offence iswhere a securities broker gives support to, or cooperates

with his or her clients to engage in trades that are not suitable to the clients’

financial condition or their loan repayment ability. 282 This wrongdoing is

punishable by a suspension of licence for three months at minimum, and


The seventh wrongdoing is where a securities broker helps his/her clients

secureoff-marketloansforsecuritiestrading,whichisagainstthepolicyofthe

StockExchangeofThailand.283Thiswrongdoingispunishablebyasuspensionof

licence for3months atminimum, andpublicationof thenameof theoffender

andtheemployingcompany.

Theeighthoffenceoccurswhensecuritiesbrokerstaketradinginstructionsfrom

thirdpartiesotherthantheaccountownersorthosewhohaveproxypowersto

give instructions on behalf of the account owners. 284 This wrongdoing is

punishable by a suspension of licence for one month at minimum, and


The ninth offence happens when securities brokers act beyond the duties

assignedbytheemployingsecuritiescompany.285InThailand,securitiesbrokers

oftenformacloserelationshipwiththeirclients.Moreoftenthannotthebroker

may give assistance to clients in other matters outside the securities trading

service, such as personal financial services or secretarial services; a growing

trendduetothehighcompetitioninthebrokerageindustry.Thiswrongdoing,if

the regulator finds the need to initiate the proceedings, is punishable by a

suspensionoflicenceforonemonthatminimum,andpublicationofthenameof

theoffenderandtheemployingcompany.

282Ibid.283Ibid.284Ibid,Group3.2ActingWithoutAdequateCare.285Ibid.

105

The tenth offence is where a securities broker guarantees future profits from

securitiestradingtotheirclients.286Ifthebrokergivesfalseassurancestohisor

herclientsthattheirtradingwilldefinitelygenerateprofits,itcouldmisleadthe

clients to engage in trade beyond their financial condition. Thewrongdoing is

punishable by a suspension of licence for one month at minimum, and


The eleventh offence comes under a general provision prohibiting securities

brokersfrominterferingwithclients’assets.287Thisprovisioncanbeappliedto

various incidentswhere thebrokershave inappropriately involved themselves

withfundsorsharesintheclients’accounts.Theprovisioncanalsobeappliedas

a supplement to the more specific provisions described in this section. The

wrongdoingispunishablebyasuspensionoflicenceforonemonthatminimum,

andpublicationofthenameoftheoffenderandtheemployingcompany.

Thetwelfthandlastoffenceinthiscategoryiswhereasecuritiesbrokerfailsto

placeclients’ tradingorders in theirchronologicalorder,unless theclientshad

given instructions to depart from such chronological order. This minor

wrongdoingispunishablebyasuspensionoflicenceforonemonthatminimum,

andpublicationofthenameoftheoffenderandtheemployingcompany.

Table18:BrokerageOffencesRelatingtoBrokeragePractices

(Againstclientsand/oremployingcompanies)

Section(s) Offence TypeofOffence

andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

TheSECNotification

No.KorWor.12/2011,

Group1.2Lackof

FiduciaryDutyNo.

SorKor.49/2009,

Clause14

Front

running

practices

Administrative Suspensionoflicence

for6monthsat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

286Ibid.287Ibid.

106


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

TheSECNotification

No.KorWor.12/2011,

Group1.2Lackof

FiduciaryDuty+No.

SorKor.49/2009,

Clause14

Usingclients’

accountsto

tradefor

oneselforfor

thirdparties


for6monthsat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group1.2Lackof

FiduciaryDuty+No.

SorKor.49/2009,

Clause14

Churning Administrative Suspensionoflicence

for6monthsat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group2.4

Contraventionof

Securitiesand

ExchangeCommission

Regulationsand

ProfessionalEthics+

No.SorKor.49/2009,

Clause14

Giving

incomplete

orimproper

adviceto

clients


for1monthat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group3.1Failureto

MeetProfessional

Standard

+No.SorKor.

49/2009,Clause14

Trading

without

client

instructions,

orwiththe

instructionto

maketrading

decisionson

behalfofthe

clientsona

regularbasis


for3monthsat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

107


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

TheSECNotification

No.KorWor.12/2011,

Group3.1Failureto

MeetProfessional

Standard+No.SorKor.

49/2009,Clause14

Actingin

supportor

cooperating

withclients

inconducting

financial

transactions

thatarenot

suitableto

theclients’

financial

conditions


for3monthsat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group3.1Failureto

MeetProfessional

Standard+No.SorKor.

49/2009,Clause14

Helping

clientsto

secureoff-

marketloans

forthe

purposeof

securities

trading


for3monthsat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group3.2Acting

WithoutAdequate

Care+No.SorKor.

49/2009,Clause14

Taking

trading

instructions

fromthird

partiesother

thanclients

orfromthose

whohave

proxiesfrom

theclients


for1monthat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group3.2Acting

WithoutAdequate

Care+No.SorKor.

49/2009,Clause14

Acting

beyond

duties

assignedby

securities

companies


for1monthat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

108


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

TheSECNotification

No.KorWor.12/2011,

Group3.2Acting

WithoutAdequate

Care+No.SorKor.

49/2009,Clause14

Giving

assuranceto

clientson

futureprofits

fromtrading


for1monthat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group3.2Acting

WithoutAdequate

Care+No.SorKor.

49/2009,Clause14

Interfering

withclients’

assets


for1monthat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

TheSECNotification

No.KorWor.12/2011,

Group3.2Acting

WithoutAdequate

Care+No.SorKor.

49/2009,Clause14

Failingto

placeclients’

trading

ordersin

their

chronological

orders,

unless

expressly

advisedby

the

customers’

instructions


for1monthat

minimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

2OffencesAgainstSecuritiesMarketand/orGeneralPublic

(a)OffencesRelatingtoUnfairTradingPractices

Unliketheoffencesinthepreviouscategory,brokerageoffencesinthiscategory

arenotcommitteddirectlyagainst,orwith the intentiontocausedamageto,a

particular person or a company but against the public as a whole or as

infringements against market regulations. The most severe offences in this

category are ones relating to unfair trading practices under the Securities

109

Exchange Commission Act B.E. 2535 (1992) comprising the offences of

misstatement,insidertrading,andmarketmanipulation,respectively.

The offence ofmisstatement can be found in section 240 of the Securitiesand

Exchange Act B.E. 2535 (1992). During the course of their work, securities

brokers may commit the offence of misstatement as principal offenders by

disseminating false reports for their own benefit, as joint principals if such

benefits are shared between them and their clients or their employing

companies, or as accessories before the fact if their actions help facilitate the

commissionoftheoffenceorhelpconcealevidence.Undersection296oftheAct,

principaloffendersarepunishablebyanimprisonmentnotexceedingtwoyears

orafinenotexceedingtwotimesthebenefitreceivedbutnotlessthan500000

baht,orboth.Thosewhoareconsideredaccessoriesbeforethefactareliableto

twothirdsofthepunishment.288

The second brokerage offence relating to unfair trading practices is that of

insidertrading,whichcanbefoundinsection241oftheSecuritiesandExchange

ActB.E.2535(1992).Thebrokerageoffenceofinsidertradingisoneofthemore

severe brokerage offences in the Thai securitiesmarket. During the course of

theirwork,securitiesbrokersoftenhaveaccessto informationnotavailable to

the public, such as business decisions yet to be announced or deals being

negotiated. The Thai securities law forbids securities brokers from using such

informationtogainanybenefit,suchaspurchasingorsellingsharesataprofit

for themselves or their employing companies, or advising clients to do so. If

brokersengageinthetradeorgivetradingadvicebasedoninsiderinformation,

their actions would constitute a criminal offence which is punishable by

imprisonment not exceeding two years or a fine not exceeding two times the

benefitreceivedbutnot less than500000baht,orboth.289Inaddition,section

242oftheActfurtherenablestheSECOfficetorequesttheoffenderstodeliver

thebenefittheygainedfromthetradeorfromthedisclosureofsuchinformation

totheSECOfficeinadditiontotheimprisonmentand/orfine.

288PenalCodes86.289SecuritiesExchangeCommissionActB.E.2535(1992)s296.

110

The third and last brokerage offence in this sub-category is that of market

manipulationinsection243oftheSecuritiesandExchangeActB.E.2535(1992).

The provision aims to deter high volume investors from purchasing or selling

sharesingreatvolumeorinanycontinuouswaystomisleadthepublicandgain

benefit from suchunscrupulous trading. To successfully commit the offence of

market manipulation, the offenders must have substantive funds to cover the

purchaseand thesaleofparticular shares in largevolume to theextent that it

drives the price of shares in theway intended. Therefore, it is unlikely that a

securitiesbrokerwould commit theoffenceonhisorherown,but ratherasa

jointprincipalorasanaccessory,dependingonhisorherlevelofinvolvementas

determinedbythecourts.Similartothetwooffencesinthiscategoryabove,the

offender,iffoundguilty,ispunishablebyimprisonmentnotexceedingtwoyears

orafinenotexceedingtwotimesthebenefitreceivedbutnotlessthan500000

baht,orboth,whiletheaccessoryisliabletotwothirdsofthesaidpunishment.

In addition to criminal sanctions stated above, the SEC imposes further

administrative sanctions upon the offenders, principals and accessories of the

offences relating to unfair trading practices. The SEC Notification No. KorWor.

12/2011 designates the offence of committing or acting in support of unfair

trading practices inGroup2.1Contraventionof theSecuritiesandExchangeAct

B.E.2535 (1992) that is administratively punishable by a revocation of licence

and a prohibition on re-application for two years at minimum as well as

publicationoftheirnamesandnamesoftheiremployingcompanies.

111

Table19:BrokerageOffencesRelatingtoUnfairTradingPractices


and

Proceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound-

able

240ofthe

Securitiesand

ExchangeActB.E.

2535(1992)

Misstatement Criminal Imprisonmentnot


notexceedingtwotimes

thebenefitreceivedbut

notlessthan500000

baht,orboth

Criminal

Courts

No,however

theoffencecan

besettledby

payingafineas

determinedby

theSettlement

Committee

241ofthe

Securitiesand

ExchangeActB.E.

2535(1992)

InsiderTrading Criminal Imprisonmentnot




notlessthan500000

baht,orboth.Confiscationofbenefit

gainedfromthetradeor

fromthedisclosureof

suchinformation

Criminal

Courts

No,however

theoffencecan

besettledby

payingafineas

determinedby

theSettlement

Committee

243ofthe

Securitiesand

ExchangeActB.E.

2535(1992)

Market

Manipulation





notlessthan500000

baht,orboth

Criminal

Courts

No,however

theoffencecan

besettledby

payingafineas

determinedby

theSettlement

Committee

TheSEC

NotificationNo.

KorWor.12/2011,

Group2.1

Contraventionof

theSecuritiesand

ExchangeActB.E.

2535(1992)

Committingor

Actingin

Supportof

UnfairTrading

Practices

Administrative Arevocationoflicence

andaprohinitiononre-


minimum,andthe

publicationofthe


heremployingcompany

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Notapplicable

112

(b)OffencesRelatingtoMoneyLaundering

The second group of offences that securities brokersmay commit against the

security market and/or the public contains offences relating to money

laundering.InThailand,thelawthatgovernsandcriminalisesmoneylaundering

istheAnti-MoneyLaunderingActB.E.2542(1999).

During the course of their work, a securities broker may knowingly or

unknowingly assist his or her clients in laundering money by facilitating or

commissioning the purchase and/or the sale of shares with money from

unidentified sources. If the broker, knowing of the money-laundering intent,

gives such assistance, he or shewould be guilty as an accessory to the crime.

Unlike any other criminal provisions in theThai legal system, section 7 of the

Anti-MoneyLaunderingActprovidesthatanaccessoryshallbeliabletothesame

penaltiesasaprincipal,whichareimprisonmentforatermofonetotenyears,a

fine of 20 000 baht to 200 000 baht, or both.290Apart from the criminal

sanctions,theSECfurtherimposesadministrativesanctionsupontheoffending

brokerintheformofarevocationoflicenceandaprohibitiononre-application

fortwoyearsatminimum,aswellaspublicationoftheoffender’snameandhis

orheremployingcompany.291

Table20:BrokerageOffencesRelatingtoMoneyLaundering


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound

-able

5oftheAnti-

MoneyLaundering

ActB.E.2542

(1999)

MoneyLaundering Criminal Imprisonmentof1to

10yearsandafineof

20000to200000

baht,orboth

CriminalCourts No

290Anti-MoneyLaunderingActB.E.2542(1999)s60.291The SEC Notification No. KorWor. 12/2011, Group 2.2 - Committing or acting in support ofoffencesrelatingtosecuritiestradingunderotherpiecesoflaw(e.g.moneylaundering).

113


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound

-able

TheSEC

NotificationNo.

KorWor.12/2011,

Group2.2

Contraventionof

OtherLaw

Committingor

actinginsupport

ofoffencesrelating

tosecurities

tradingunder

otherpiecesoflaw,

e.g.money

laundering

Administrative Revocationoflicence

andaprohibitionon

re-applicationfor2

yearsatminimum,and

thepublicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendation

fromtheCMPDC)

Not

applicable

(c)OffencesRelatingtoBrokeragePractices

The last group of brokerage offence contains offences relating to brokerage

practicescommittedagainstthesecuritiesmarketand/orthegeneralpublic.Six

offences in this group are exclusively administrative and are found in various

notificationsoftheSECOfficeandtheSET.

The first is the offence of concealment of information or submission of false

information in the licence application process.292To obtain relevant types of

brokeragelicence,anapplicanthastosubmitvariousdocumentsincludingtheir

educational background, work experience, and test scores for different

examinationmodules to the SECOffice. It is very important that the applicant

submitsaccurateinformationandrevealsinformationrequiredsuchaswhether

theyhaveprohibitedcharacteristicsmakingthemunfittoholdthelicences.293If

any securities broker is later found to conceal required information and/or

submitfalsedocumentsduringtheapplicationprocess,heorsheissubjectedto

anadministrativepunishmentofarevocationoflicenceandaprohibitiononre-

applicationforfiveyearsatminimum,aswellaspublicationofthenameofthe

offenderandhisorheremployingcompany.

292TheSECNotificationNo.KorWor.12/2011,Group1.1Dishonesty;No.SorKor.49/2009cl14.293TheCMSBNotificationNo.TorThor.37/2553(2010).

114

Thesecondoffence is thatofplacing improper tradingorders.294Whenaclient

wishes to purchase or sell shares, he or she can either make orders via the

traditional channelor the Internet channel. If thebrokerplaces suchorders in

certain improperwaysasprescribed in theSET’sNotificationsNo.KorKor/Wor.

3/2010andNo.BorSor/Saw01-06/2007,eitherbyhisorherownintentionoras

an accomplice to the fraudulent client, he or she would be administratively

sanctioned. It is interesting to note that both the SEC and the SET have

jurisdiction over the offence of placing improper trading orders althoughwith

differentpunishments.ThepunishmentsavailabletotheSECareasuspensionof

licence foronemonthatminimum,andpublicationof theoffender’snameand

his or her employing company,whereas the punishments available to the SET

areafineofnotmorethan500000baht,andpublicationoftheoffender’sname.

The third offence, and one of the most common contraventions of the Thai

securitiesmarketregulations,isafailuretoproperlyrecordtradingorders.295In

caseswhereaclientengagesintradeviathetraditionalchannel,thebrokerhas

animportantdutytomakesurethatsuchvoiceordersareproperlyrecordedfor

evidential purposes by asking the client tomake a call through the securities

company’s phone numbers, rather than through the broker’s personal mobile

numbers.Ifanybrokerfailstoproperlyrecordtheorder,heorsheissubjected

to an administrative punishment of a suspension of licence for one month at

minimum,andthepublicationoftheoffender’snameandthenameofhisorher

employingcompany.

Thefourthoffenceinthisgroupisanadministrativeoffenceoftradingsecurities

while an analysis is being prepared or within three working days after the

analysishasbeendisseminated(commonlyknownas ‘blackoutperiod’).296The

reasonforsuchprohibition is thatananalystwhoispreparingananalysisofa

particularsharemayhaveaccesstomaterialinformationthatisnotyetpublicly

294TheSECNotificationNo.KorWor.12/2011,Group2.3Contraventionof theStockExchangeofThailandRegulationonImproperTradingOrders.295Ibid, Group 2.4 Failure to properly record trading orders. This offence is one of the focusoffencesofthisresearch.296Ibid,Group3.1Engagingintradeduringtheblackoutperiod.

115

disclosed.Iftheanalystandhisorhercolleaguesinthesamesecuritiescompany

arenotprohibitedfromtradingsuchsecuritiesduringtheblackoutperiod,they

caneasilyuseinsiderinformationtogainpersonalprofitsatthedetrimentofthe

general public. Brokers contravening this prohibition are subjected to an

administrative punishment of a suspension of licence for three months at

minimum, and publication of the offenders’ name and the names of their

employingcompanies.

The fifth and sixth administrative offences are closely linked. They are the

offenceofdisclosingtradingIDstootherpersonsandtheoffenceofusingtrading

IDs of other persons.297 The exclusive use of one’s personal trading ID is

important since the system records all trading activities of the owner of each

unique ID and notifies responsible officers if there is any unusual trading

practiceunderthatID.DisclosingtradingIDstootherpersonsandusingothers’

trading IDs can, therefore, lead to serious offences. Securities brokers who

commit these wrongdoings are subjected to administrative punishments

administeredby theSETranging fromaprobationorder toaprohibition from

workinginanysecuritiescompanynotexceedingoneyear,togetherwithafine

from10000to100000baht.

Table21:BrokerageOffencesRelatingtoBrokeragePractices

(Againstthesecuritymarketand/orthegeneralpublic)


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound

-able

TheSECNotification

No.KorWor.12/2011,

Group1.1Dishonesty

+No.SorKor.

49/2009,Clause6+

TheCMSBNotification

No.TorThor/Nor/Kor.

37/2010,Clause6(3)

Concealmentof

informationfrom

orsubmissionof

falseinformation

totheSECOfficein

thelicence

application

process

Administrative Revocationoflicence

andaprohibitionon

re-applicationfor5

yearsatminimum,

andthepublication

oftheoffender’s

nameandhisorher

employingcompany

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

297TheSETNotificationNo.BorSor/Saw01-20/2000;TheCMSBNotificationNo.TorThor/Nor/Kor.37/2010.

116


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound

-able

TheSECNotification

No.KorWor.12/2011,

Group2.3

ContraventionofStock

ExchangeofThailand

Regulationon

ImproperTrading

Orders+TheSET

NotificationNo.

KorKor/Wor3/2010+

No.BorSor/Saw01-

06/2007,Sanction

Table

Placingimproper

tradingorders

Administrative Fineofnotmore

than500000baht,

andpublicationof

thenameofan

offender

Suspensionof

licencefor1month

atminimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company.

TheStock

Exchangeof

Thailand

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

TheSECNotification

No.Kor/Wor.

12/2011,Group2.4

Contraventionofthe

Securitiesand

ExchangeCommission

Regulationsand

ProfessionalEthics+

No.SorKor.49/2009,

Clause14

Failingtoproperly

recordtrading

orders

Administrative Suspensionof

licencefor1month

atminimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

TheSECNotification

No.Kor/Wor.

12/2011,Group3.1

FailuretoMeet

ProfessionalStandard

+No.SorKor.

49/2009,Clause14

Tradingsecurities

whileananalysisis

beingprepared,or

withinthree

workingdaysafter

theanalysishas

beendisseminated

Administrative Suspensionof

licencefor3months

atminimum,andthe

publicationofthe

offender’snameand

hisorheremploying

company

TheOfficeof

Securitiesand

Exchange

Commission

(witha

recommendati

onfromthe

CMPDC)

Not

applicable

TheSETNotification

No.BorSor/Saw01-

20/2000andThe

CMSBNotificationNo.

TorThor/Nor/Kor.

37/2010.

Disclosingtrading

IDstoother

persons

Administrative Probationorderto

enforceaprohibition

fromworkinginany

securitiescompany

notexceeding1year,

andafinefrom10

000-100000baht

TheStock

Exchangeof

Thailand

Not

applicable

117


andProceedings

Penalties/

Compensation

Adjudicating

Unit(s)

Compound

-able

TheSETNotification

No.BorSor/Saw01-

20/2000andThe

CMSBNotificationNo.

TorThor/Nor/Kor.

37/2010.

UsingtradingIDs

ofotherpersons

Administrative Probationorderto

enforceaprohibition

fromworkinginany

securitiescompany

notexceeding1year,

andafinefrom10

000-100000baht

TheStock

Exchangeof

Thailand

Not

applicable

IIGoverningBodies

The current Thai anti-brokerage fraud regime comprisesmultiple government

agencies and private institutions taking part in different roles and capacities,

from policymaking, regulatory formulation, real-timemonitoring, investigation

of infringement, prosecuting, to imposing sanctions upon the offenders. These

agencies and institutions’ roles sometimes overlap creating tension between

them,aswellasconfusionforallstakeholders.Thissectionexaminestherolesof

eachagencyor institutionintheanti-brokeragefraudregimewithreferenceto

bothadministrativeandcriminalproceedings.

ATheSecuritiesandExchangeCommission(SEC)

TheSecuritiesandExchangeCommissionisthemainregulatorybodyoftheThai

securitiesmarket.TherolesandthestructureoftheSECanditsofficeandsub-

committees canbe found inChapter2. In theanti-brokerage fraudregime, the

SEC regulatory role begins with its Capital Market Supervisory Board (CMSB)

who formulates framework regulations concerning securities businesses and

securitiestradingpractices,suchassecuritiesbusinessandbrokeragelicensing

regulationsandmodelbrokerageconducts.TheOfficeofSecuritiesandExchange

Commission (the SEC Office) then takes responsibility to manage and issue

furtherregulationsattheoperationallevelaswellasenforcingsuchregulations

uponmembersecuritiescompaniesandbrokers.

118

Within theSECOffice’s structure, thedivisiondirectly responsible for theanti-

brokerage fraud regime is theMarket Intermediaries Division, andwithin the

division,therearetheLicensingDepartment,theIntermediariesSupervisionand

Development Department, and the Intermediaries Inspection Department. The

Licensing Department is responsible for the approval and the renewal of all

securities business licences, including securities company licences and

brokerage licences. The department is also responsible for the review of

complaints against licenced brokers as well as conducting investigation and

gatheringinformationonthemisconduct.298TheIntermediariesSupervisionand

Development Department then has a duty to supervise the operation of

securities companies in general, 299 while the Intermediaries Inspection

Department is specifically tasked with the review of complaints against

securities companies and their executives.300If a brokerage offence has been

detected,theaforementionedthreedepartmentsineachcasethenworkclosely

with the Litigation Department and the Capital Market Personnel Disciplinary

Committee (CMPDC) to impose a proper form and level of administrative

sanctionsupon theoffenders.301In caseswhere criminalproceedingsare tobe

pursued instead, theLitigationDepartment thenpreparescase filesandpasses

themtotherelevantagencies,suchastheEconomicCrimeInvestigationDivision

(ECID), theRoyalThaiPolice, or theDepartmentof Special Investigation (DSI)

forfurtherinvestigationandcriminalprosecution.

BTheStockExchangeofThailand(SET)

ThegeneralinformationandthestructureoftheSETcanbefoundinChapter2.

In its capacity as a regulatory agency, the Stock Exchange of Thailand is the

secondprimaryregulatorintheanti-brokeragefraudregimeapartfromtheSEC.

As the operator of the stock exchange, the SETmain regulatory function is to

monitor all trading orders in the trading system aswell as the changes in the

price of all listed securities via its computerised systems for market

298TheSECNotificationontheDepartmentalStructureandManpowerB.E.2555(2012)cl18.299Ibidcl7.300Ibidcl14.301Ibidcl8.

119

surveillance.302Incaseswherethesystemdetectsanyabnormalmovement,the

MarketSurveillanceDepartmentwillmakeapreliminaryinvestigation.Ifthereis

a likelihood of infringement, the case files will be sent to the SEC Office for

further investigation, administrative punishment, and/or criminal

prosecution.303

Nevertheless, in certain offences, which are those of market manipulation, of

placing improper tradingorders, andothers relating to theuseof traders’ IDs,

theSETistheprimaryregulatorwithajudicialpowertoinvestigatetheincident

and impose sanctions by itself.Note that, unlike the SEC that can only impose

administrativesanctionsuponoffendingbrokers, theSETcan further imposea

monetaryfineonboththeoffendingbrokerandhisorheremployingsecurities

company.

CEconomicCrimeInvestigationDivision,theRoyalThaiPolice(ECID)

The Economic Crime Investigation Division is a division in the Central

Investigation Bureau, Royal Thai Police. The ECID is responsible for the

investigation and enforcement of a wide range of offences, including offences

relating to securities and banking. According to the publicised governance

structure of the ECID, there is one administrative sub-division and five

investigating sub-divisions, inwhich the 5th sub-division is responsible for the

investigationofoffencesrelatingtosecuritiesandbanking.

Underthecurrentanti-brokeragefraudregime,theECIDhastwofunctions.The

first function is toconduct further investigationafter ithasreceivedacriminal

complaintfromtheLitigationDepartmentoftheSECOffice, inthecasetheSEC

Office opts to pursue criminal sanctions for serious wrongdoings. After the

investigationhasbeenconcluded,theECIDwillsendthecasefilestotheOfficeof

TheAttorneyGeneral(OAG)forprosecutionintheCourtsofJustice.Thesecond

function of the ECID is where injured investors file claims against securities302 The Stock Exchange of Thailand, Market Surveillance <www.set.or.th/en/regulations/supervision/surveillance_p1.html>.303Ibid.

120

brokers and/or securities companies for criminal offences, including fraud,

misappropriation,orfabricationofdocuments.TheECID,asaspecialisedunitof

theRoyalThaiPoliceForce,conductsaninvestigation.Ifthereisavalidground,

theywillagainforwardthecasefilestotheOAGforfurtherprosecution.

DDepartmentofSpecialInvestigation,MinistryofJustice(DSI)

TheDepartmentofSpecialInvestigation,establishedrelativelyrecentlyin2002,

isalawenforcementagencywithintheMinistryofJustice.TheDSI’smissionsare

toprevent,suppress,andcontrolseriouscrimes,bytakingovertheinvestigatory

power of the Royal Thai Police for specific types of serious offences that are

listed in the Annex of the Special Case Investigation Act B.E. 2547 (2004).

Brokerage and securities offences under the Securities and Exchange Act B.E.

2535 (1992) are also included in the Annex. Nevertheless, only complex cases

that requires special inquiry, investigation, and collection of evidence, and/or

cases thatmight have a serious effect upon public order andmorals, national

security,internationalrelations,orthenationaleconomyorfinances,areunder

the investigative jurisdiction of the DSI.304If the case in question does not

possess one of the above characteristics, the Royal Thai Police retain

investigativepoweroverthematter.305

Inpractice,thenumberofsecuritiescasessofarinvestigatedbytheDSIisvery

small,duetomostinfringementsbeinginternallyandadministrativelydealtwith

bytheSECOffice,andonlyasmallnumberofcasesarecriminallyprosecuted.In

addition,mostcasesthatgothroughthecriminalproceedingsarefiledwiththe

ECIDratherthanwiththeDSIduetothelimitedinvestigativejurisdictionofthe

DSI as mentioned above. From the records, securities cases that have been

investigated by the DSI exclusively concern large scale market manipulation,

insidertrading,andpublicfraud,suchasthecaseofSomchaiChaisrichawlawho

304SpecialCaseInvestigationActB.E.2547(2004)s21.305The main reason for the limited jurisdiction of the DSI is that, at the time of the DSIestablishment,therewasastrongpoliticaloppositionfromtheRoyalThaiPolice.TheRoyalThaiPolice feared that theDSIwould take away its importance andpower. The government at thetime,therefore,reachedacompromisebylimitingtheDSI’sscopeofpowertoverycomplicatedornationallyscandalouscases.

121

was accused of manipulating the share price of Asia Metal Public Company

Limited,306and the case of Shine Bunnag and others who were accused of

manipulatingpricesof12securitiesduring2008-2010.307

EOfficeoftheAttorney-General(OAG)

Office of the Attorney-General is an autonomous legal agency responsible for

criminal prosecution, representation of government in court in civil cases,

provision of legal advice to government agencies, and cooperation with

international institutions in criminal matters.308The OAG has 47 departments

responsible fordifferent functionsof theOAGaswellasdifferentareasof law.

The Department of Economic Crime Litigation, in particular, specialises in the

areas of financial law and law relating to natural resources.309In the anti-

brokerage fraud regime, when the SEC Office decides to pursue criminal

sanctions against offenders, it will initiate proceeding by filing the case with

either the ECID or the DSI for further investigation.When the investigation is

concluded, the case file will be forwarded to the OAG for prosecution, if

appropriate.Responsiblepublicprosecutorshavediscretiontoeitherinstitutea

criminalcaseintheCourtsofJustice,ordropthecaseiftheydeterminethatthe

evidence is insufficient, or such prosecution is not in the country’s best

interest.310

FTheCourtsofJustice

Intheanti-brokeragefraudregime,theCourtsofJusticehavedutiestoexamine

evidence and to adjudicate criminal charges preferred by the OAG or by the

victims themselves. If the presiding judges find accused individuals or

corporations guilty as charged, they will use their discretion to impose the

appropriate forms and magnitude of criminal sanctions based on a range of

306TheSECNewsReleaseNo.83/2555(2012),4September2012.307TheSECNewsReleaseNo.43/2555(2012),11May2012.308OfficeofTheAttorneyGeneral<www.ago.go.th>.309Office of The Attorney General, Department of the Economic Crime Litigation <www.eco.ago.go.th>.310PublicProsecutorOrganisationandOfficialActB.E.2553(2010)s21.

122

sanctions prescribed in the relevant sections of each offence.311The current

formsofindividualsanctionemployedinthebrokerageoffencesareforfeitureof

property, fine, confinement, and imprisonment, while the corporate sanctions

are forfeiture of property and fine, respectively. Apart from the criminal

prosecution, the victimsmay also seek compensation from the offenders who

causedamageuponthembyinfringementofbrokeragelawandregulations.For

suchcivilclaims,theOAGhasnopowertoinstitutetheproceedingsonbehalfof

the victimsor include the claimswith the criminalmotions.312Instead, victims

mustentercivilclaimsthemselvesinseparatelawsuits.

GTheAdministrativeCourts

Before 1997, Thailand employed a single court system where the Courts of

Justice has jurisdiction over every lawsuit. However, the 1997 Constitution

established two new courts by taking away jurisdiction over cases concerning

the interpretation of theConstitution and cases concerning administrative law

and theexerciseofpowerbyadministrativeagencies fromtheCourtof Justice

and giving them to the newly established Constitutional Court and

AdministrativeCourts,respectively.Inthecurrentanti-brokeragefraudregime,

theroleof theAdministrativeCourts is toreviewthe legalityofadministrative

ordersof theSECsuchas the impositionofadministrativesanctionsunder the

SecuritiesandExchangeActB.E.2535(1992).313

311In the Thai criminal law system, punishments are always stipulated in a range, eg. animprisonmentfrom5to10years,orafinenotexceeding100000baht,orboth.312There is a small exception in caseswhere theoffences are theft, snatching, robbery, piracy,extortion, swindling,misappropriation,or receiptof stolenproperty.TheOAGmay include theclaim for the restitutionof thepropertiesonbehalf of thevictims in the criminalproceedings.See,CriminalProcedureCodess43,44.313UnderSection9oftheActonEstablishmentofAdministrativeCourtsandAdministrativeCourtProcedure B.E. 2542 (1999), the Administrative Courts have jurisdiction over the followingmatters:(1)acaseinvolvingadisputeinrelationtoanunlawfulactbyanadministrativeagencyor Stateofficial; (2) a case involving adispute in relation to an administrative agencyor Stateofficialneglectingofficialdutiesrequiredbythelawtobeperformedorperformingsuchdutieswith unreasonable delay; (3) a case involving a dispute in relation to awrongful act or otherliabilityofanadministrativeagencyorstateofficialarisingfromtheexerciseofpowerunderthelawor theby-law, from theadministrativeorderorotherorder,or form theneglectofofficialduties requiredby the law tobeperformedorperformedwithunreasonabledelay; (4) a caseinvolvingadisputeinrelationtoanadministrativecontract;(5)acaseprescribedbylawtobesubmitted to the Administrative Courts by an administrative agency or state official formandatingapersontodoaparticularactorrefrainingfromdoingaparticularact;and(6)acase

123

HTheAssociationofThaiSecuritiesCompanies(ASCO)

The Association of Thai Securities Companies was established in 1973 as the

‘Thai Finance and Securities TradingAssociation’. The nameof the association

has been changed several times resulting in the current name ‘Association of

ThaiSecuritiesCompanies’beingformallyadoptedin2011.314

Membersof theASCOareall securitiescompanies thatoperate their securities

businessintheSET.AsofMay2016,theASCOhas41membercompanies.The

membershaveadutytocomplywiththeASCOregulationsandbusinessethics,

such as conducting their business in a fiduciarymanner, treating clients fairly

and without prejudice, and keeping clients’ information secured and

confidential. 315 One of the most important ASCO regulations relating to

brokeragefraudistheNotificationofAssociationofThaiSecuritiesCompaniesRe:

Rules on Securities Trading of Employees andDirectors of Securities Companies.

Thisnotificationlaysdownrequirementsandproceduresthatsecuritiesbrokers

have to strictly follow before they can put engage in securities trading for

themselves. If the member securities companies fail to comply with the

regulations,theyarepunishablebyaprobationorder,acorporatefine,andaloss

ofmembershipandassociatedrights,respectively.316Oneoftheotherimportant

activitiesoftheASCOistheestablishmentoftheASCOTrainingInstitute(ATI)to

provide training courses and brokerage licensing examinations for interested

membersofthepublic.

involvingadisputeinrelationtoamatterprescribedbythelawtobeunder jurisdictionoftheAdministrativeCourts.314TheAssociationofThaiSecuritiesCompanieshasthefollowingobjectives:(1)todevelopandpromote the country’s capital and securities market, (2) to protect and safeguard membercompanies,(3)toimprovethestandardofbusinessoperations,(4)tocooperatewithregulatoryagencies in drafting rules and regulations in order to develop the infrastructure of the Thaicapitalmarket.See,TheAssociationofThaiSecuritiesCompanies,Objectives<http://www.asco.or.th/about-objective.php>.315AssociationofThaiSecuritiesCompanies’RulesandRegulationscl15,26.316Ibidcl28.

124

IIIEnforcementActivitiesandLegalProceedings

To regulate brokerage conduct and deter offences described in the previous

section, theThai anti-brokerage fraud regime comprisesdifferent enforcement

activities in multiple stages. This section aims to describe the enforcement

activitiesadministeredbyrelevantagencies,startingfrompreventivemeasures,

surveillance and detection, to legal proceedings after wrongdoings have been

detectedandoffendersidentified.

APreventiveMeasures

The primary tool that the Thai regime employs to deter brokerage offences is

preventivemeasures.Thesemeasuresare the first typeofprotectionofclients

and the general public from harm done by dishonest brokers. There are a

number of measures that are currently in force. Some measures establish

personnel screening processes. Others aim to increase the level of knowledge

and legal perception of the brokers. Still others make it more difficult for

unscrupulousbrokers toaccess informationand funds thatareessential to the

wrongdoing.Thesemeasurescanbeclassifiedasthosethataredirectlyimposed

uponbrokersandthoseimposeduponemployingsecuritiescompanies.

(a)PreventiveMeasuresImposeduponSecuritiesBrokers

(i)PersonnelScreening

The first and foremost preventive measure that relevant agencies apply to

regulatebrokerageconductispersonnelscreening.Inordertoworkassecurities

brokersinsecuritiescompanies,onehastoobtainarelevantbrokeragelicence

from the SEC Office.317During the licence application process, the SEC Office

would thoroughly examine the characteristics and qualifications of the

applicants.Theapplicantshavetoshowthattheyhavetherequirededucational

backgroundandworkexperience.Furthermore, theymustnothaveprohibitive317SeedetailsinChapter2.

125

characteristics prescribed by the law, for example having criminal records

relatingtofinancialoffences.

(ii)KnowledgeTestingandTraining

The second preventive measure is knowledge testing during the licence

applicationprocessandduringtheongoingcontinuingeducationrequiredafter

the brokers have obtained their licences. The SEC Office together with the

ThailandSecurities Institute (TSI)havedeveloped training courses and testing

modules that applicants must pass before applying for licences. There are

modulesthattesttheapplicants’financialknowledgeandmodulesthatexamine

theapplicants’knowledgeonthecurrentsecuritieslaw,regulations,andethics.

Topasstheselattermodules,applicantsmustachieveaminimumscoreof70%,

whichsomeextentmayindicatethattheyhaveanadequatelevelofknowledge

ofboththefinancialandregulatorysidesofthebrokeragepractices.

After brokers have obtained their licences and started working for securities

companies, they would normally receive work guidelines detailing standard

workproceduresandbestpractices,whichincluderulesthattheyhavetofollow

inordertoattainthegoodstandardofservicesaswellastoavoidinfringement

ofthelaworofstockmarketregulations.Insomeleadingsecuritiescompanies,

brokersmayalsoreceivefurthertrainingadministeredbycompaniestoenhance

theirknowledgeandfamiliarisethemwithfinancialregulations.Nevertheless,in

order tomake certain that everybrokerhasadequateandup-to-date financial

andregulatoryknowledge, thebrokerage licencesarevalid for twoyearsonly.

Toapply forarenewalof licences,everybroker isrequiredtoattenda fifteen-

hour-minimum knowledge refresher course, covering an update on financial

regulationsandethicsbeforetheirlicencecanberenewed.318

318 ASCO Training Institute, Guideline on The Renewal of Analyst and Consultant Licences<http://www.ati-asco.org/license_page.php?keysname=license02>.

126

(iii)StrategicDisseminationofInformationandNews

Thethirdpreventivemeasureisstrategicdisseminationofinformationandnews

relating to regulations and enforcement activities. In order to deter any

wrongdoing,itisimportantthatpotentialoffendersaremadeawarethatthelaw

isbeingenforcedandthosewhocommitsuchoffenceshavebeenapprehended

andpunished.Inthiscase,securitiesbrokersmustbeconstantlyremindedthat

the SEC and the SET take brokerage offences seriously and a number of their

colleagues have been criminally and administratively punished for

infringements.TheSECandtheSEThave,therefore,activelydisseminatenewsof

theirenforcementactivitiesandpunishments imposeduponoffenders through

variouschannelsthatsecuritiesbrokersareexpectedtopayattentiontoduring

thecourseoftheirwork.319

As for the SEC, it regularly reports its enforcement activities andpunishments

imposed upon offenders in the SEC New Releases, which are prominently

published on the first page of the agency’s website,320and in most financial

newspapers. In addition to the news releases, the SEC also communicates

importantregulatoryupdatesandpracticeguidelinesintheformofcircularsand

leafletsaswellasprovidingimportantenforcementstatisticsinitsquarterlyand

annualreports.AsfortheSET, inadditiontotheSETNewReleaseandvarious

leaflets, the Exchange also has an associated television channel called ‘Money

Channel’321aswell as amagazine called ‘MoneyandWealth’, which sometimes

issuesreportsonpendingcasesincourtsaswellasadministrativepunishments

and monetary fines imposed by the SEC. Apart from the information

disseminated by the regulatory agencies,most securities companies, if not all,

alsohaveinternalcommunicationsystems,includingelectronicnewslettersand

periodic circulars, to notify their employees of new regulations and important

movementsintheindustry.

319ComparingtootherlawenforcementandregulatoryagenciesinThailand,theSECandtheSETaretheonlytwoagenciesthatcurrentlyprovideup-to-datestatisticsandnewsonenforcementactivitiesintheirwebsitesandotherdocumentsavailabletothegeneralpublic.320 The Securities and Exchange Commission, Search SEC News <capital.sec.or.th/webapp/webnews/newSearchNews.php?lg=en&lang=en>.321MoneyChannel<www.moneychannel.co.th>.

127

(b)PreventiveMeasuresImposeduponSecuritiesCompanies

(i)ClientAssetProtection

The first preventivemeasure against brokerage offences that the SEC imposes

uponsecuritiescompaniesismandatingthatsecuritiescompanieshaveinplace

mechanismsprotectingclients’assetsfrombeingmisappropriatedordefrauded

by brokers and other employees. Current SET rules include asset segregation

rules(securitiescompanies’assetsandclients’mustbesegregated,andaccessto

clients’ assets is forbidden without written authorisation from clients)322and

books and records rules (securities companies must maintain accurate and

current records of clients’ assets and trading activities).323 Also, securities

companiesoften set out stringent internalprotocols onhowbrokersmaygain

access to clients’ assets (funds, collateral, and shares). For example, many

securities companies require team leadersorbranchmanagers to confirmand

co-signwithdrawalformsbeforethebrokerscanwithdrawcashorsharesfrom

theclients’accounts.Last, tradingconfirmationnotesandtaxinvoicescanonly

bepostedto theclients’registeredaddresses inorder topreventunauthorised

tradingfromtheclients’accounts.

(ii)EvidentialRecordofTradingOrders

The second preventivemeasure is requiring all trading orders to be properly

recordedandready for inspectionby theagencies.When the trade isdonevia

theInternettradingchannel,everyorderisautomaticallyrecordedinthetrading

systemandcanbetracedbacktotheclientviahisorheruniqueIDs.Incontrast,

where clients give purchase or sell orders to brokers via hand-written order

tickets or via verbal orders, there is no automatic system in place. To protect

clients from brokerage frauds, securities companies are required to properly

recordsuchordersforevidentialpurposes.Inthecaseofverbaltradingorders,

322TheCMSBNotificationNo.TorThor.43/2009.323TheCMSBNotificationNo.TorThor.63/2009.

128

the SEC requires that such orders can only be made by phone calls through

securitiescompanies’phonenumbers,whicharerecordedatalltimes.324

(iii)InformationFirewall

Thethirdpreventivemeasureisthatsecuritiescompaniesmustputinplacean

informationfirewallbetweenbrokeragedepartmentsandotherdepartments.325

Securities companiesmust ensure that their employeesworking in retail sales

andsecuritiesdealingdepartmentsdonothaveaccesstoundiscloseddecisions

and data available to employees in advisory and business development

departments. Without a credible firewall procedure, it is likely that material

information would leak across departments. If the brokers in the retail sales

departmentengage intradeorpasssuch informationtoclients foranybenefit,

they could be found guilty of a severe offence of insider trading, which is

punishablecriminallyandadministratively.

(iv)InternalControlandComplianceUnit

The fourth and last preventivemeasure that the SEC imposes upon securities

companies is the requirement that securities companies establish an effective

internal control system as well as compliance units to monitor employee

conduct.326Theseunitsplayakeyroleintheanti-brokeragefraudregimesince

the units have the main responsibility to detect any minor infringement and

assisttheoffendingbrokerstocorrecttheirwrongdoing.Forseriousviolations,

suchasinsidertradingormisappropriation,theunitsareexpectedtopromptly

report the incidents to the SEC and cooperate with the agency in the

investigationandfurtherprosecution.

324Ibid.325Ibid.326TheCMSBNotificationNo.TorThor.39/2012.

129

BSurveillanceandDetection

Although a number of preventive measures have already been imposed,

infringementsstilloccurregularly.Itisimportantthatregulatoryagencieshave

effective tools and strategies to detect such wrongdoing. This section first

examines surveillance systems employed by the SET and then detection and

investigationstrategiesoftheSEC.

(a)TheSETSurveillanceSystems

One of the SET’s main functions as the operator of the stock exchange is to

monitor all trading activitieswith an objective to detect any abnormality that

could indicate wrongdoings. The SET’s Market Surveillance Department

currently employs two sophisticated computerised surveillance and

investigation systems called MS-Term (Market Surveillance Terminals) and

SMART (Securities Markets Automated Research Trading Surveillance) for this

purpose.327TheMS-Term isareal-timedatamonitoringsystem. Itmonitorsall

tradingactivities,pricemovements,tradedvolume,andpurchaseandsellorders

that are sent to the SET Connect. The SMARTS complements theMS-Term by

enhancingtheeffectivenessandefficiencyofinvestigationprocedures.

These surveillance and investigation systems are very useful tools for the

detectionofunfair tradingpractices: insider trading,marketmanipulation,and

misstatement. The systems often uncover other smaller infringements by

securitiesbrokerssuchaschurningpracticesorplacingimpropertradingorders.

Under the SET’s current organisational structure, when the abnormalities are

detected,suchassharppricerisesthatcannotbeexplainedbyaccessiblemarket

informationorsuspicioustradingpatterns, theSecuritiesSurveillanceSub-Unit

will closely monitor such trading activities and conduct preliminary

investigations. If the investigation reveals a high probability of violation of

securitieslawand/ormarketregulations,theInvestigationSub-Unitwillconduct

327 The Stock Exchange of Thailand, Market Surveillance <www.set.or.th/en/regulations/supervision/surveillance_p1.html>.

130

in-depthprobingandnotifytheSECOfficeforfurtherinvestigationandinitiation

ofrelevantproceedings.328

(b)TheSECDetectionandInvestigationStrategies

Regarding the SEC’s enforcement activities, the agency closely monitors

securities companies’ and securities brokers’ compliance with the law and

regulations. The SECOffice currently employs an inspectionprogrammebased

onfourstrategies:329

(a) Aroutineperiodicinspection;

(b) Aninspectionbasedonriskprofilesandassessmentsfrominfringement

records,previousinspections,andotherrelevantreports;

(c) An inspection upon complaints by clients, brokers, and securities

companies;and

(d) An inspection upon notifications from the SET, other government

agencies,andmediaoutlets.

Duringsuchinspection,theSECofficersarecompetentundersection264ofthe

SecuritiesandExchangeActB.E.2535(1992).Inessence,SECofficershavewide

inspectingpowersincluding:

(a) A power to enter into the place of business or premises of a securities

company, a commercial bank, the SecuritiesExchange, over-the-counter

centre, clearing house, securities depository centre, securities registrar,

ortheplacewherethedataofsuchinstitutionsiscollectedorprocessed

bycomputer,duringthehoursbetweensunriseandsunset,orduringthe

businesshoursofsuchplaces;

(b) Apowertoinspectandseiseaccounts,documentsorevidencerelatedto

thecommissionofoffences;

(c) A power to order any person to testify or to deliver copies of present328Ibid.329 The Securities and Exchange Commission, Enforcement <http://www.sec.or.th/EN/Enforcement/Pages/Introduction.aspx>.

131

accounts, documents, seals, or other evidence related to thebusinesses,

operations,assetsandliabilitiesofsuchsecuritiescompanyorinstitution;

and

(d) Apower to order any personwho purchases or sells securitieswith or

through a securities company to testify or deliver copies of present

accounts,documents,andotherevidencerelatedtothepurchaseorsale

ofsecurities.

After the inspection is completed, if there is adequate evidence that any

brokerageoffenceorregulatoryinfringementhasoccurredandtheoffendercan

be identified, the SECofficerswill initiate administrativeproceedings followed

bycriminalproceedings,ifnecessary.330

CAdministrativeProceedings

(a)TheSECAdministrativeProceedings

The administrative proceedings administered by the SEC Office are the main

proceedings of the current Thai anti-brokerage fraud regime. When the SEC

Officeuncoversinfringementsviaitsowninvestigation,orreceivesnotifications

fromtheSET,clients’complaints,ornewsmedia,theSECEnforcementDivision

providespreliminaryconsiderationastowhetherthereisagroundforinitiating

thecase.Ifthereisavalidone,responsibleofficersopenthecaseandlaunchan

in-depthinvestigation.Inexecutingtheirinvestigatoryduties,officershavewide

powersasdescribedintheprevioussection.Iftheinvestigationindicatesthata

violationhasoccurred,theofficerswillinstigatetheadministrativeproceedings

bypresenting thecase to theCapitalMarketPersonnelDisciplinaryCommittee

(CMPDC).TheCMPDCconsiderfacts,evidence,andotherrelevantfactors,before

giving recommendations on the proper form and the magnitude of the

330Seedetailsbelow.

132

administrative sanction to the SEC Office to be imposed upon the offending

broker.331

If anoffendingbrokerdoesnot agreewith theadministrativeorder, heor she

may, first, file an appeal to the SEC Office. If the SEC Office agrees with the

appeal, it will revoke or amend its order as such. However, if the SEC Office

disagreeswith the appeal, it will submit the case to the Board of the SEC for

further review. After the Board of the SEC has informed the appellant of its

consideration,iftheappellantstilldisagreeswiththeorder,heorshemaythen

fileacasewiththeAdministrativeCourtsofFirstInstance.Thejudgeinchargeof

the case will then initiate inquisitorial proceedings to review the SEC’s

administrativeorder.332Indeliveringjudgment,thecourtscaneitherconfirmthe

SEC’spenalorderorrevokesuchorderaltogether.333Thecourtscannotalterthe

formand/or themagnitudeof thesanction imposeduponoffendingbrokers. If

the appellant disagrees with the Administrative Court of First Instance’s

decision, he or she can further appeal against the judgment to the Supreme

Administrative Court.334The judgment of the Supreme Administrative Court is

consideredfinal.335

Between2001and2013,therewerefourhundredandsixadministrativecases

relating to brokerage frauds and related violations sanctioned by theOffice of

theSEC.336Fourhundredandthreecaseswerecommittedbybrokerswhoheld

investmentconsultantlicenseswhileonlythreecaseswerecommittedbythose

holding the investment analyst licenses.Among these cases, seventy-one cases

involved the focus offence of failing to properly record trading orders, sixty-

seven offences ofmaking trading decisions on behalf of clients, seventy-seven

offencesofusingaclient’saccount forone’sownbenefit,andthirtyoffencesof

deception andmisappropriation. Four further notable points can be observed

331The available formsof sanction are reprimand, a suspensionof licence, and a revocationoflicence.332Act on Establishment of Administrative Courts and Administrative Court Procedure B.E. 2542(1999)s57.333Ibids72.334Ibids73.335Ibids73cl4.336SeedetailsinAppendix3.

133

fromthesecases.Firstly,administrativeoffencesadministeredbytheSECwere

constantly added, removed, and reclassified due to changes in enforcement

policies,marketconditions,andindustrialpractices.Forexample,casesrelating

totheoffenceofgivingrebatestoclientswerefrequentpriorto2004.Afterthat,

notasinglecasewassanctioned.Thiscouldlargelybeattributedtothechangein

thebroker’sremunerationsystem.337Theotherexampleis,priorto2011,there

were few cases relating to the offence of failing to properly record trading

orders. Meanwhile from 2011 onwards, due to the reclassification of offences

and changes in the SEC’s enforcement policy, a large number of brokerswere

penalised for committing such a violation.338Secondly, the available forms of

sanction during that period (2001 to 2013) were reprimand, probation, a

suspensionoflicense,andalicenserevocation.Currently,probationaryorderis

nolongerapplicablewhilereprimandisredefinedasanadministrativeaction,as

opposed to a sanction. Thirdly, due to the constant reclassification of offences

andchangesinformsandmagnitudeofsanctions,itisdifficulttodeterminethe

averagelengthsofsuspensionandrevocationof licensesimposedonparticular

offencesforthepurposeofmakingcomparisons.Lastly,therewerefewcasesof

recidivism. From four hundred and six cases, there were only fourteen cases

(3.45per cent) that theoffenders recommitted similarorother administrative

offencesandwereagainsanctionedbytheSECOffice.

(b)TheSETAdministrativeProceedings

In addition to the administrative proceedings administered by the SEC in the

previoussection,thereareadministrativeproceedingsadministeredbytheSET.

However,thescopeoftheSETproceedingsintheareaofbrokerageoffencesis

limited to the offence ofmarketmanipulation, an offence of placing improper

tradingorders,andoffencesrelatingtotheuseoftraders’IDs.

In relation to the SET administrative proceedings, after the Investigation Sub-

Unit has conducted an in-depth investigation and found that there was an

337SeedetailsinChapter2.338TheSECNotificationNo.KorLorTor.Khor.Wor12/2011.

134

infringement, the Sub-Unit will initiate the proceedings by submitting the

allegationandevidencetotheSecretaryoftheDisciplinarySub-Committee.Ifthe

Secretaryfindsthatthecaseiswell-grounded,heorshewillgivewrittennotice

totheaccusedbroker.Theaccusedthenhastosubmitawrittenanswertothe

Disciplinary Sub-Committee. The Secretarywill then consider this answer and

prepare thecase filealongwithhisorherrecommendation to theDisciplinary

Sub-Committee.339If the accused is found guilty, available punishments are: a

reprimand,asuspensionof licence,arevocationof licence,anindividual fine,a

corporatefine,andpublicationoftheoffender’sname.

DCriminalProceedings

After the SEC officers have initiated the administrative proceedings, as

mentioned in the previous section, they have discretion to decide whether

criminalsanctionsshouldalsobepursued.Due to the inherentcomplicationof

theproceedings,thelackofcontrolovertheoutcomes,andthelimitedfinancial

and human resources, the SECOffice has currently taken a view that criminal

proceedingsshouldonlybeinitiatedwhennecessary,suchaswhenwrongdoings

aresevereandhavesignificantimpactuponinvestorsortheaccusedhasrefused

tocooperate intheadministrativeproceedings.Whenthecriminalproceedings

are to be initiated, the responsible officers will first inquire whether such

wrongdoingscanbesettledundersection317oftheSecuritiesandExchangeAct

B.E.2535(1992).Iftheoffencecanbesettled,aswithoffencesrelatingtounfair

tradingpractices,340officersresponsiblewillforwardthecasetotheSettlement

Committee to determine the amount of fine to be imposed.341If the offender

agrees topay suchamountof finewithin the specified timeperiod, the case is

regardedassettled.

However, if offences cannot be settled under section 317, such as all offences

stipulated inthePenalCodeandcertainoffences intheSecuritiesandExchange

339TheSETNotificationonDisciplinaryProceduresandPunishment,2000.340SecuritiesandExchangeActB.E.2535(1992)ss238-244.341Thecommitteecomprisesthreemembers:representativesof theRoyalThaiPoliceForce,oftheFiscalPolicyOffice(MinistryofFinance),andoftheBankofThailand.

135

ActB.E.2535(1992),342oriftheoffenderrefusestopaythedeterminedamount

of fine, the SEC Office, via its Litigation Department, moves to criminal

proceedings by filing criminal complaintswith the ECID or the DSI, in certain

circumstances,forfurtherinvestigation.WhentheECIDortheDSIconcludesthe

investigation,theyforwardthecasefilestotheOAGforprosecution.AttheOAG,

theresponsiblepublicprosecutorshavediscretiontoeitherinstituteacriminal

case in theCourtsof Justice,ordropthecase if theydeemthat theevidence is

insufficient, or such prosecution is not in the country’s best interest.343In the

lattercase,theresponsibleprosecutorsarerequiredtopresentthemattertothe

Attorney-Generalforfinalruling.344

Apart from the criminal cases initiated by the SEC Office, injured clients or

investorsmay also initiate criminal proceedings by filing caseswith the EICD.

The ECID then conducts an investigation into the matters. If there is a valid

ground,theECIDwillforwardthecasefilestotheOAGforfurtherprosecution.It

shouldbenotedthatundertheThaiCriminalProcedureCode,iftheECIDdecides

thatthecasehasnovalidgroundortheOAGdecidestodropthecase,theinjured

clientsorinvestorsmayyetinstitutecriminalproceedingsbythemselvesatthe

relevantCriminalCourts.345

When the case is prosecuted in the Criminal Court of First Instance that has

jurisdiction, the accused has the right to present his or her plea as well as

introducingevidenceandwitnessesbeforetheCourt.346TheCourtsmaydecide

todismissthecase,orpunishtheaccusedaccordingtohisorheroffence.Ifthe

convictedoffenderdisagreeswith thedecision,heorshemay fileanappeal to

theCourtsofAppeal and theSupremeCourtof Justice, respectively, under the

conditionsstipulatedintheCriminalProcedureCode.347

342One example of the offences stipulated in the SecuritiesandExchangeActB.E.2535 (1992)thatcannotbemonetarysettledistheoffenceofpublicdeceptionbydirectorsandexecutivesofsecuritiescompanies.See,SecuritiesandExchangeActB.E.2535(1992)s306.343PublicProsecutorOrganisationandOfficialActB.E.2553(2010)s21.344Ibid.345CriminalProcedureCodes34.346Ibidss163,226.347Ibidss193-225.

136

Yes No

No

Yes

AgreeDisagreeAgreeDisagree

IssuingNon-ProsecutionOrderIssuingProsecutionOrder

ConfirmOverturn

Figure5:TheAdministrativeandTheCriminalProceedingsinBrokerageOffences

TheSETSurveillanceSystems

ClientComplaints NewsandPublicInformation

TheSECRoutineandRisk-BasedInspections

TheSECOfficeCarryingOutPreliminaryConsideration

OpeningCaseandSeekingFurtherEvidence

End

ConsideringWhethertheActionConstitutesViolation

AdministrativeProceedings

CriminalProceedings

TheCMPDCGivesRecommendation

TheSECImposesAdministrativeSanctions

OffencesThatCanBeSettled(Section317)

OffencesThatCannotBeSettled

PayingFineDeterminedbytheSettlementCommittee

End

FilingCriminalComplaintWiththeECIDortheDSI

ForwardingCaseFilestotheOAG

End

End

AppealtotheSECOfficeandtheBoardofSECConsideration

TheCriminalCourtofFirstInstance

FinalRulingbyTheAttorney-General

AppealtotheCourtsofAppeal

AppealtotheSupremeCourtofJustice

AppealtotheAdministrative

CourtsofFirstInstance

AppealtotheSupreme

AdministrativeCourts

End

137

ECivilProceedingsandtheArbitrationProcedure

AlthoughtheSEChaspowertoadministrativelypunishoffendingbrokersaswell

as forwarding the case files to prosecuting agencies to initiate criminal

proceedings, the SEC currently has no power to impose civil sanctions348or

pursuecivilproceedingstoclaimcompensationonbehalfofinjuredclients.349To

obtain compensation from the offending brokers and/or their employing

companies, the clients have to pursue civil proceedings in the civil courts by

themselvesbyinstigatingthecasesinthecivilcourts.Ifthejudgesagreewiththe

plaintiffs’complaints,thejudgeshaveawidediscretiontodeterminetheamount

ofcompensationanddamagestobeaward,butnotovertheamountstatedinthe

statementofclaim.350

Nevertheless,ifdamagesufferedbyclientsorthedisputeinquestionisaresult

of securities companies’ breach of contract or non-compliance with securities

law, injured clients have another option to apply to the SEC Office for an

arbitrationproceduretosettledisputesprovidedthattheconditionsaremet.351

348TheSEChasproposedanamendmenttotheSecuritiesandExchangeActB.E.2535(1992)sothatithasapowertoimposecivilsanctions:fine,confiscationofbenefitsgained,reimbursementoftheSEClegalfee,andabanfromanytransactionintheSETnotexceedingfiveyears.Thedraftis currently under consideration of the Ministry of Finance. See, the SEC News Release No.86/2559(2016),16September2016.349 The Securities and Exchange Commission, Enforcement <http://www.sec.or.th/EN/Enforcement/Pages/Introduction.aspx>.350CivilandCommercialCodes438.351UndertheSECNotificationontheArbitrationProcedure(2008),theconditionsstipulatedare:

(a) Thedamagesortheamountindisputeisnotexceedingonemillionbahtperoneclient;(b) The application for arbitration is submittedwithin sixmonths from the date that the

clientperceivesorshouldhaveperceivedthecauseofdisputeandwithinoneyearafterthedisputeoccurred;

(c) Thedisputeisbetweenanindividualclientwhoenteredintocontractswithorutilisedservicesofsecuritiescompanies;and

(d) Theclienthasalreadyfiledhisorhercomplaintwiththesecuritiescompanyaccordingto the SEC Client Complaint Regulation351but the company has not satisfactorilyresolvedsuchcomplaint.

138

IVFocusOffencesforthisStudy

As described earlier, the current Thai anti-brokerage fraud regime covers

multiple levels of wrongdoing, from high-level contraventions involving

corporate executives and large-volume investors such asmarketmanipulation

andinsidertrading,tolow-levelcontraventionsinvolvingsecuritiesbrokersand

generalinvestors.Thisresearchfocusesonfourlow-levelbrokeragefraudsand

regulatoryviolations,whichfromlessseveretomostsevereare:





The justifications for choosing these four offences for case studies in this

researchare: (1)basedonthepublishedstatistics, these low-leveloffencesare

more prevalent than other brokerage and securities offences in the Thai

securitiesmarket;352(2)althoughthedamagedoneineachsinglecaseisusually

low, the accumulated damage to the public and to themarket is immense, as

repeatedlyemphasisedbyhigh-rankingofficersoftheSEC;353(3)theprevalence

of these fraudshasa stronglynegativeeffectupon theconfidenceof investors,

whichconsequentlyhinders thegrowthof theThaicapitalmarket;354(4)while

new regulations and innovative tools have been implemented to prevent the

commission of these offences, including the introduction of the Automatic

TransferSystem(ATS)andrisk-basedinspectionsbyofficers,manybrokersare

352From2011 to2015, therewere320administrativecases (excludingminorcaseswhere theSEC Office only issued reprimands) relating to brokerage fraud and related violations, whiletherewere30casesinrelationtomoreseriousunfairtradingpractices.353The Stock Exchange of Thailand, 'Investor Rights: Investment Scams' (2015) 8-9; SureeratSuradecha, 'SECInvestorFriend:Whocanwetrust?',BangkokBizNews28April2011; JarupanIn-rung, 'A Conversion with the SEC: Can you trust your investment advisor?', Manager 6September2010;MisterSEC, 'TheSECOpenHouse: InvestorProtectionMechanism',Dailynews23 February 2010; Jarupan In-rung, 'A Conversation with the SEC: Be mindful of investmentscams',Manager7September2009;JarupanIn-rung, 'AConversationwiththeSEC:InvestmentCrime',Manager4June2007.354Thaicharoenetal,aboven8.;TheSecuritiesandExchangeCommission,'AnnualReport2551'(2008).

139

stillabletofindwaystocircumventthesystem;355and(5)thesefouroffencesare

intrinsically connected. To commit more severe offences of fraud and

misappropriation, it is highly likely that offenders have previously committed

lesser offences or are committing the lesser offences as a part of fraud and

misappropriation. As a result it would be impossible to gain insight into the

causes of fraud and misappropriation offences without also considering the

otherthreerelatedregulatoryviolations.

Ineachoffencefocusedon,twonotablecasesareselectedfromthedatabaseof

the SEC Office for analytical purposes. Each is selected based on offending

methods and motives of offenders as well as sanctions that the SEC Office

imposed on the offending brokers in each case. Note that the forms and the

magnitude of administrative sanctions relating to these focus offences were

significantly amended in 2011.356Therefore, those cases derived from the SEC

News Releases dated earlier than 30 June 2011were decided under previous

regulationcarryingalowermagnitudeofsanctions.357

ATheOffenceofFailingtoProperlyRecordTradingOrders

The first focusoffenceof thisstudy is thatof failing toproperlyrecordtrading

orders committed by securities brokers when taking telephone orders from

clients.TheSECNotificationNo.KorWor.12/2011,Group2.4.1Failingtoproperly

record trading orders is the main provision which defines and regulates this

offence. Itstatesthatanysecuritiesbrokerwhocannotprovideproperrecords

of tradingordersor fails torecord ticketorders inanacceptable formshallbe

punished by a suspension of licence from one month at minimum as well as

publicationofthenameoftheoffenderandhisorheremployingcompany.

Havingclearandcompletetradingrecordsavailableforrevisionandinspection

isessentialforeverypartyparticipatinginthesecuritiesmarket.Forclientsand

355SeedetailsinChapter3.356TheSECNotificationNo.KorLorTor.Khor.Wor12/2011.Thenotificationwas ineffect from30June2011.357TheSECNotificationNo.Thor.Wor.27/2002.

140

brokers, transaction records allow them to examine purchase and sale

transactions conducted in a particular period and to verify their correctness.

This is especially important in providing primary evidence when there are

disputesregardingtheorders,suchasthecorrectnessintheexecutionoftrade,

the accuracy of information given by the brokers, or who is to blame for

unexpectedlosses.Forsecuritiescompanies,therecordsallowthemtomonitor

employees’conductandimprovecustomerservices.Theycanalsorelyonsuch

recordsasthebasisofsettlementnegotiationswithclientsengagedindisputes.

Forregulators,therecordsallowthemtomakeaninquiryintothematterwhen

there are complaints by clients or thepublic. The SECOffice also engages in a

periodicauditofsecuritiescompanies’ tradingrecords.SECofficersaresent to

examinetradingdocumentsaswellaslistentovoicerecords,whichcouldleadto

adiscoveryofaseriesofoffencesperpetratedsuchasmakingtradingdecisions

on behalf of clients, unauthorised use of accounts, insider trading, market

manipulations,etc.

Underthecurrenttradingsystem,therearethreemethodsofrecordingorders,

basedondifferent tradingchannels.The first is avoice recordingof telephone

conversationsbetweenclientsandbrokers.Clientswantingtobuyorsellshares

calltheirbrokerthroughdedicatedofficetelephonenumbers.Theconversation

isrecordedbythesecuritiescompanies’telephonesystemandlaterinspectedby

thesecuritiescompany’scompliancedepartment.Thesecondmethodistheuse

of form ‘F8’. This method is specifically for clients who engage in trade at

securities companies’ trading rooms. At trading day’s end, brokers produce a

summary of all orders that clients have made and ask clients to put their

signaturesontheform.Iftheformhasbeensigned,itisdeemedthatalltrading

ordershavebeenproperlyrecorded.Thethirdandlastmethodisanautomated

recordofelectronicordersmadeviatheInternettradingchannel.

Thereareseveralpotentialreasonsfortheprevalenceoftheseviolations.First,

current regulation requires that for clients to send trading orders to their

brokers, theymustmake such calls to the assigned office numbers,where the

conversations are recorded officially. If clients send trading orders via other

141

channels,suchasbycallingbrokers’mobilenumbersorsendingemailsor text

messages, and brokers engage in trade per such instructions, brokers are

deemed to contravene the SEC regulation. It is interesting that even if parties

haveattemptedtocreatetheirownrecords,suchasmanuallyrecordingmobile

phone conversations or keeping emails and chat logs, the SEC Office does not

considersuchrecordsasevidence.Onlyvoicerecordingviasecuritiescompany’s

officelinesisdeemedacceptable.

Second, the regulation does not provide a guideline as towhat constitutes an

acceptable voice order. As a result, there are sometimes contested issues

between regulators and regulatees such as how clear the clients’ instructions

have to be orwhethermere trading suggestions by brokers and clients’ short

acceptance constitute proper voice records as required by the regulation. The

considerationisthereforeatthediscretionoftheresponsibleofficersonacase-

by-casebasis.

Third, the clients and the brokers may intentionally avoid having their

conversationrecordedbythesystemsincetheyarecontraveningorattempting

tocontraveneothersregulationsoftheSECortheSET,suchasinsidertradingor

marketmanipulation.Fourthandlast,tradingordersmightbeexecutedwithno

actual instructionwhatsoever fromclients. Therefore, brokers cannotprovide

legitimatevoicerecordstosatisfytheregulatoryrequirement.Thereareseveral

instanceswhere such situationsmay happen, including (1) brokers have been

authorisedtomaketradingdecisionsonbehalfoftheirclients,(2)brokershave

usedclients’accountsfortheirownbenefitwithorwithoutclients’consent,and

(3)brokershaveengagedindeceptionormisappropriationofclients’assets.

To inducebrokers toproperly record tradingorders, theOfficeof theSEChas

employed the administrative punishment of a suspension of licence from one

month atminimumand publication of an offending broker’s name as itsmain

tool. In addition, if the violations repeatedly occur in a particular securities

company, and officers determine that such violations are the result of the

company’s failure to establish andmaintain credible internal control and risk

142

managementmechanisms, theofficersareempowered to require the company

torectifysuchissuesaswellasimposingacriminalfinenotexceeding300000

bahtandafurtherfinenotexceeding10000bahtforeverydayduringwhichthe

violation continues.358In terms of enforcement, the Office normally acts upon

claims brought by injured clients. The officers ask the securities company to

submit relevant records for inspection. TheOffice of the SEC, via its Licensing

Department,alsoperformsroutineperiodic inspectionsandonesbasedonrisk

profileandinfringementrecords.On-siteofficerscompareselectedtradingitems

withvoicerecords,automatedInternettradingrecords,andsignedF8forms.If

they find that records are missing, they ask the brokers and the securities

company toprovide furtherexplanations.Thecase filesare thenpassed to the

Capital Market Personnel Disciplinary Committee (CMPDC) to determine a

properlevelofsanctionupontheoffendingbrokers.

ExampleCases359

CaseOne:NonthanasinandMekwichaiTakingOrdersviaMobilePhones

The SEC Office imposed a suspension of licence on two securities brokers for

failingtoproperlyrecordtradingorders.MrsUbolratNonthanasinofMaybank

KimEngSecurities (Thailand)PublicCompanyLimitedwassuspended forone

month while Mr Kowit Mekwichai of ASIA PLUS Securities Public Company

Limitedwas suspended for twomonths. The suspension orderswere effective

from15May2012.360Followingreferral fromtheSET, theSECOffice launched

358SecuritiesandExchangeActB.E.2535(1992)s282.359It should be noted that example cases were chosen based on their notable facts and theoffences committed, irrespective of offenders’ gender. Based on these cases, it should not beinferredthattherearemorefemalebrokers/offendersthanmalebrokers/offendersintheThaibrokerageindustry.Inaddition,theaccurateinformationontheratiobetweenmaleandfemalebrokersintheThaibrokerageindustryisnotavailablefromanysource.Forthisreason,aswellastheexploratorynatureofthisstudy,thegenderofthepersonnelwasnotincludedasbeingoneof the core factors. In addition, it is not possible to provide additional details of the factspertainingtotheseexamplecases.Underthecurrentsystem,theSECOfficeonlymakesavailablea brief version of the facts to the general public, as administrative cases are deemed to be aprivatematter.Thefactsastheyappearintheseexamplecasesarealreadyanextendedversionspecially approved and provided by the SEC Office to the researcher for the purposes of theresearch.360TheSECNewsReleaseNo.48/2555(2012),14May2012.

143

an investigation and found that Mrs Nonthasnain and Mr Mekwichai had

repeatedlyfailedtorecordalargenumberofvoiceorders.Theoffendersclaimed

thattheyhadtakenclients’ordersmainlyviamobilephone.

In relation to the violation committed byMrsNonthanasin,MaybankKimEng

Securities(Thailand)PublicCompanyLimitedasheremployerwasfoundtobe

inbreachofsection113oftheSecuritiesandExchangeActB.E.2535(1992)on

the non-compliance of the CMSB regulation. The company accepted a criminal

fineof159375BahtfromtheSettlementCommittee.361

In relation to the violation committed by of Mr Kowit Mekwichai, ASIA PLUS

SecuritiesPublicCompanyLimitedashisemployerwasfoundtobeinbreachof

section 113 of the Securities and Exchange Act B.E. 2535 (1992) on the non-

complianceoftheCMSBregulation.Thecompanyacceptedacriminalfineof488

250BahtfromtheSettlementCommittee.362

CaseTwo:PariyapanishRecordOrdersafterExecutingTransactions

TheSECOfficeimposedasuspensionoflicencefortwomonthsonMissArporn

Pariyapanish of the SCB Securities Company Limited.363The suspension order

was ineffect from23 January2013.TheSECOfficereceivedanotice fromSCB

Securities Company Limited that one of its employees had failed to record

tradingordersofanumberofherclientswithhighfrequencies.Itwasnotedthat

the SEC Office and the securities company had already reprimanded Miss

Pariyapanish twice before for this particular infringement. Miss Pariyapanish

claimedthatshehadmistakenlyunderstoodthatusingtheofficelinetocallher

clients back after she had already executed their orders would satisfy the

regulatoryrequirement.TheSECOfficefurtherclarifiedinTheSECNewsRelease

No.6/2556 (2013) that to fully complywith the regulation, securities brokers

mustrecord the full telephoneconversation includingadvicegivenandclients’

cleartradinginstructionsbeforeordersareexecuted.361TheSECSettlementOrderNo.76/2554(2011),24November2011.362TheSECSettlementOrderNo.77/2554(2011),24November2011.363TheSECNewsReleaseNo.6/2556(2013),23January2013.

144

BTheOffenceofMakingTradingDecisionsonBehalfofClients

The second focus offence examined in this thesis is that of making trading

decisionsonbehalf of clients.TheSECNotificationNo.KorWor.12/2011,Group

3.1.1MakingTradingDecisionsonBehalfofClients is themainprovisionof this

offence.Itstatesthatanysecuritiesbrokerwhoisassignedbyhisorherclients

tomaketradingdecisionsontheirbehalf,andhasdone,shallbepunishedbya

suspensionof licence for aminimumof threemonthsaswell asbyhaving the

nameoftheoffenderandthenameofhisorheremployingcompanypublished.

OneofthemostfundamentalethicsofThaisecuritiesbrokersisthattheymust

refrain from interferingwithclients’assets.364During thecourseof theirwork,

brokers are required to provide information and advice to their clients in a

professional manner as well as acting within the scope designated by the

securitiescompany.Itisimportantthatclientsmaketheirowntradingdecisions.

Securities brokers are strictly forbidden frommaking such decisions for their

clients,evenifclientsgiveconsentorinstructthemtodoso.365Ifbrokersmake

trading decisions in violation of this regulation, they may be administratively

sanctioned.Theymayalsobe indisputewith theirclients incaseswhere their

trading decisions resulted in losses to the clients’ assets. In such situations,

clients may claim that they did not make the trading decisions themselves;

therefore they should not be held responsible for losses incurred. Even if the

clientsdidinstructthebrokerstomakesuchdecisionsontheirbehalf,theymay

laterclaimthattheydidnotandaskthesecuritiescompanytoreimbursetheir

lossesandpunishitsemployeesforbreachofduty.

From the clients’ perspective, having brokersmake trading decisions on their

behalfmaybringcertainadvantages.Manyclientsdonothaveadequatemarket

knowledge or of the particular stocks theywant to trade, and believe that the

brokers can make better judgments. In addition, when trading particularly

volatilestockswherepriceschangequickly,thebrokerswhoarealwaysinfront364TheSECNotificationNo.KorLorTor/BorThor.3947/2013:DoandDon’tchecklist.365In the current Thai securitiesmarket structure, only fundmanagers,who are holding theirrespectivelicences,maymaketradingandinvestmentdecisionsfortheirclients.

145

of their trading screensmay bemore likely to engage in trade at the optimal

moment;buyingatthelowestpriceand/orsellingatthehighestprice.

However, disadvantages or risks of this practice far outweigh the potential

advantage. First, it is not certain that brokers have better knowledge of

particular stocks than clients possess since theyusually have to take care of a

large number of clients having diverse portfolios. Also, brokers being trusted

fully by less knowledgeable clients is directly against the SET’s policy to

encourage investors to gain as much understanding as possible of the capital

marketandtheinvestmentproductstherein.366

Second,thebrokers’tradingdecisionsmaynotbesuitabletoclients’investment

objectives. Clientsmay want to engage in a conservative ormoderate growth

trading strategy, but brokers might see an opportunity and make trading

decisions more aligned with an aggressive growth strategy carrying higher

risk.367Oneofthemainreasonsforsuchpracticeisthatthemoreaggressivethe

tradingstrategy,thehighercommissionsthebrokerswillmake.368

Third and most important, there are significant conflicts of interest when

brokers make trading decisions on behalf of clients. As mentioned in the

previous chapter, the main income of securities brokers is from shared

commission fees. The more frequent and the larger the volume of trade, the

higher the fees the brokers generate. Thus brokers have an incentive to

encourageclientstoengageinexcessiveamountsoftrades,whichcanultimately

lead them to commit an offence of churning. In contrast, for the clients,

commissionfeesarecostslesseningreturnoninvestmentandshouldbekeptas

lowaspossible.Asa result,whenbrokersmake tradingdecisionsonbehalfof

clients, they have significant conflicts of interest:whether to engage in higher

volumeoftradetogeneratecommissionfeesforthemselves,ortomaximisethe

capitalgainoftheirclientswithoutregardfortheirownbenefit.

366 The Stock Exchange of Thailand, Investment Knowledge <https://www.set.or.th/education/th/education.html>.367Stonemanetal,aboven6.368Ibid.

146

There are several potential reasons for securities brokers agreeing to make

tradingdecisionsforclientseventhoughitcontravenestheSECRegulationand

mayleadtodisputes if theirtradingdecisionsresult in lossestoclients’assets.

First, some brokers - with goodwill - may see thatmaking decisions for their

clients,fromtimetotimeasrequested,isapartoftheirdutytoclients.Theymay

alsosee thisasageneral industrypractice.On theotherhand, thereare those

whoseethathavingsuchdecision-makingpowerisaneasywaytoincreasetheir

trading volume when they are unable to meet the monthly goal set by the

securities companies.Nonetheless, themostblatant situation iswherebrokers

are formally instructedby clients toact in the capacityof fundmanagerseven

though thebrokers lack the requiredqualificationsand licences. In suchcases,

brokers are likely to receive certain forms of compensation from clients: a

servicefeeorashareofprofitifthebrokers’tradingdecisionsresultingrowth

ofclientassets.

To deter securities brokers frommaking trading decisions for their clients as

wellas inducingthemtorejectclients’requests forsuchwrongfulpractice, the

OfficeoftheSEChasemployedtheadministrativepunishmentofasuspensionof

licencefromthreemonthsatminimumandpublicationofanoffendingbroker’s

name andhis or her employees as itsmain sanctions. It should be noted that,

unlike the offence of failing to properly record trading orders, there is no

corporate criminal fine possible in relation to this offence. In terms of

enforcement, clients suffering losses from brokers’ trading decisions, andwho

cannot settle their disputes with the securities companies, often bring the

violations to the attention of the SEC Office. SEC officers then ask the clients,

brokers, and securities companies to present statements and evidence for

further investigation. Alternatively, the Office may discover the violations via

routine periodic inspections of securities companies’ trading records and

businessactivities.Inthiscase,on-siteofficersmayatfirstdiscoverthepresence

of a large number of trades without voice-recorded orders. With further

investigation, theymayconcludethat thereasonforthe lackofsuchrecords is

brokersmakingtradingdecisionsonbehalfofclients,andthusthereisnorecord

oftheconversation.

147

ExampleCases

Case One:VairojanakitMakingDecisions forClientsandTakingOrders froman

UnauthorisedPerson

The SECOffice suspendedMiss Jirattaya Vairojanakit‘s licence for fivemonths

after receiving a notice from KT Zmico Securities Company Limited that Miss

Vairojanakit had been assigned by her clients to make securities trading

decisions on behalf of them on a continual basis, involving a large number of

high-volume transactions. Moreover, the records indicated that she had taken

tradingorders fromoneof the client’s sons,whowasnot theaccountowner’s

appointee.MissVairojanakitalsofailedtokeepcompleterecordsofherclients’

orders.MissVairojanakitadmittedthatshehadoftentakenordersfromsuchan

unauthorisedperson,aswellastakingordersviamobilephone.TheSECOffice

deemedthatMissVairojanakit’sactionswereinbreachofthreesections:making

trading decisions on behalf of clients, taking securities trading orders from

personsbeingneitheraccountownernoraccountowner’sappointee,andfailing

to keep a complete record of trading orders. Taking into account that Miss

Vairojanakit had already been suspended by KT Zmico Securities Company

Limitedfortwomonthsand12days,thesuspensionimposedbytheSECOffice

was a further suspension of twomonths and 18 days, effective fromApril 25,

2013.369

CaseTwo:PerkhongManagingAccountsforClientsCausingSubstantialDamages

The SEC Office revoked Mr Sayan Perkhong’s licence for five years after

obtaining a report from UOB Kayhian Securities (Thailand) Public Company

Limitedon its investigationofMrPerkhong’sbehaviour,whoat that timewas

one of the company’s former securities brokers. The company found that Mr

Perkhong had engaged in trade without recording orders from clients. His

misconductcauseddamagetothecompany,whichthendismissedhim.TheSEC

OfficeconductedfurtherinvestigationsandfoundthatMrPerkhonghadagreed369TheSECNewsReleaseNo.46/2556(2013),25April2013.

148

tomanage tradingaccounts forclientsbyusing their loginsandpasswords for

submitting trading orders via the Internet. Mr Perkhong submitted securities

tradingordersusingclients’accountsforhisownbenefitandforthebenefitof

thirdparties.Inaddition,hehadactedasanintermediarytoacquireloansforhis

clients for the purpose of buying and selling securities. The value of trade

throughthoseaccountswasover800millionbahtinsixmonths,generatinghim

substantial commission fees. The SEC Office considered Mr Perkhong’s

misconductasseverewrongdoinganddeemedhimunfittoperformhisdutyasa

securitiesbroker. Itshouldbenoted thatat thedateof thesanctionorder,Mr

Perkhong no longer retained the status of approved investor contact, since he

had not previously renewed his licence. The SEC Office, therefore, could not

revokeanon-existant licence.MrPerkhong’srecordwasnevertheless included

intheSECOffice’smisconduct listandhewasprohibitedfromresubmittingan

application for an approved capital market personnel status for five years,

effectivefrom18June2011.370

CTheOffenceofUsingaClient'sAccountfortheBroker'sOwnBenefit

The third focusoffence analysed in this thesis is theoffenceofusing a client's

accountforthebroker'sownbenefit.TheSECNotificationNo.KorWor.12/2011,

Group 1.2.2 Using a Client's Account for the Broker's Own Benefit defines this

offenceanditsappropriatesanctions.Thenotificationstatesthatanysecurities

brokerwhouseshisorherclients’accountsforhisorherownbenefitshallbe

punishedbyasuspensionoflicenceforatleastsixmonthsaswellaspublication

ofthenameoftheoffenderandhisorheremployingcompany.

There are twoways that securitiesbrokersuse clients’ accounts for their own

benefit:with andwithout client consent. In the case of using clients’ accounts

without consent, offending brokers place trading orders in the trading system

without the knowledge of the clients owning those accounts. The common

circumstance where such wrongdoing is committed occurs when the broker

wouldliketoincreasehisorhertradingvolumeandatradingaccounthasbeen370TheSECNewsReleaseNo.53/2554(2011),20June2011.

149

neglected by its owner. The unscrupulous broker may wrongfully use such

accounttobuyshareswithhisorherownmoneythensellthosesharestocreate

artificialtradingvolumeandincreasehisorhershareofcommissionfees.

Theothermannerinwhichabrokermayemployaclient’saccountforhisorher

ownbenefitiswhereheorshehasobtainedconsentfromtheclienttodoso.It

should be noted that even though the client has given authorisation, the SEC

Officeconsiderssuchanactaseriousregulatoryoffencesincesecuritiesbrokers

muststrictlyrefrain frominterferingwithclients’assets.Anunderlyingreason

for securities brokers wanting to gain authorisation from clients to use their

accounts is the current rules of the Association of Thai Securities Companies

(ASCO) regulating securities trading by employees and directors of securities

companies. The purposes of these rules are to prevent personnel of the

companies from taking advantage of clients, reducing conflicts of interest, and

increasingbusiness transparency.371Under theNotificationoftheAssociationof

Thai Securities Companies Re: Rules on Securities Trading of Employees and

DirectorsofSecuritiesCompanies, securities brokers as employees of securities

companiesmayhavetradingaccountsandengageinsecuritiestradingbutthey

mustfollowrigorousrequirementsandproceduresbeforetheycanplacetrading

orders.

Inessence,therearethreemainrulesthatanybrokerwhowouldliketobuyor

sellsharesforhimselforherselfhastofollow.First,securitiesbrokerscanonly

havea tradingaccountwith thesecuritiescompanieswhomtheywork. If they

haveaccountswithothersecuritiescompaniesbeforetheybegintoworkatthe

current companies, they have to close those accounts as soon as possible.372

Second, securities companies are required to establish mechanisms and

procedures to approve and monitor trading activities of their employees.373

Third, any employee working in the front office or business sections having

accesstoclients’real-timetradinginformationmaynot,bythemselves,puttheir

371Notificationof theAssociationofThaiSecuritiesCompaniesRe:RulesonSecuritiesTradingofEmployeesandDirectorsofSecuritiesCompanies.372Ibidr2.1.373Ibidr3.7.

150

tradingordersinthetradingsystem.Theyhavetosendtradingrequeststothe

compliance unit for an approval and have the compliant officers put in the

tradingordersforthem.374Duetotheaboverequirements,itisinconvenientand

disadvantageous for securities brokers to engage in trade from their own

accounts,particularlywhentheywouldliketobuyorsellvolatilestockswhose

prices move quickly. Unscrupulous brokers, therefore, attempt to circumvent

such disadvantages by colluding with clients and obtain consent to trade for

themselvesusingclients’accounts.

To bemore specific, there are twowell-known colludingmethods in the Thai

brokerageindustry.Thefirstisajointinvestmentbetweenabrokerandaclient.

In thismanner, the brokerwould deposit his or her own funds in the client’s

account and use such increased funds to help the client engage in a higher

volumeof securities trading. If such trade results in aprofit, brokerand client

typicallydividethatprofitbypre-agreedpercentages.Also,thebrokerreceives

asincomeashareofcommissionfeesfromthesetradingorders.Thesecondand

more prevalent method is termed ‘nominee accounts’. Under this method, the

brokerasksafriend,oranyoneheorshetrusts,toopenatradingaccountwitha

securitiescompanyheorsheworkswith.Suchpersonthenrevealstheassigned

login and password to the broker and the broker would use such a nominee

account toengage insecurities trading insteadofhisorherrestrictedaccount.

Similar to the previous method, those acting as fake clients usually receive

certainmonetary benefits for facilitating such unlawful arrangements and the

broker thenreceiveshisorher tradingvolumecommission fromthese trading

orders.Bothmethods significantlyheighten risk for the colluding client. In the

caseofjointinvestment,whentherearelossesfromthetrade,therearelikelyto

beseveredisputesbetweentheclientandtheunscrupulousbrokeraboutwhois

accountable for such losses. In the case of nominee accounts, if the losses are

substantial, the broker may ‘run away’ or refuse to pay for deficits in a cash

374Ibid.

151

account375 or credit balance account,376 leaving the person whose name is

specifiedastheaccountownerliableforthepayment.

To deter securities brokers from using client's accounts for his or her own

benefit,withorwithoutconsent,theSECOfficehasemployedtheadministrative

punishment of a suspension of licence for a minimum of six months and

publicationofanoffendingbroker’snameandhisorhercompany’snameasthe

mainsanctions. Inaddition, if theviolationsoccurrepeatedlyand investigators

determinethatsuchviolationsresultfromthecompany’sfailingtoestablishand

maintaincrediblemechanismstoapproveandmonitortradingactivitiesoftheir

employees, theofficershave thepower to require the company to rectify such

issues. A criminal fine not exceeding 300 000 baht and a further fine not

exceeding10000bahtforeverydayinwhichtheviolationcontinuescanalsobe

imposed.377Intermsofenforcement,claimsfrominjuredorcolludingclientsare

themainsourceofdiscoveryof thewrongdoing.Whilea routine inspectionby

the LicensingDepartmentmayuncover unauthoriseduses of clients’ accounts,

such inspections are unlikely to uncover a joint-investment scheme or a

nominee-account scheme since distinguishing them from regular trading

accountsandordersisdifficult.

ExampleCases

CaseOne:PansawatUsingaClient’sInactiveAccounttoTradeforHerself

The SEC Office imposed a three-month licence-suspension on Miss Sutasinee

Pansawat of Kiatnakin Securities Company Limited after she used a client’s

375Cash account is a trading accountwhere a securities company provides a trading credit toclients.Theclientsarefirstrequiredtodeposit15%oftheamountofthecreditlimitbeforeheorshecanplacetradingorders.Whentheclientpurchasessharesintohisorhercashaccount,heorshehastosettlethepurchasepricewiththecompanywithinthreeworkingdays.Similarly,whentheclientsellsshares,heorshehastowaitthreeworkingdaysforthemoneytobecreditedintohisorheraccount.376Credit balance or amargin account is a trading accountwhere a securities company allowclientstoborrowmoneytobuyshares.Theclientsinitiallyputdownthefirst50%ofthevalueofsharepurchaseandborrowtheother50%fromthecompanies.Theloaniscollateralisedbythesecuritiesandcashintheaccount.377SecuritiesandExchangeActB.E.2535(1992)s282.

152

accountforthebenefitofherselfandothers.Followingcomplaintsfromclients,

theSECOfficeaskedKiatnakinSecuritiesCompanyLimitedtoinvestigateonthe

matter. During the investigation,Miss Pansawat admitted that she had used a

client’s inactive trading account with an outstanding credit balance to trade

securities forherself. Indoingso,shetoldtheclientthatshehadinadvertently

sent incorrect trading orders. This conduct was deemed as using the client’s

account for thebenefitofoneselforanypersonwho isnot theaccountowner.

The SEC Office therefore suspended an approval status of Miss Pansawat for

threemonths,effectivefrom21November2009.378

CaseTwo:JansangaramUsingaClient’sAccountforHerFriend’sBenefits

TheSECOfficerevokedthelicenceofMissSiriratJansangaramofFinansiaSyrus

Securities Public Company Limited and prohibited her from submitting a re-

application for 15 months. Following client complaints, the SEC Office upon

investigationfoundthatMiss Jansangaramhadagreedtobuysecurities forher

friend,whowasintheprocessofopeningasecuritiestradingaccount.Shedidso

withtheassistanceofoneofherclients.Afterthetradingaccountwasopened,

her friendasked for the transferofsecurities toheraccount. Itwas foundthat

the client had already sold the securities. Miss Jansangaram then asked two

other friends,whowereclientsofothersecuritiescompanies, tobuysecurities

and transfer them to her friend’s account. In addition, Miss Jansangaram had

instructed her colleague, an investment consultant in charge of a client’s

securities trading account, to make trading decisions for the client. From the

inspection of communications records, no clear source of trading orders was

clear. There were only transaction confirmation statements made by the

investmentconsultant,signifyingthattheconsultanthadmadetradingdecisions

before giving a report to the client. The client then acknowledged the

transactions without any objection and made payment accordingly. Miss

Jansangara’sactionswerefoundasusingaclient’ssecuritiestradingaccountfor

her ownor for others’ benefit andmaking tradingdecisions on clients’ behalf.

The SEC Office therefore revoked her status as an approved capital market378TheSECNewsReleaseNo.99/2552(2009),24November2009.

153

investment consultant andprohibited her frommaking a re-application for 15

months.However, taking intoaccount thatMiss Jansangaramhadalreadybeen

suspendedbyFinansiaSyrusSecuritiesPublicCompanyLimitedforsixmonths,

the remainingperiodbeforepossible re-applicationwasninemonths, effective

from11April2013.379

In relation to the violation committed by Miss Sirirat Jansangaram, Finansia

Syrus Securities Public Company Limited as her employerwas found to be in

breachof section113of the Securities andExchangeActB.E. 2535 (1992) for

non-compliance with the CMSB regulation. The company agreed with the

SettlementCommitteetosettleacriminalfineof344000baht.380

DTheOffencesofDeceptionandMisappropriation

The lastsetofoffences toanalyse,andtheprincipal focusof thisresearch, isa

groupofoffencesinthecategoryofdeceptionandmisappropriation.Inessence,

this group of offences consists of an offence of deception and another of

misappropriation381togetherwith related offences of fabrication of documents

and forging of signatures 382 that securities brokers commit to obtain the

propertyoftheirclients.Thecurrentanti-brokeragefraudregimeemploysboth

theadministrativeprovisionsandthecriminalprovisionstodeterbrokersfrom

committingtheseoffencesagainstclients.

There are severalmethods that unscrupulous brokersmay employ to commit

deception and misappropriation against their clients. 383 The following are

examplesoffraudulentactsthathavebeencommittedbyThaisecuritiesbrokers379TheSECNewsReleaseNo.40/2556(2013),11April2013.380TheSECSettlementOrderNo.10/2556(2013),27February2013.381UndertheThaiPenalCode,theoffenceoffraudandtheoffenceofmisappropriationdifferintwomainpoints.Firstly,infraudoutcomesoftheoffencesincludestransferringofpropertyandexecuting,revoking,ordestroyingdocumentsofright,whereasmisappropriationonlycoversthetransfer of ownership of the property from one person to another. Secondly, the transfer ofproperty in fraud happens after the deceptionwas committed.While inmisappropriation, thetransferofpropertyhappenedbeforehandandtheoffenceiscommittedonlyafterthepossessorsillegallytransfersuchpropertytohimselforherself.See,PenalCodess341,352.382Ibidss244,246.383InformationonthesefraudulentmethodsisderivedfromadministrativecasessanctionedbytheOfficeoftheSEC,datafromthepilotinterviews,andtheresearcher’sownexperiences.

154

against clients. The first andmost simplemethod involves a securities broker

askinghisorherclienttoputasignatureonablanksecuritieswithdrawalform,

ablankcashwithdrawal form,and/orablanksecurities transferrequest form.

Some clients may trust their securities brokers and leave signed blank forms

withthebrokersforthebroker’sconvenience.Suchpracticeishighlyriskysince

dishonest brokers may use such forms to easily transfer cash and shares to

themselves. The second method involves forging clients’ signatures in the

abovementionedformsforthesamepurpose.

The third method is where clients allow securities brokers to arrange for or

accept payment on their behalf. In such situations, clientsmay give cash,ATM

cards,and/orpassbookstobrokers.Thisalsoincludesbrokersaskingclientsto

transfer funds to brokers’ personal accounts for such purpose.384Again, these

practicesarehighlyriskysinceunscrupulousbrokersmayeasilymisappropriate

clientfunds.

The fourth method involves securities brokers committing fraudulent acts by

deceitfully telling clients that they are able to arrange for clients to buy initial

publicofferings(IPO)orunlistedsecuritiesatadiscountandasktheclients to

transfer the amount to the brokers’ personal accounts when, in truth, they

cannotgain thediscount.Theunscrupulousbrokers thenwithdrawsuch funds

andfleewiththemoney.

Thefifth-andthemostcomplicated-method,whichincorporatescommissionof

focusoffencesalso in thisresearch,seessecuritiesbrokersbeingauthorisedto

maketradingdecisionsforclientsorareauthorisedtouseclients’accountsfor

their own benefit. Brokers then make trading decisions to receive monetary

benefitsandtothedetrimentofclients.Unliketheprecedingmethods,whichare

mostlyone-offoffencessince thevictimswouldsoonknowof thedamage, this

typeoffraudulenttradingcanbecommittedrepeatedlyoveraperiodoftimeas

offending brokers usually take complicated steps to conceal wrongdoing. One384AsageneralpracticeintheThaibrokerageindustry,everysecuritiescompanyprovidestheirclientswithcorporatebankaccountsthattheclientsarerequiredtotransferfundsto.Clientsarestronglyadvisedagainsttransferringanypaymenttothebrokers’personalbankaccounts.

155

examplebeginswithforgingaclient’ssignatureonachangeofmailingaddress

form,resultinginactualconfirmationandmonthlystatementsbeingsenttothe

brokers’ addresses instead of the clients’. The unscrupulous brokers then

fabricate trade confirmations and monthly statements showing false trading

information and asset balances,which are subsequentlymailed to the account

owners.Owing tosuchdeception, itusually takesconsiderable timebefore the

injuredclientsnotice(ifever)thatthewrongdoinghasbeencommitted.

Todetersecuritiesbrokersfromcommittingthesesevereoffencesoffraudand

misappropriation, togetherwith relatedoffences against clients, the SECOffice

has employed both administrative and criminal sanctions in response. The

administrativesanctionsincluderevokingthebrokeragelicenceandprohibiting

licencere-applicationsbyoffendingbrokersforaminimumoffiveyearsaswell

as publication of their names and those of their employing companies.385

Criminalpunishmentsfortheoffenceoffraudandmisappropriationcommitted

by securities brokers can be as punitive as imprisonment not exceeding five

yearsora finenotexceeding10000baht,orbothforeachcountof fraud.386It

shouldbenotedthatunderThaicriminal law,relatedoffencesof fabricationof

documentsorforgingofsignaturesifcommittedforthepurposeofcommitting

fraud or misappropriation do not constitute separate counts or separate

offences,387andonly theprovisioncarrying theseverestpunishment isapplied

totheoffender.388

385TheSECNotificationNo.KorWor.12/2011(Group1.1Dishonesty).386Itshouldbenotedthat,undersection91ofthePenalCode,ifabrokerisconvictedonmultiplecountsofoffences, theCourtmay inflictuponsuchbroker thepunishmentprescribed foreachcountofoffence.However,thetotalpunishmentofmustnotexceedthefollowingdetermination:

1. Tenyearsincaseoftheseverestoffencetohavetherateofthemaximumpunishmentofimprisonmentnotexceedingthreeyears;

2. Twenty years in case of the severest offence to have the rate of the maximumpunishment of imprisonment exceeding three years upwards, but not more than tenyears;or

3. Fiftyyearsincaseoftheseverestoffencetohavetherateofthemaximumpunishmentofimprisonmentexceedingtenyearsupwards,unless inthecasewheretheCourt inflictsupontheoffenderthepunishmentofimprisonmentforlife.

387TwekiatMenakanist,AmnartNetayasuphaandChanchaiArreewittayalerd,GeneralPrinciplesofCriminalLaw(FacultyofLaw,ThammasatUniversity,2014).388PenalCodes90.

156

In terms of enforcement, injured clients suffering losses from fraud and

misappropriationusuallybringtheviolationstotheattentionoftheSECOffice.

Similartothethreeoffencesanalysedabove,SECofficersasktheclients,brokers,

and securities companies to present statements and evidence for further

investigation. If the investigation indicates that fraud ormisappropriation has

occurred, the officers present the case to the Capital Market Personnel

Disciplinary Committee (CMPDC) for consideration on the proper form and to

determinethemagnitudeofadministrativepunishmentstobeimposeduponthe

offendingbrokers.Inrelationtothecriminalproceedings,itisimportanttonote

that the SECOffice deems that the offences of fraud andmisappropriation are

solelycommittedagainstcertainclientsofsecuritiescompaniesandnotagainst

theagencyor thepublic,unlike theoffencesofmarketmanipulationor insider

trading.Asaresult,theSECOfficedonotpursuecriminalsanctionsagainstthe

offendingbrokersandleavethedecisiontoprosecutewiththeinjuredclients.If

theinjuredclients,whomayormaynotsuccessfullynegotiateasettlementwith

the broker’s security companies, decide to pursue criminal sanctions against

offendingbrokersindividually,theymayfilecomplaintstotheEconomicCrime

Investigation Division (ECID) of the Royal Thai Police. The ECID will conduct

further investigation. If they consider there are valid grounds for prosecution,

theECIDwillsendthecasefilestotheOfficeofTheAttorneyGeneral(OAG)for

prosecutionintheCourtsofJustice.389

ExampleCases

CaseOne:Tangsongsuwan‘sGrossFraudulentScheme

The SEC Office revoked the licence of Miss Tida Tangsongsuwan for severely

violatingtheSECregulationsonstandardsofconduct.390MissTangsongsuwan’s

misconduct involved the following violations: (1) making securities trading

389Seedetailsbelow.390ThiscasewasdecidedbeforetheSECOfficeNotificationNo.KorWor.12/2011cameintoeffect.Therefore, (1) the name of the employing securities company was not revealed, and (2) therevocationorderdidnotspecifythe lengthofaprohibitiononre-applicationforthebrokeragelicence.

157

decisions for her client, (2) withdrawing the client’s assets without

authorisation, (3) using the client’s trading account to trade securities for her

own interest, (4) forging the client’s signature in order to have the client’s

correspondence from the securities companysent toherownaddress, and (5)

withdrawing cash from the client’s banking account by using the client’s

passbookwhichhadbeenleftinhercarewithblankwithdrawalformssignedin

advancebytheclient.391

The SEC Office made further statements in the SECNewsReleaseNo. 39/2549

(2006) that clients should not trust their securities brokers to such an

extraordinaryextentandshouldnotassignbrokerstheroleofmanagingassets

andsecuritiestradingaccountsontheirbehalfsincethereishighlikelihoodthat

brokers may abuse such power. The SEC Office strongly advised clients to

regularly check the accuracy of daily securities trading reports, monthly

transactionreports,andsecuritiesbalancereports.Whenthereisinaccuracyor

irregularities insuchreports, clientswereadvisedby theSEC that theyshould

immediately contact the back office of the securities companies for immediate

correctionorclarification.

CaseTwo:Sripurd’sGrossIPOsFrauds

The SEC Office revoked the licence of Miss Wanvadee Sripurd for severely

violatingtheSECregulationsonstandardofconduct,effectivefromFebruary21,

2007.392MissSripurd’sseverelywrongfulactswere:

(1) Deceivinginvestors intobelievingthatshewouldopentradingaccounts

for them and asking them to transfer money to her personal bank

account, supposedly for the investors’ securities purchases. She also

tricked her clients into transferring their money to her personal bank

391TheSECNewsReleaseNo.39/2549(2006),24May2006.392ThiscasewasdecidedbeforetheSECOfficeNotificationNo.KorWor.12/2011cameintoeffect.Therefore, (1) the name of the employing securities company was not revealed, and (2) therevocationorderdidnotspecifythe lengthofaprohibitiononre-applicationforthebrokeragelicence.

158

account,claimingthatshewouldsubscribeforIPOsorpurchaseunlisted

securities for theclients. Inreality,MissSripurdneitheropenedtrading

accountsnorboughtanysecuritiesfortheclients;

(2) Falsifying her clients’ transaction reports, outstanding balance reports,

and copies of bank deposit receipts in order to deceive the clients into

thinkingthatshehadpurchasedand/orsoldsecuritiesaccordingtotheir

orders;and

(3) Making unauthord trading decisions without clients’ orders and using

clients’accountstotradesecuritiesforherownfinancialbenefit.

TheSECOffice’sfurtherinvestigationrevealedthatMissSripurdhadengagedin

thesedeceitfulbehaviourssince2005,causingdamagetoinvestorsinexcessof

130millionbaht.393

393TheSECNewsReleaseNo.15/2550(2007),21February2007.

159

Chapter4

TheFraudTriangleandExtendedModels

ITheFraudTriangle

Themainobjectiveofthisresearchisfindingwaysofdeterringfraudandrelated

offences committed by retail securities brokers against clients and general

investors in theStockExchangeofThailand. In findingeffective legalandnon-

legal anti-fraud measures, it is important to identify factors leading to such

commissionoffraudandregulatoryviolations,takingintoaccountThaicultural

and business contexts. In this thesis, Donald Cressey’s Fraud Triangle is

employedas themaintheoreticalbackground.394Theuseof theFraudTriangle

toexplorefactorsleadingtobrokeragefraudinthisresearchhasbeeninfluenced

by the growing trend in the research area of accounting and financial fraud

where the application of the Fraud Triangle to prevent and detect fraud has

attractedconsiderableinterestfrombothresearchersandregulators.395Various

revised and extended models of the Fraud Triangle have been proposed by

accounting and finance academics in order to better understand the nature of

fraudand toeffectively apply theFraudTriangle indifferent settings.396As for

theregulatorycommunity, thethreeelementsof theFraudTriangle(perceived

pressure, perceived opportunity, and rationalisation) have been incorporated

intoworkingmanuals and standards of leading regulatory oversight bodies in

the United States, including the Association of Certified Fraud Examiners

(ACFE)’s ‘Fraud ExaminersManual’, the Public Company Accounting Oversight

Board(PCAOB)’sAUSection316,‘ConsiderationofFraudinaFinancialStatement

Audit’,andtheAmericanInstituteofCertifiedPublicAccountants(AICPA)’sSAS

no. 99, ‘Consideration of Fraud in a Financial Statement Audit’.397Similarly in

Australia, theAUASB’sASA240, ‘TheAuditor'sResponsibilitiesRelatingtoFraud

394Cressey,aboven11.395Rasha Kassem and Andrew Higson, 'The new fraud triangle model' (2012) 3(3) Journal ofEmergingTrendsinEconomicsandManagementSciences191.396SeetheextendedandrevisedmodelsoftheFraudTrianglebelow.397Dormineyetal,aboven23.

160

inanAuditofaFinancialReport’, alsodefinescharacteristicsof fraudbasedon

the elements of Cressey’s Fraud Triangle. Because of its apparent strength in

identifying the causes of fraud and in assessing fraud risk, this research has

applied a selected version of the Fraud Triangle to explore incidents of

brokerage fraud and related regulatory violations in the Stock Exchange of

Thailand.ThemodelisexploratoryinnatureandincorporatestheThaibusiness

contextasanimportantsocietalfactor.

This literature review section starts with a brief revision of differential

associationtheory.ThenDonaldR.Cressey’soriginalFraudTriangleisreviewed

indetail.Thethirdpartofthissectionexaminesdifferentextendedmodelsofthe

Fraud Triangle as well as other models relating to fraud deterrence and

detection. The last part is a brief examination of studies on fraud risk factors

conductedbyscholarsintheaccountingandauditingfields.

ADifferentialAssociationTheory

Causesofcrimeandhowtousesuchknowledgetopreventordetercrimehave

been thesubjectof research foryears in thedisciplinesofbiology,psychology,

sociology, criminology, and law.398Theories of crime can be largely classified

into three categories: classical and rational choice, biological, and sociological

theories. 399 In essence, classical and rational choice theorists believe that

individuals have freewill and are rational calculatorswhoweigh up the costs

and benefits of the consequences of each action including crime.400 Biological

theoriessuggestthatsomeindividualsare‘bornintocrime’andthatcertaingene

patterns and combination have linkage to violent criminal behaviour.401Last,

sociological theories of crime essentially propose that crime is caused by

different conditions in which individuals live as well as their relationship to

398StuartHenryandMarkLanier,Theessentialcriminologyreader(WestviewPressBoulder,CO,2006)399MichaelRGottfredsonandTravisHirschi,Ageneraltheoryofcrime(StanfordUniversityPress,1990)400DerekBCornishandRonaldVClarke,Thereasoningcriminal:Rationalchoiceperspectivesonoffending(TransactionPublishers,2014)401GottfredsonandHirschi,aboven399.

161

other individuals and/or institutions in their life.402Prominent theories in this

category includesocial learning theory, social controlandself-control theories,

socialdisorganisationtheory,socialecologytheories,anomieandstraintheories,

conflict theory, subcultural theories, and differential association theory.403The

differential association theory is most relevant to this research because of its

influence on the development of Donald Cressey’s Fraud Triangle theory, the

main theoretical background of this study. The concept of rationalisation, the

third side of the triangle, was notably borrowed from Edwin H. Sutherland’s

differential association theory, although was defined with a different view.404

Essentially, while Sutherland argued that rationalisation helps to explain why

professional criminals proudly consider themselves as such, 405 Cressey

conceptualisedthatembezzlersneedtorationalisetheirfraudulentbehaviourin

ways that convince themselves they were actually being honest before

committingembezzlements.406Theothernotablereasonforadoptingthetheory

of differential association is that while others sociological theories were

developed to explain the delinquency phenomenon, especially in youth,407the

theory of differential association was originally developed to explain more

generalphenomenonofcrime,includingfinancialcrimeandorganizedcrime.408

Thecriminological theoryofdifferentialassociationwasproposedbyEdwinH.

Sutherland,asociologist, in1939.409Thetheoryconsidersatdeviantbehaviour

to be learned behaviour and focuses on how individuals learn to become

criminals. Prior to the development of the theory, Sutherland reviewed the

research literature on criminology and felt that the multiple-factor approach

402Ibid.403HenryandLanier,aboven398.404Jérémy Morales, Yves Gendron and Henri Guénin-Paracini, 'The construction of the riskyindividualandvigilantorganization:Agenealogyofthefraudtriangle'(2014)39(3)Accounting,OrganizationsandSociety176.405EdwinHSutherland,TheProfessionalThief(Chicago,1937).406Cressey,aboven11.407RobertJBursik,'Socialdisorganizationandtheoriesofcrimeanddelinquency:Problemsandprospects' (1988)26(4)Criminology519;MichaelDWiatrowski,DavidBGriswoldandMaryKRoberts, 'Social control theory and delinquency' (1981) American Sociological Review 525;RonaldLAkers et al, 'Social learning anddeviantbehavior:A specific test of a general theory'(1979)AmericanSociologicalReview636.408RossLMatsueda, 'Thecurrentstateofdifferentialassociation theory' (1988)34(3)Crime&Delinquency277.409EdwinHSutherland,PrinciplesofCriminology(NewYork:JBLippincott,1960).

162

prevailing at the time was parsimonious and failed to provide a scientific

understanding of any type of crime.410He believed that a scientifically-derived

general causal theory of crime should be developed by identifying conditions

thatarealwayspresentwhenanytypeofcrimeiscommittedandalwaysabsent

when crime is not committed.411 In doing so, he developed the theory of

differential association based on three interrelated concepts (1) normative

(culture) conflict, (2) differential association, and (3) differential social

organisation.412These concepts then operate at two levels (1) the societal and

the(2)individual.

Inessence,thetheoryisbasedonthenotionthatcrimeiscausedbynormative

conflicts where different groups in society conflict over norms, values, and

interests.413Atthesocietylevel,somegroupsdefinethatagivenruleshouldbe

followed under all circumstances; others define that the same rule should be

violated in all cases; and the rest define the rule to be violated under certain

circumstances.Suchconditionsofnormativeculturalandlegalconflictresultin

highratesofcrime.414Attheindividuallevel,criminalbehaviourislearnedinthe

process of differential association through communicationwith other persons,

notablywithpeersinintimategroups.415

The content of such learning includes: (1) the techniques and skills of

committing crimes, and (2) the specific influencedirectionsofmotives, drives,

rationalisation,andattitudes.Thesecondsetofelementsismostimportantsince

itpoints an individual towards certaindirectionof adefinitionof a given rule,

whetheritistobefollowedortobeviolated.Duetothenormativeconflictatthe

societal level, individuals, consciously and unconsciously, associate with and

learn from those defining the rule favourably and those defining the rule410Criminalbehaviourwasexplainedbyindependentcausesincludingmentaldeficiency,brokenhomes,minority status, age, class, inadequate, socialisation, alcoholic parents, and etc. See:MZachariah, 'Criminological theory - the search for causation (from fundamentals of criminaljustice-asyllabusandworkbook,1977,2DED.,byDaeHChang-SeeNCJ-44045)'(1977).411Matsueda,aboven408.412Donald R Cressey, 'Theory of Differential Association: An Introduction, The' (1960) 8 Soc.Probs.2.413Matsueda,aboven408.414Ibid.415Ibid.

163

unfavourably. Sutherland concluded that criminal behaviour occurs when the

individualslearnanexcessofdefinitionsfavourabletoviolationoverdefinition

unfavourabletoviolation.416Neverthelessnotalldefinitionshaveequalinfluence

on individuals during the differential association process, definitions are

weightedbyfourcorrelatingfactors:frequency,duration,priority,andintensity.

Therefore, definitions that the individuals encounter frequently, for a longer

time,earlierinlife,andfromamoreprominentsourceorfromsomeonetheyare

inamoreintimaterelationshipwith,receivemoreweightandcouldhavemore

influence on individual behaviour.417These principles have given rise tomuch

subsequent research, most notably, studies on juvenile delinquency based on

peerlearning418andthestudyofembezzlementandotherfinancialcrimesbased

on theverbalisationandrationalisationelementsof thedifferentialassociation

theory.419

BCressey’sOriginalFraudTriangle

Donald R. Cressey, a student of Sutherland, began his research on various

criminal acts he grouped as ‘criminal violation of financial trust’ in 1950. He

established two criteria for criminal acts to be included in his study: (1) the

personhad accepted a position of trust in good faith, and (2) theperson later

violated that trust by committing a crime.420His intention was to develop a

generalisation explaining such criminal behaviour. Cressey interviewed 250

inmates whowere convicted for such acts at the Illinois State Penitentiary at

Joliet over a period of five months. 421 His hypothesis was derived from

differentialassociationtheory:whethertheviolationoffinancialtrustoccurred

whentheperpetratorshadlearnedinthecourseoftheirbusinessorprofession416Sutherland,aboven409.417Matsueda,aboven408.418Edwin H Sutherland and Gilbert Geis,White collar crime (Dryden Press New York, 1949);Daniel Glaser, 'The differential association theory of crime' (1962)HumanBehaviorandSocialProcesses 425; Cressey, above n 11; Nicole Leeper Piquero, Stephen G Tibbetts andMichael BBlankenship, 'Examining the roleof differential association and techniquesofneutralization inexplainingcorporatecrime'(2005);DoneganandGanon,aboven17.419Dana LHaynie andDWayneOsgood, 'Reconsideringpeers anddelinquency:Howdopeersmatter?'(2005)84(2)SocialForces1109.420Cressey,aboven11,20.421 Donald R Cressey, 'The criminal violation of financial trust' (1950) 15(6) AmericanSociologicalReview738,740.

164

thatsomeformsofviolationsweremerelytechnicalandwerenotreallywrong,

andthatsuchviolationswouldnotoccur if thisdefinitionof thebehaviourhad

not been learned.422This initial hypothesiswas dropped as social learning did

notseemtoexplainthesecrimes.Notonlydidmanyconvictsexpressthatthey

knew that such violations were illegal and wrong, in addition, many also

reported that they knew of no one in their profession or business who had

committed similar offences.423Cressey then revisedhis hypothesis and instead

focusedonmultiplefactorsrelatingtopersonalsituationandtheattitudesofthe

trustviolatorstowardsthosesituations.Heconcludedthatthreefactorsmustbe

presentforthecriminalviolationoftrusttooccur:(1)anon-shareablefinancial

problem,(2)knowledgeorawarenessthattheproblemcouldbetosomeextent

solvedbymeansoftrustviolation,and(3)abilitytoapplyverbalisations,laterto

beknownas rationalisation, to their conductwhichallow them to adjust their

conceptions of themselves.424Cressey’s hypothesis has over the years become

wellknownasFraudTrianglewiththreesidesthatare‘pressure’,‘opportunity’,

and‘rationalisation’.425

Figure6:FraudTriangle426

422Ibid741.423Ibid.424Ibid.425KassemandHigson,aboven395,192.426Wells,JosephT,Principlesoffraudexamination(WileyHoboken,NJ,2008).

165

1Pressure

In Cressey’s original paper (1950), the pressure lateral of the triangle was

limited to a non-shareable financial problem:427emphasis was placed on the

‘non-shareable’ character of the financial problem. Cressey explained that, in

additiontopersonsintrustedpositionshavingobligationsnottoviolatetrustby

taking funds or benefits for themselves, those persons also have implied

obligations tomaintaincertainsocialpositions in thecommunity,aswellas to

refrain from certain activities such as gambling, heavy drinking, and having

affairswithwomen.428When those trusted persons incur debts resulting from

suchactivities,theyoftenconcludethatsuchdebtsmustbekeptsecretandnon-

shareable due to the incompatibility of those activities (and debts incurred

therefrom)withtheirrolesanddutiesastrustedpersons.Asaresult,theydonot

seekhelpfromotherswhocanprovidemoreproductive,non-harmfulsolutions

totheproblembut,rather,considerviolating-andthencananddoviolate-the

trust placed in them to obtain funds to solve their non-shareable financial

problems.

In 1953, in his book ‘Other People’s Money’, Cressey further divided the non-

shareable financial problems into six categories: (1) violation of ascribed

obligation, (2) problems resulting from personal failure, (3) problems resulting

from business reversals, (4) problems resulting from physical isolation, (5)

problems related to status-gaining, and (6) problems resulting from employer-

employeerelations.429

First, on violation of ascribed obligation, Cressey observed that many trusted

persons believe that they are expected to behave in certain ways and are

required tomaintain a good reputation in their social andprofessional circles.

When they engage in activities less than reputable, although not necessarily

illegal, and incur debts, they do not dare tell, or ask for financial help from

427Cressey,aboven421,20.428Ibid.429KassemandHigson,aboven395,192.

166

others, forfearof losingsocialstatusand/orthetrustedpositionstheyhold.430

Second, inproblemsresulting frompersonal failure,manytrustedpersonsfear

admitting to others that their bad professional or business decisions have

resultedinfinanciallossestotheirorganisationsorotherswhohaveputthemin

positions of trust. They fear that by revealing such information, theywill lose

theircreditabilityand/orpositions,eventhoughtheyknewthatothersareable

tohelp themextricate themselves from thosedifficulties.431Third, inproblems

resulting frombusiness reversals, the trustedpersons suffer financially froma

legitimateeconomicreversal.Suchproblemsareentirelydifferentfromthosein

the first two categories, which arise from vices and bad judgment. Yet many

trusted persons take it upon themselves and decide that it is a non-shareable

problem that they have to take care of on their own, albeit through illegal

means.432

Fourth, inproblemsresultingfromphysical isolation, thetrustedpersonswere

foundbyCresseytobephysicallyisolatedfromotherswhotheycouldturntofor

help in solving their financial problems. Two interesting examples given by

Cresseyincludeamanwhosewifehadpassedawayandanotherwhohadlefthis

familyduetoantagonismandmisunderstanding.433Fifth,inproblemsrelatedto

status gaining, a non-shareable financial problem does not happen due to the

maintainingofstatus(asinthepreviousfourcontexts),butratherbecauseofthe

trusted person’s aspiration to live at a certain level, essentially beyond their

financialmeans.Ondiscoveringthattheyarenotabletodoso,theproblematic

situationbecamenon-shareable,inwhichmanychosetoemployillegalmeansto

paytheirdebtsandtocontinuelivingsuchlifestyles.434

The last category of non-shareable issue conceptualised by Cressey concerns

problems resulting from employer-employee relations, in which situation the

trustedpersonsarefoundtoresenttheirstatuswithintheirorganisations,such

430Cressey,aboven11,40.431Ibid42.432Ibid44.433Ibid52.434Ibid57.

167

asfromfeelingbeingunderpaid,overworked,orunfairlytreated,yetatthesame

timefeelingthattheymustcontinueworkingfortheirorganisation.Theymight

wanttospeakoutabouttheirdiscontenttoothersbutfearthatiftheydoso,they

will lose their trustedpositions. Such issues togetherwith anyof theprevious

five situations can lead trustedpersons to violate theirpositions so as toboth

relievetheirfinancialissuesandtotakerevengeontheirorganisations.435

It can be concluded that in Cressey’s original fraud triangle theory, pressure

factors are limited to personal motivation stemming from the ‘non-shareable’

characteroftheirfinancialproblem.Inaddition,Cressey’semphasiswasstrictly

on fraud incidents committed by ‘a person in a trusted position’. When the

theorywaslaterappliedtodifferentcircumstancesand/ortopeopleindifferent

positions, later scholars found that Cressey’s original concept of pressurewas

inadequate and that other pressure factors could induce the commission of

fraudulent behaviour.With that, extendedmodels of Cressey’s Fraud Triangle

encompassingandreclassifyingvariouspressure/motivation factorshavebeen

proposed.Thesemodelsarediscussedindetailinthefollowingsection.

2Opportunity

The second lateral of the Fraud Triangle is opportunity to commit trust

violations.Trustedpersonsperceivethattheirpositionsofferasolutiontotheir

non-shareableproblem.Theymaynot at first see their position in such away

when accepting their position, but change their perception after their non-

shareable problems become present. Cressey further conceptualised that such

perceptionwasmainlybasedoneachtrustedperson’spastexperience.Without

that past experience, the persons would not be able to perceive that such

positions could be employed to relieve their financial difficulties. 436 An

individual’s past experience can draw on multiple discrete sources, such as

information they receive from general news relating to fraud, from associates

who engage in such behaviour, or from the general implication that their

435Ibid57-66.436Ibid78.

168

positions can be violated for certain monetary gains. In addition to such

perception,Cressey furtherpointedout that trust violatorsmust alsohave the

required knowledge and technical skills according to their professions or

businesses to successfully commit the violation and to conceal their illegal

acts.437It is interestingtonotethat inmanysituations, theskills thatallowthe

perpetrators to successfully commit frauds are the same skills required for

individualstoholdsuchpositionsinthefirstplace.438Toillustrate,auditorsand

accountants are usually educated on the characteristics of different types of

frauds so that they can detect and report them to management. These

individuals,whenfacedwithfinancialdifficultiesthemselves,maydecidetouse

such knowledge to exploit the current control system and find ways to

successfully conceal their fraudulent behaviour. In conclusion, perceived

opportunityistheperceptionheldbytheperpetratorsthat(1)certainviolations

canrelievethemfromtheirfinancialdifficulties,(2)thereisacontrolweakness

thattheycanexploit439and(3)theprobabilityoftheirviolationbeingdetectedis

low.440

3Rationalisation

ThethirdsideoftheFraudTriangleisrationalisation.Rationalisationisthetrust

violators’ attempt to reduce the cognitive dissonance that arises within

themselves.441In doing so, they apply verbalisation to their conduct enabling

them to adjust their contradictory conceptions of themselves between the

trusted persons and the illicit users of entrusted funds to solve their non-

shareableproblems.442Manyadmit that theycommittedcertain illegalactsbut

deny that theywerewrong, thus allowing them tomaintain their decent self-

437Ibid77.438Albrecht,aboven12.439A control weakness in this context is defined as perceived loopholes in mechanisms thatpreventfraudand/orthelackofcrediblesanctionsagainstoffenders.440Dormineyetal,aboven23,558.441LeonFestinger,Cognitivedissonancetheory(Row,Peterson,1957);SridharRamamoorti,'Thepsychologyandsociologyoffraud:Integratingthebehavioralsciencescomponentintofraudandforensicaccountingcurricula'(2008)23(4)IssuesinAccountingEducation521.442Cressey,aboven11,94.

169

image.443Cresseyfurthernotedthatmosttrustviolatorsarefirst-timeoffenders

with no criminal records. They see themselves as ordinary and honest people

who are caught in situations.444 These people wish to remain within their

comfortzone,sotheyuseverbalisationtojustifytheirfraudulentactsbeforethe

commission of the violation. 445 The common verbalisations that the trust

violatorsemployare‘Iamborrowing,notstealing’,‘Allpeoplestealwhentheyget

inatightspot’,‘Itisanordinarythinginthisbusiness’,andetc.446

Later studies show that rationalising tactics employed by the perpetrators to

justifythepracticescantakeseveralforms,includingappealtohigherloyalties,

sadtalesofthepast,condemnationofthecondemners,anddenials.447Thelatter

canbefurtherdividedintodenialofresponsibility,denialofinjury,anddenialof

victimisation,respectively.448First,adenialofresponsibilityistheperpetrators’

attempts to convince themselves that the violations are the result of

circumstancesthatleavethemnochoicebuttocommitsuchviolations.449Those

whorationalise theiracts in thiswayeither shiftblame to thevictimsordeny

benefitting fromsuchviolations.Theymay instead claim that their acts are, in

fact, altruistic and benefit others. Second, a denial of injury is attempts of

perpetrators to claim that nobody is harmed by such violations. 450 Such

rationalisation happens often where the victims are big organisations or are

insured.451Third and last, a denial of victims occurs when the perpetrators

believe that the victims deserve such transgressions or believe in rightful

retaliation against victims.452This type of denial is commonwhere employees

443Michael L Benson, 'Denying the guilty mind: Accounting for involvement in a white-collarcrime' (1985)23(4)Criminology583; JamesWilliamColeman, 'Towardan integrated theoryofwhite-collarcrime'(1987)AmericanJournalofSociology406;SaraWillott,ChristineGriffinandMark Torrance, 'Snakes and ladders: Upper-middle class male offenders talk about economiccrime'(2001)39Criminology441.444KassemandHigson,aboven395,191.445Dormineyetal,aboven23.446Cressey,aboven11,96.447Dellaportas,aboven17,32.448GSykesandDMatza,'Delinquencyanddrift'(1964)NewYork.449VikasAnand,BlakeEAshforth andMahendra Joshi, 'Business asusual: The acceptance andperpetuationofcorruptioninorganizations'(2004)18(2)TheAcademyofManagementExecutive39;Piqueroetal,aboven418.450Piqueroetal,aboven418.451Anandetal,aboven449.452Piqueroetal,aboven418.

170

have to tolerate poor workplace conditions. A study by Hollinger and Clark

shows that it is easier for employees who steal money from employers to

rationalisetheirillegalbehaviourascompensationforsuchunpleasantworking

conditions.453Themostcommonverbalisationsusedinsuchsituationare ‘They

oweme’and‘Iwanttogeteven’.

4CritiquesoftheFraudTriangle

Cressey’s Fraud Triangle is notwithout criticism. On the generalisation of the

theory,white-collarcrimecriminologistsquestionwhetheramodelfromastudy

of embezzlers can be perfectly applied to other financial crimes, especially to

financial statement fraud. 454 Later studies on white-collar crime classify

offenders into lowerandhigherstatuscategories,where theembezzlersare in

theformerandthesecuritieslawviolatorsareinthelatter.Thesestudiesshow

manydifferencesbetweenthemincludingpersonal incomeandsocialstatus. It

is,therefore,questionabletomanywhethertheFraudTrianglecanbeageneral

theoryoffinancialcrime.455

Asforcriticismsonthespecificcomponentsofthemodel,onthepressuresideof

the Fraud Triangle, criminologists have argued whether a non-shareable

financial problem is a necessary element of fraud. J W Coleman questions

whether embezzlement cannot result froma simpledesire formoremoney.456

Others believe that other, non-financial factors that impose pressure on the

perpetrators to commit fraud, such as ego, ideology, political pressure, social

pressure, andetc.457On theopportunity side, critiques claim thatCresseydoes

notgiveenoughemphasisonthecapabilityoftheperpetratorstocommitfraud.

David T.Wolf and Dana R. Hermanson assert that fraud can only occurwhen453Richard C Hollinger and John P Clark, Theft by employees (Lexington Books Lexington, MA,1983).454DavidWeisburdetal,'Crimesofthemiddleclasses'(1991)80NewHaven,CT:YaleUniv.Press.1403;Piqueroetal,aboven418.455DoneganandGanon,aboven17,3.456JameWColeman,TheCriminalElite(St.Martin'sPress,2002).457Hernan Murdock, 'The three dimensions of fraud: auditors should understand the needs,opportunities, and justifications that lead individuals to commit fraudulent acts' (2008) 65(4)Internalauditor 81;Mary-Jo Kranacher, RichardRiley and JosephTWells,Forensicaccountingandfraudexamination(JohnWiley&Sons,2010).

171

there is apersonwithappropriate capabilities to implement steps that lead to

the commission and the concealment of fraud. On the rationalisation side,

William Albrecht and his colleagues in the area of forensic accounting and

auditingnote that rationalisation is hard to observe andprofile. Theypropose

that rationalisation should be replacedwith ‘personal integrity’,which ismore

observable.458These criticismsand comments subsequently lead to expansions

andrevisionsoftheoriginalFraudTriangle,whichwillbeexaminedindetailin

subsequentsections.

As for the overall structure of the model, Steven Dellaportas comments that

Cressey’sFraudTriangleisstrictlybasedontheassumptionthatthetriangleis

equilateralwherethethreesidescarryequalweightelements.459Thestrengthor

the influence of the relationship between and the weighting of the three

variables have not been adequately tested and should be examined in future

studies. Second, JoshuaK. Cieslewicz in his qualitative study of fraud in China

notes that the Fraud Triangle has been developed exclusively with US-centric

assumptionsaboutcausesoffraud.460Asaresult,themodeldoesnotprovidefor

other factors influencing fraud in different cultural, sociological or business

settings.HeproposesthatfortheFraudTrianglemodeltobeefficientlyapplied

tostudyfraudinothercountriesincludingChina,differentsocietal-levelfactors

also need to be included in the model. This cross-cultural criticism receives

specialattentioninthisthesisandisfurtherexaminedindetailinthelaterpart

ofthischapter.

InarecentarticlebyClintonFree,hepointsoutthatFraudTrianglestudiesand

subsequent revisedmodels have fallen short in three key theoretical areas.461

Thefirstareaisalackofempiricalstudiesonactualfraudsters.Freepointsout

thatalthough theTheoryofFraudTrianglewasborneoutof empirical studies

where Cressey interviewed embezzlers incarcerated in federal prisons, few

458W Steve Albrecht, Keith R Howe and Marshall B Romney, Deterring fraud: the internalauditor'sperspective(InstituteofInternalAuditors,1984).459Dellaportas,aboven17,32.460Cieslewicz,aboven24.461ClintonFree,'Lookingthroughthefraudtriangle:areviewandcallfornewdirections'(2015)23(2)MeditariAccountancyResearch175.

172

subsequentstudieshavebeenconductedinsuchafashion.Theresearchareaof

fraud, notable in accounting and auditing, is strewn with over-simplified,

individual-oriented models that are unable to capture the complex notion of

fraud inpractice.462Hesuggests that there is largescope for futureresearch in

examining the perspective of actual fraud perpetrators though field research.

Nevertheless,herealisesthatconductingresearchwithconvictedperpetratorsis

notaneasytask,asresearchersneedtoobtainaccesstoprisonsandpermission

to talk to inmates, and to possess qualities to encourage openness and

elaborationfromtheparticipants.

ThesecondcritiquebyFree is that thecurrentresearchandapplication ofthe

TheoryofFraudTriangletocombatorganisationalfraud,whichissponsoredby

theACFE463andtheAICPA,464onlyemphasisepressureandopportunityfactorsof

the triangle. Rationalisation has received scant attention.465In their published

rule, the AICP goes so far as to suggest that ‘rationalisation may not be

observable’.466Duetothis,todatetherehasnoempiricalresearchconductedto

validate or further investigate the actual roles of rationalisation in fraud,

comparingtonumerouspiecesonpressureandopportunity.Futureresearchmay

furtherdelineatereationalisationandprovideinsightintoitsdifferentcategories

thatwillbehelpfulforfrauddetectorsandregulators.467

ThethirdandlastcritiquebyFreeisthatthetheoryofFraudTriangleislargely

predicated on fraud committed by a single person, in which pressure,

opportunityandrationalisationperceivedbyanindividualarethoughttobethe

main factors leading to fraud.468However, recent major incidents of fraud,

notablycorporatefraudatEnron,WorldCom,andParmalatwereallcommitted

by multiple individuals and illustrated that collusion is a core element of

462Ibid.463TheAssociationofCertifiedFraudExaminers.464TheAmericanInstituteofCertifiedPublicAccountants.465Free,aboven461.466TheAssociationofCertifiedFraudExaminers,ConsiderationofFraudinaFinancialStatementAudit,2002,Sec.316.35.467Pamela RMurphy andM Tina Dacin, 'Psychological pathways to fraud: Understanding andpreventingfraudinorganizations'(2011)101(4)JournalofBusinessEthics601.468Free,aboven461.

173

fraud.469Freepointsoutthat,apartfromtheA-B-CsmodelofFraudthatlightly

toucheson theconceptof collusiveandorganisational-wide fraud,470there isa

lack of a revised Fraud Triangle model that can concretely explain the

phenomenonofcollusivefraud,andthattheresearchareaofforensicaccounting

hasfallenbehindotherresearchareasinrespectoftheoreticalworkoncriminal

groups, collusion, and co-offending. 471 Nevertheless, criminological studies

conducted in those areas tend to focus primarily on the area of juvenile

delinquency, where differences between age and sex of offenders, education,

conviction rates, opportunity structures, consequences, reationalisation, and

motivationmakeitdifficulttogeneralisesuchfindingstofraudulentactivitiesof

corporate employees and professionals. 472 As a result, a future theoretical

frameworkincollusivefraudthatcanprovideabetterunderstandingaboutthe

phenomenoniscalledfor.AcriticalarticleonagenealogyoftheFraudTriangle

byJeremyMoralesandhiscolleaguesalsoreiteratestheweaknessofthetheory

inexplainingthephenomenonofcollusivefraud.473Theyfurtherassertthatthe

ACFE,who had championed the use of the Fraud Triangle by theirmembered

practitionersas the tool tocombatcorporate fraud,hasdeliberately translated

Cressey’soriginalpropositionsandredefined fraud inselectiveangles for their

professionalpurposes,byprivileging the theory’s individualisticexplanation to

the detriment of competing micro-sociological 474 and macro-sociological

theoriesoffinancialcrime.475

CRevisedandExtendedFraudTriangleModels

IntheoriginalFraudTrianglemodel,thereareonlyafewfactorsassociatedwith

eachof the threevariablesofpressure, rationalisationandopportunity.Due to469JackWDormineyetal,'Beyondthefraudtriangle'(2010)80(7)TheCPAJournal17.470Sridhar Ramamoorti et al, ABC's of Behavioral Forensics: Applying Psychology to FinancialFraudPreventionandDetection(JohnWiley&Sons,2013).471 Frank M Weerman, 'Co-offending as social exchange: Explaining characteristics of co-offending' (2003) The British Journal of Criminology; Klein, MalcolmW and Cheryl L Maxson,Streetgangpatternsandpolicies(OxfordUniversityPress,2010).472Free,aboven461.473Moralesetal,aboven404.474Micro-sociological theories focus on the link between individual perpetrators and theirimmediateorganisationalcircumstances:ibid174.475Macro-sociologicaltheoriesfocusonthebroaderhistorical,economicandpoliticalfactorsthatimpactorganisationsandindividualinsuchorganization:ibid174.

174

the growing complexity of financial markets and white-collar crime schemes,

researchersintheareasofcriminology,accountancyandauditingviewthatthe

modeldoesnotadequatelyexplainmanyoftheantecedentstofraud.Theyhave,

therefore,attemptedtoproposerevisedmodelsandextendedtheoriestoinclude

more variables as well as new approaches to conceptualise factors associated

with each variable leading to the commission of fraud with different

psychological or sociological antecedents. 476 This section examines revised

models of the Fraud Triangle and other notable relating theories on the

commissionoffraud.

1DifferentClassificationsofPressureandMotivationFactors

Some researchers have proposed additional pressure and motivation factors

leading to commission of fraud other than a ‘non-shareable financial problem’

emphasised in the original model. These additional factors are defined and

classified differently based on the areas of fraud focused upon. For example,

LindaLister,intheareaofcorporatefraud,comparesfraudtoafire.Inherview,

thepressureor themotive to commit fraud is ‘thesourceofheattothefire’.477

She classifies these pressure/motive factors as three: (1) personal pressure to

pay for lifestyle, (2) employment pressure from compensation structure and

management’sfinancialinterest,and(3)externalpressuresuchasthefinancial

stability of thebusiness andmarket expectationof thebusiness. Lister further

describesopportunityas‘thefuelthatkeepsthefiregoing’andrationalisationas

‘theoxygenthatkeepthefireburning’,respectively.

LeonardVona,ontheotherhand,classifiesmotivetocommitfraudaspersonal

pressureandcorporatepressureonindividuals.478Heemphasisestheroleofthe

position of individuals within the organisation that both influences such

individualstocommitfraudandcontributestotheopportunitytocommitfraud.

476Dormineyetal,aboven23.477Linda M Lister, 'A practical approach to fraud risk: comprehensive risk assessments canenableauditorstofocusantifraudeffortsonareaswheretheirorganizationismostvulnerable'(2007)64(6)Internalauditor61.478Leonard W Vona, Fraud Risk Assessment: Building a Fraud Audit Program (John Wiley andSons,2008).

175

WilliamAlbrechtandhiscolleaguesprovideanextensivelistofpressure/motive

factors, classifying them as financial pressure, vice pressure, work-related

pressure,andotherpressure.479Examplesoffinancialpressurefactorsaregreed,

personalfinanciallosses,livingbeyondone’smeans,personaldebts,poorcredit,

andpersonaldebts.Examplesofvicepressurearegambling,drugs,alcohol,and

expensive extramarital relationships. Examples of work-related pressure are

getting little recognition for job performance, having a feeling of job

dissatisfaction, fearing losing one’s job, being overlooked for a promotion, and

feeling underpaid. Examples of other pressure are the need to uphold social

statusandachallengetobeatthesystem.

Hernan Murdock offers three categories of pressure factor: financial, non-

financial,pluspoliticalandsocial,respectively.Hisemphasis isonpoliticaland

socialpressure,forexamplewherepeoplefeeltheycannotappeartofaildueto

status or reputation. 480 Meanwhile, a study by Kristy Ray and Nava

Subramaniam,focusingonemployeefraud,identifiesprimarymotivationfactors

asgreedandpersonalfinancialproblems.481

Astudyofexecutive fraudbySridhaRamamoorti,DavenMorrison,and Joseph

W.Koletarprovidesaninterestingadditionalpressure/motivationfactortothe

Fraud Triangle.482They attempt to understand the reasons that wealthy and

influentialindividualswouldriskbeinginvolvedinfraudschemes.Theyfindthat

socialstatuscomparisonsmaysufficeasthesolemotivationtocommitfraud.483

479W Steve Albrecht, Chad Albrecht and Conan C Albrecht, 'Current trends in fraud and itsdetection'(2008)17(1)InformationSecurityJournal:AGlobalPerspective2;ChadAlbrechtetal,'TherelationshipbetweenSouthKoreanchaebolsandfraud'(2010)33(3)ManagementResearchReview257.480Murdock,aboven457.481Opportunity is defined as aweakness in the systemwhere the employee has the ability toexploit while rationalisation is defined as the employee’s lack of personal integrity or moralreasoning. See, Kirsty Rae and Nava Subramaniam, 'Quality of internal control procedures:Antecedentsandmoderatingeffectonorganisational justiceandemployee fraud' (2008)23(2)ManagerialAuditingJournal104.482 Sridhar Ramamoorti, Daven Morrison and JW Koletar, 'Bringing Freud to Fraud:Understanding the state-of-mind of the C-level suite/white collar offender through “ABC”analysis'(2009)TheInstituteforFraudPrevention1483Ibid.

176

Similarly, JamesW. Coleman proposes that a culture of competition can be an

importantpressureormotivatingfactorofexecutivefraud.484

Another notable expansion and classification of pressure/motivating factors is

themodel calledM.I.C.E., proposed byMary-Joe Kranacher, Richard Riley, and

JosephT.Wells in2011.Theacronymstandsformoney, ideology,coercion,and

ego. Money in this model stands for all financial-related motivating factors.

Ideology factors occur where perpetrators justify the means that they can

commitfraudulentactstorealisetheirperceivedgreatergoodorotherpersonal

beliefs. An example is tax evasion. Perpetrators are often expressed as ‘These

taxesareunconstitutional’or ‘Theratesaretoohigh’.485Coercionoccurswhere

individualsareunwillingbutarepressuredtoparticipateinfraudulentacts.An

exampleiswhereemployeesarecoercedtotakepartinillegalschemesthattheir

bosseshaveoperated.Ego involves factorsof reputationorsocial status.Many

individualsdonotwanttolosetheirsocialstatusorreputationwithinsocietyso

thattheysuccumbtosocialpressureandresorttofraudasameansofretaining

socialorworkstatus.Notethatunlikeothermodelsofpressurefactors,M.I.C.E.

pointstothepossibilityofcollusion,asincasesoffraudarisingfromideologyor

coercionfactors.486

The following table is the researcher’s attempt to put together a meta-

classificationofpressure/motivationfactorsasproposedbytheaforementioned

scholars. Although their models focus on the occurrence of different types of

frauds(corporatefraud,employeefraud,andexecutivefraud),aswellasputting

emphasisondifferentaspectsofpressure/motivation,thosefactorshaveshared

elementsthatcanbeappropriatelygroupedtogetherandre-classified.Themeta-

classification comprises threemajor sources of pressure/motivation: ‘Personal

Pressure’, ‘Corporate/EmploymentPressure’,and ‘ExternalPressure’.Eachsource

ofpressure/motivationisthenfurtherdividedintosub-classificationoffinancial

andnon-financialfactors.

484Coleman,aboven443.485Dormineyetal,aboven23,563.486Ibid564.

177

Table22:ClassificationsofPressure/MotivationFactorsCompiledfromDifferentResearchon

Fraud

PersonalPressure Financial:greed,gamblingandalcohol

addiction,unexpectedfinancialneeds,

payingforlifestyle,livingbeyondone’s

mean,personaldebts,extra-marital

relationships

Non-Financial:lackofpersonaldiscipline,

differentideologies/beliefs

Corporate/EmploymentPressure Financial:continuationofbusiness,

compensationstructure,management

financialinterest,lowsalaries

Non-Financial:unfairtreatment,

insufficientrecognition,fearoflosingjobs,

frustrationwithwork,achallengetobeat

thesystem,coercion

ExternalPressure Financial:threattobusinessfinancial

stability,marketexpectation,cultureof

competition

Non-Financial:ego,image,reputation,

influenceofothers,socialstatus

comparison,socialpressure

2TheTriangleofFraudAction

The second notable extension of the Fraud Triangle is the Triangle of Fraud

Action, sometimes known as the Element of Fraud.487As the Fraud Triangle

model identifies factorsandconditions leading to thecommissionof fraud, the

Triangle of Fraud Action identifies actions that fraudsters must generally

perform to successfully commit such fraudulent acts. The triangle has three

components: (1) the act, (2) concealment, and (3) conversion, as seen in the

figurebelow.487Albrechtetal,aboven458.

178

Figure7:TheTriangleofFraudAction488

The first component, theact, is the execution of the fraud itself, ranging from

embezzlement,receiptfraud,chequefraud,tofraudulentfinancialreporting.The

second,concealment,isanattempttocoverupfraudulentacts.Examplesinclude

fabrication of documents, falsifying accounting documents, and destruction of

filesandrecords.Thelastcomponent,conversion, isanattempttoconvertsuch

illegalbenefitintoalegitimatefundorpropertybywayofmoneylaundering.

ThevalueoftheTriangleofFraudActionisinidentifyingactionsandstepsthat

perpetratorsneedtotaketocommitfraud.Governmentofficersand/orauditors

can,therefore,focusontheseactionsandusethemascontrolpointstoprevent,

detect, remediate, and to obtain evidence for prosecution.489While the Fraud

Triangle provides insight into why individuals commit fraud, the Triangle of

Fraud Action complements the former by identifying actions that such

individuals need to take. The perpetrator’s abilities to successfully engage in

execution, concealment, and conversion of fraud also reflect back to the

opportunitysideoftheFraudTriangle.Ifitiseasyfortheindividualstoexecute488Kranacheretal,aboven457.489Dormineyetal,aboven23,559.

179

andconcealtheirfraudulentacts,itcanmeanthatopportunitytocommitfraud

ishighowingtoaloopholeinthesystemthatneedstobeaddressed.

3TheFraudScale

The third extensionmodel is known as the Fraud Scale, developedbyWilliam

Albrecht and colleagues in 1984 through an analysis of 212 occupational

frauds.490Theyconcludedthatfraudisdifficulttopredictandthatoccupational

fraudstersaredifficult toprofile.Becauseofdifficulty indetermining the fraud

risk,theyproposethataFraudScalebeusedinplaceoftheFraudTriangle.The

Fraud Scale shares two componentswith the FraudTriangle, namely pressure

and opportunity. Rationalisation, however, is replaced by ‘personal integrity’ -

that is, ‘the personal code of ethical behaviour each person adopts’.491This

personal integrity element can be observed through an individual’s ethical

decision-makingaswellasthroughhisorherdecision-makingprocess.Itissaid

thattheuseofFraudScaleindeterminingfraudriskisparticularlyapplicableto

typesoffraudwheresourcesofpressurearereadilyobservableandhavedirect

impact on individuals’ decision making.492An example is financial reporting

fraudwherepressurefromanalysts’forecasts,management’searningsguidance,

history of sales and earning growth, and market expectation can have direct

impactondecisionsbymanagementandemployees.Therefore,theobservation

of individuals’ past behaviour and decisions in relation to different pressure

factorsiscentraltotheapplicationoftheFraudScaletodeterminefraudriskin

anyparticularsetting.

490Albrechtetal,aboven458.491Ibid18.492KassemandHigson,aboven395,194.

180

Figure8:TheFraudScale493

ReferringbacktotheFraudTriangle,theFraudScalemodelcanalsobeviewed

asamodifiertorationalisation.Levelofpersonalintegritypotentiallyaffectsthe

probability that individuals may rationalise fraudulent behaviour and

subsequentlycommitfraud.494

4TheFraudDiamond

ThefourthextensionofCressy’soriginalmodelisknownastheFraudDiamond.

Themodeladdsafourthelement,capability,totheFraudTriangle.DavidT.Wolf

andDana R. Hermanson believe that evenwhen opportunity is present,many

fraudswouldnothaveoccurredwithout the right individualswith the specific

capabilitiestoimplementactionsleadingtothecompletionandconcealmentof

such fraudulent behaviour. 495 This model gives additional consideration to

individuals’ capability to commit complicated fraud and focuses on personal

493Albrechtetal,aboven12.494Dormineyetal,aboven23,562.495DavidTWolfeandDanaRHermanson,'Thefrauddiamond:Consideringthefourelementsoffraud'(2004)74(12)TheCPAJournal38.

181

traitsof individuals thatplayamajorrole insuch fraudulent incidents.496Wolf

and Hermanson further suggested four observable traits relating to the

capabilitiesofindividualstocommitfraud:(1)authoritativepositionorfunction

within the organisation, (2) capacity to understand and exploit accounting

systemsandinternalcontrolweaknesses,(3)confidencethatheorshewillnot

bedetected,orifcaughtwilleasilyevadepunishment,and(4)capabilitytodeal

withstressrelatingtotheillegalactscommitted.497

Thevalueof theFraudDiamondis that themodelhighlightsthe importanceof

theindividuals’capabilitiesinthecommissionoffraud,especiallyincomplicated

and large-volume fraud. Itpointsout thatnoteveryonewho isunderpressure

andpresentedwithanopportunitymaysuccessfullycommitseriousfraud.Only

those possessing essential traits could. It is said that large-scale fraud is only

committedbyintelligent,experienced,andcreative individuals inkeypositions

within organisations.498The model directs anti-fraud officers and auditors to

focus resources on individuals with required capabilities and in a position to

gainaccesstosignificantassetsandtoexploitinternalweaknessesofcontroland

management. Also, when a fraud is discovered, capability can be used as a

screeningcriteriontodeterminewhotheperpetratoris.

Figure9:TheFraudDiamond499

496Dormineyetal,aboven23,564.497WolfeandHermanson,aboven495.498Dormineyetal,aboven23,565.499WolfeandHermanson,aboven495.

182

In the context of the Fraud Triangle, individuals’ capabilities can be seen as a

modifierofopportunity.Bytakingcapability intoaccount,accesstoopportunity

wouldbelimitedtofewerindividualsthoughttohavethenecessarycapabilities

inaparticularsetting.That is,capabilityaffectstheprobabilitythat individuals

areabletoexploitavailableopportunitiesandsuccessfullycommitfraud.500

5PredatorsversusAccidentalFraudsters

The theory of the Fraud Triangle is based on assumptions that fraudsters are

oftenfirst-timeoffenders,well-educated,trusted,inapositionofresponsibility,

and who under normal circumstances would never consider committing

fraud.501In other words, these individuals can be characterised as ‘accidental

fraudsters’.502However, behaviour of some perpetrators does not follow those

assumptions.Theyinsteadcommitfraudwithmaliciousintentandmaygosofar

astointentionallyseekoutorganisationsorindividualstocommitfraudagainst.

Theseindividualsarenot‘accidentalfraudsters’butareinsteadcharacterisedas

‘predators’.503

One explanation for the phenomenon of predatory fraudsters is that the

fraudsters’ need for rationalisation to reduce internal moral conflicts is

temporary. 504 Once the fraudulent acts have occurred several times,

rationalisation is cognitively dismissed and becomes unnecessary as the

fraudster becomes desensitised.505In studies of occupational fraud byMark S.

Beasleyandhiscolleague,theyconcludethatoncefraudhasbeencommitted,the

fraudulentactusuallybecomescontinualuntildetected.506Forthatreason,many

accidental fraudsters evolve into predatory fraudsters. Also, predators are

usually better organised, have higher capability to recognise opportunity,

500Dormineyetal,aboven23,565.501AssociationofCertifiedFraudExaminer(ACFE),FraudExaminerManual(TX:ACFE,2009).502Dormineyetal,aboven23,565.503Ibid566.504Cressey,aboven1,n23.505Ibid.506Mark S Beasley, Joseph V Carcello and Dana R Hermanson, Fraudulent FinancialReporting:1987-1997:AnAnalysisofUSPublicCompanies:ResearchReport(AICPA,1999).

183

conceivebetterconcealmentschemes,andarebetterpreparedtodealwiththe

authoritiesand/orauditors.507

InrelationtotheFraudTriangle,themodeldoesnotfullyexplainthebehaviour

offraudpredatorssincepressureandrationalisationarenotessentialelements

in committing fraud. It can be said that the predatory fraudsters only need

opportunity.508Asaresult, in themodifiedFraudTrianglemodel forpredatory

fraudsters, it issuggestedthatpressureandrationalisationshouldbereplaced,

respectively,witharroganceandacriminalmindset.509Anumberofresearchers

in the area of fraud prevention and detection see arrogance as a key

characteristic of predatory fraudsters. 510 Corporate and financial-statement

fraudsters are known particularly for arrogance and overconfidence.511Many

executiveswhohavecommittedlarge-scalefraudgosofarastobelievethatlegal

andsocietalnormsdonotapplytothem.Theyalsobelievethattheyaresmarter

than other people and will never get caught or be held accountable for their

action.512

Havingacriminalmindsetisanotherkeycharacteristicofpredatoryfraudsters.

Fraudsarenolongercommittedbecauseofaneedorpressurebutbecausethe

perpetrators can and want to.513Martin Biegelman, a Regent Emeritus and

member of the Board of Directors for the ACFE Foundation, has asserted that

predatory fraudsters have a different mindset than honest and law-abiding

people. Combining with arrogance they are typically found to have a lack of

integrity and responsibility, have great greed and little regard for others.514In

507Kranacheretal,aboven457.508Dormineyetal,aboven23,566.509Ibid.510Dormineyetal,aboven23;MartinTBiegelmanandJoelTBartow,Executiveroadmaptofraudprevention and internal control: Creating a culture of compliance (John Wiley & Sons, 2012);CatherineMSchrandandSarahLCZechman,'Executiveoverconfidenceandtheslipperyslopetofinancial misreporting' (2012) 53(1) Journal of Accounting and Economics 311; Martin TBiegelman, Faces of fraud:Casesand lessons froma life fighting fraudsters (JohnWiley & Sons,2013);Ramamoortietal,aboven470.511Schrand and Zechman, above n 510, 311-312; Kim Klarskov Jeppesen and Christina Leder,'Auditors’experiencewithcorporatepsychopaths'(2016)23(4)JournalofFinancialCrime870.512Biegelman,aboven510,17-20.513Dormineyetal,aboven23,566.514Biegelman,aboven510,17-20;KlarskovJeppesenandLeder,aboven511,870-871.

184

addition,committingfraudandgettingawaywithitbecomesaddictivetothem.

They often find excitement from the activities and find it harder to stop their

wrongdoing.515Suchexcitementorthethrillofbeing indanger isalso foundto

be the main cause of recidivism in many fraud cases.516Even after fraudsters

have been prosecuted and served their sentences, many return to their

fraudulent behaviour. One of the best-known examples is the case of Barry

Minkow.517Minkowconductedaone-hundred-million-dollar securities fraud in

the1980s.Afterservingaseven-and-a-half-yearimprisonment,heclaimedthat

hehadmadea freshstart.Hefoundeda fraud-investigationfirmandbecamea

ministeratachurchinSanDiego.Yetin2011hepleadedguiltyinafederalcourt

to conspiracy to commit securities fraud and extortion against one of the

companies that his firm had conducted an investigation into. Minkow was

sentenced to five years in prison and was ordered to pay $583.5 million in

restitution.

Figure10:AttributesofthePredator518

515Biegelman,aboven510,11.516Ramamoortietal,aboven470,133.517Biegelman,aboven510,17.518Ibid.

185

6TheA-B-CsofFraud

The sixth notable model is known as the A-B-Cs of Fraud, proposed by

Ramamoorti,Morrison,andKoletarin2009.Astandsforabadapple,Bforabad

bushel, and C for a bad crop.519The bad apple refers to an individual who

commitsfraud.AstudybytheAssociationofCertifiedFraudExaminers(ACFE)

ofcorporatefraudshowsthattheaggregatecharacteristicsoffraudstersare(1)

being aged 45 to 55, (2) having a college degree, (3) having been with the

organisation for10 to15 years, and (4)having a cleanpast.520Thebadbushel

refers to collusive fraudwhere certain relationship and dynamic in the group

encourageorfacilitatefraud.521Therearetwocommonsituationsinwhichabad

bushel can present itself. The first occurswhen two ormore employees in an

organisation voluntarily collude to commit fraudulent acts against their

employing organisation or clients. The second occurs when individuals are

forced into the fraudduetomanagementoverrideordueto theirproximity to

their colleagues who engage in fraud.522The bad crop refers to cultural and

societal mechanisms that can influence the occurrence of fraud, notably a

deficiencyofmoralsat theexecutive levelof theorganisation.523That is, abad

cropisafraud-epidemicphenomenonthatmayspreadtoaffecttheindustryand

societygenerally.524

Inrelationto theFraudTriangle, theA-B-CsofFraudModeloffersamultilevel

analysis to fraud examiners, as well as being the basis for the devising of

appropriate measures to counter fraudulent behavior.525In the case of a bad

apple,wherefraudiscommittedbyindividualperpetrators,theexaminersonly

needtodeterminepressure,opportunity,andrationalisationfactorsperceivedby

aparticularperpetrator.Insuchinstancesanorganisationislikelytobeadvised

to investmore in itshuman-resourcefunctionsoastodoeffectivebackground

519Ramamoortietal,aboven482.520AssociationofCertifiedFraudExaminer(ACFE),aboven18.521Ramamoortietal,aboven470.522Stephen E Silver, Arron Scott Fleming and Richard A Riley Jr, 'Preventing and detectingcollusivemanagementfraud'(2008)78(10)TheCPAJournal46.523Ramamoortietal,aboven470.524Dormineyetal,aboven23,568.525Ramamoortietal,aboven470,51.

186

checks on potential employees and provide extensive training to current

employees.526In the case of a bad bushel or in cases of collusion between

multipleperpetrators,theexaminersarefirstrequiredtoidentifyallaccomplices

and thendeterminepressure,opportunity, andrationalisation factorsperceived

by thoseperpetrators. In addition to that, examiners shouldalso consider the

dynamics and relationshipswithin such groups in order to accurately identify

causes of fraud. In devising proper counter-measures, it is important to

recognise that certain internal controls are likely to be ineffective against

collusion,suchassegregationofdutyorasystemofauthorisation.527Last,inthe

case of a bad crop, a fraud that permeates an entire organisation or industry,

examiners have to look for a negative culture that influences organisational

and/or industrial behavior and try to devise measures that can change so

unhealthyaculture.528Forexample,whenanunhealthycorporatecultureresults

from unlawful behaviour implemented by top management, drastic change is

required. The organisation must make sure that executives and high-level

officers become good role models to lower-level workers, as honesty and

compliancearebestreinforcedbyexample.529

Apartfromprovidingmultilevelanalysis,theA-B-CsofFraudModelcanalsobe

seenasamodifier to theprobability that thecombinationof the threesidesof

the Fraud Triangle will result in actual fraudulent acts.530A bad crop in any

organisationmakesitalmostcertainthatfraudwilloccursincethereisplentiful

opportunityforperpetratorstocommitfraudbecauseofthelackofdeterrence

mechanisms, notably for topmanagement as they can easily override internal

controls.Anunhealthycorporateculturealsomakesitsimplerforperpetrators

to rationalise their fraudulentbehaviourunder thecommonplaceverbalisation

that‘everyoneisdoingit.’Similarly,abadbushelorcollusionbetweenemployees

makes it easier for complex fraud to be perpetrated and concealed due to the

526Ibid.527Ibid52.528Ibid.529MarkSSchwartz,ThomasWDunfeeandMichaelJKline,'Toneatthetop:Anethicscodefordirectors?'(2005)58(1-3)JournalofBusinessEthics79.530Ramamoortietal,aboven470.

187

division of labour between employees in different departments.531The group

dynamic between perpetrators also facilitates rationalisation because of the

effects of emotional contagion, in which the emotions of some individuals

stimulateotherstofeelandexpresssimilaremotions,orreasoning.532

7TheNewFraudTriangleModel

RashaKassemandAndrewHigsonhaverecentlyattemptedtointegrate(1)the

original Fraud Triangle, (2) M.I.C.E. and other pressure/motivation factor

classifications, (3) theFraudDiamond, (4) andTheFraud Scale into theMeta-

FraudTrianglemodelthatshouldbeemployedbyauditorswhenassessingfraud

riskfactors. Indoingso,thepressurevariable,whichoriginallycomprisedonly

non-sharable financial pressure, is expanded with M.I.C.E and other

pressure/motivation factor classifications to includenon-financial andexternal

pressure factors. Capability factors from the Fraud Diamond are added to the

FraudTrianglejuxtaposedwithopportunityfactors.Last,personalintegrityfrom

theFraudScalereplacesrationalisationinthemeta-modelduetothereasonthat

personalintegrityorthepersonalrecordoftheindividuals’ethicaldecisionsare

easierfortheauditorsobserveandemployindeterminingfraudrisks.

531Riahi-Belkauoi,A andRonaldDPicur, 'Understanding fraud in the accounting environment'(2000)26(11)ManagerialFinance33.532Harrington, Brooke, 'The sociology of financial fraud' (2012) The Oxford Handbook of theSociologyofFinance393.

188

Figure11:TheNewFraudTriangleModel533

8CulturalandSocietal-LevelVariablesandFactors

It is interesting that Cressey’s original Fraud Triangle as well as all of the

extension fraud models examined above have been developed in the United

States. Because of this, underlying assumptions of thesemodels are based on

characteristics and values seen in American corporations and society, such as

organisationalandpsychologicalfactorsthatinfluencefraud.JoshuaCieslewicz,

conducting research on fraud in China, finds that the Fraud Triangle does not

offerthebestexplanationofthecausesoffraudaswellasthesolutionstoreduce

fraud in other cultural settings owing to lack of understanding of cultural and

societal differences and their impact on the Fraud Triangle model. 534 He

proposes that societal-level factors, varying across nations – be they tradition,

culture,socialnorms,ruleoflaw,socio-economicconditions,orpoliticalstatus–

andthathaveeffectsonfraudina localsettingshouldbeaddedtotheexisting

model.

533KassemandHigson,aboven395,194.534Cieslewicz,aboven24,219.

189

Figure12:TheFraudTriangleinInternationalContexts535

According to the revised model proposed by Cieslewicz, religious and

philosophicaltraditions,cultureandsocialnorms,andothersocietalconditionsare

introducedasmulti-level factorsthatcanaffectandmodifytheoccurrenceand

the analysis of causes of fraud in multiple ways.536First and foremost, these

societal-levelfactorsgreatlyinfluencehowindividualsviewcertainactsasfraud

(ornotfraud).Actsthatwouldbeconsideredfraudulentinonesocietymaynot

necessarily be considered unacceptable in another due to differences between

these societal factors. Second, the occurrence of fraud in different societies is

535Ibid245.536Ibid.

190

usually influencedbythepresenceofdifferentsocietal-levelfactors,andwhere

societies have similar societal-level factors, fraud may be influenced by a

particular factor to differing degrees. Third, societal-level factorsmay, directly

and indirectly, modify the perception of pressure/motivation factors by

individuals. Individuals living in different societies usually perceive pressures

differently,owing todifferences insocialassumptions,appropriatestandardof

living,andcorevaluestheyadhereto.Fourth,differencesinsocietalvaluescan

greatlyinfluenceindividuals’abilitytorationalisetheirfraudulentbehaviour,as

well as the way they rationalise such behaviour. Fifth, the effects of a similar

fraud upon societies, organisations, and individuals often differ between

societiesduetotheinfluenceofdifferentsocietalfactors.Last,theeffectiveness

of similar fraud prevention and detection strategies may vary greatly across

societiesbecauseofdifferencesinsocietal-levelfactors.Strategiesthatworkwell

in one nation may not be advisable for adoption in another. For example,

recommendedsolutionsforfraudintheUnitedStates,suchasgivingconvicted

fraud perpetrators stiffer penalties and speeding up the judicial process, are

already strong points of the Chinese anti-fraud system. Yet fraud, especially

briberyandcollusion,isstillprevalentinChina.537

As for societal factors of Chinese society, during his research Cieslewicz came

across the term ‘guanxi’ mentioned by all intervieweeswhen asked about the

nature of doing business in China.538The term has no equivalent concept in

Englishbutisoftentranslatedbywesternersas‘networking’.539Theideologyof

‘guanxi’ is essentially relationship-building between people through informal

exchangeoffavours.540Therootofsuchemphasisonrelationshipsisembedded

inConfucianismandisanintegralpartofChineseculture.541InChinesebusiness

it is important for all parties tomaintain ‘guanxi’ or connection since to them

537Ibid223.538Cieslewicz,aboven24,227.539Bryan S Schaffer and Christine M Riordan, 'A review of cross-cultural methodologies fororganizational research: A best-practices approach' (2003) 6(2) Organizational ResearchMethods169.540SiewHChanetal,'ACulturalPerspectiveofAuditors’AssessmentoftheLikelihoodofFraudDetection:TheEffectsofGuanxiandMianzi'(2015).541YanjieBianandSoonAng,'GuanxinetworksandjobmobilityinChinaandSingapore'(1997)75(3)SocialForces981.

191

‘mutual acquaintance and recognitionprovide credentialswhich entitle people

to various kinds of credit’.542Chinese coworkers actively foster relationships

witheachotherbyspendingtimetogether,havingdinnertogether,givinggifts,

askingabout family,payingrestaurantbillsetc.543Buildingrelationships isalso

crucial in finding new business partners. Only when a relationship of trust is

establishedwillbusinessbeconducted.544

In terms of fraud assessment, ‘guanxi’, although not synonymous with fraud,

must be taken into careful consideration. Building relationships through gifts

andvariousreciprocitiesbetweenexecutivesorbetweensellersandbuyerscan

be viewed as bribery or improper conduct in many countries, yet is normal

business practice in China. Nevertheless, one can also say that in needing to

maintainrelationships,‘guanxi’lendsitselftocollusion.Forexample,inorderto

createormaintainarelationship,individualsmay:(1)findawaytofraudulently

assist others, (2) assist someone in questionable activities, or (3) build

connections that could help conceal fraud.545Drawing from this example of

‘guanxi’,theunderstandingofsocietalfactorsinfluencingfraudiscrucialtoboth

regulatorsandauditorsastheyseekoutcausesoffraud,attempttoassessfraud

risks,andfindeffectivemeasurestoreducefraudinanynon-USsetting.

DFraudRiskFactorStudies

One area of research developing from the Fraud Triangle models discussed

aboveisthestudyoffraudriskfactorsindifferenttypesoffraud,industry,and

geographical settings. Focusing on pressure and/or opportunity variables,

researchers aim to identify risk factors for fraudulent activities in particular

settings and to rank them according to their perceived likelihood in order to

controlandreducesuchrisks.

542Ming-Jer Chen, Inside Chinese business: A guide for managers worldwide (Harvard BusinessPress,2001).543Cieslewicz,aboven24,229.544Ibid.545Ibid230.

192

Literatureintheareaoffraudriskfactors,especiallyforaccountantandfinancial

reportingfraud,isextensive.Suchworkcommencedwithanempiricalstudyby

WilliamAlbrechtandMarshallRomneyin1986examiningvariousredflagsthat

canbeusedtopredictfraud.546Later, JamesLoebbecke,MarthaEining,andJeff

Willinghamformulatedapredictivemodelbasedonfraudriskfactorsoutlinedin

the American Institute of Certified Public Accountants’(AICPA) Statements on

AuditingStandard(SAS)no.53,‘TheAuditor’sResponsibilitytoDetectandReport

Errors and Irregularities’, which first designated and clarified auditor’s

responsibilities for detecting fraud in 1988.547Thereafter, several empirical

studiesusingquestionnaireswere conducted toexpand theLoebbecke,Eining,

andWillinghammodelbyexpandingthelistoffraudrisk-factorredflags,aswell

as testing the predictive power of those factors. 548 Nevertheless, these

quantitative studies received criticism in that questionnaires employed were

lengthy and subjective.549Also, the usefulness of some red flags in empirical

studieshasbeenquestioned.550

AsubsequentstudybyTimothyBellandJosephCarcelloin2000foundsupport

forcertainfraudriskfactorsundertheFraudTriangleaspredictorsoffinancial

reporting fraud. 551 Their regression model predicted incidents of fraud

associated with certain risk factors including rapid growth, weak control

environment, a preoccupation to meet analysts’ forecasts, over-evasive

546Albrechtetal,aboven458.547James K Loebbecke, Martha M Eining and John J Willingham, 'Auditors experience withmaterial irregularities-Frequency,Nature, andDetectability' (1989)9(1)AUDITING-AJOURNALOFPRACTICE&THEORY1.548TBBell,SSzykownyandJJWillingham,'AssessingtheLikelihoodofFraudulentReporting:ACascaded Logical Approach' (1991) 4 International Journalof IntelligentSystems inAccounting,FinanceandManagement 113; TBBell and JosephV Carcello, 'A decision aid for assessing thelikelihoodoffraudulentfinancialreporting'(2000)19(1)Auditing:AJournalofPractice&Theory169;JVHansenetal,'Ageneralizedqualitative-responsemodelandtheanalysisofmanagementfraud' (1996) 42(7) Management Science 1022; Barbara A Apostolou et al, 'The relativeimportanceofmanagementfraudriskfactors'(2001)13(1)BehavioralResearchinAccounting1;TJeffreyWilksandMarkFZimbelman,'DecompositionofFraud-RiskAssessmentsandAuditors'SensitivitytoFraudCues'(2004)21(3)ContemporaryAccountingResearch719.549KarenVPincus,'Theefficacyofaredflagsquestionnaireforassessingthepossibilityoffraud'(1989)14(1)Accounting,OrganizationsandSociety153;Yung-ILouandMing-LongWang,'Fraudriskfactorofthefraudtriangleassessingthelikelihoodoffraudulentfinancialreporting'(2009)7(2)JournalofBusiness&EconomicsResearch(JBER).550StephenOwusu-Ansahetal,'AnempiricalanalysisofthelikelihoodofdetectingfraudinNewZealand'(2002)17(4)ManagerialAuditingJournal192.551BellandCarcello,aboven548.

193

management, ownership status, and management attitude towards financial

reporting.However,theydidnotfindacorrelationbetweenfraudincidentsand

traditional risk factors, forexamplehighmanagement turnover, rapid industry

growth, significant relatedparty transactions, andcompensationarrangements

tied to report earning. Zabihollah Rezaee, in his analysis of firms faced with

financial reporting fraud, also finds support for the existence of risk factors

accordingtotheFraudTrianglemodel.552

Apart fromabovementionedstudiesexaminingoverall fraudrisk factors, there

are also studies focusing on certain risk factors from the perspective of a

particularvariableinthefraudtriangle.Forexample,whenstudyingriskfactors

relatingtothepressure/motivationvariable,astudybyNiamhBrennaandMary

McGrath suggested that pressure from monetary incentives that include

executivebonusescombinedwiththeneedtoretaininvestorconfidencecanlead

tofraudulentfinancialreportingintheformofearningsmanagement.553 Patricia

Dechowandher colleagues, in their studiesof92US companies subject to the

SEC’sAccountantEnforcementReleasesduring1986-1992,findthatpressureto

attract external funding at low cost is an important motivation to conduct

financialstatementfraud.554MerleEricksonandhiscolleagues,intheirstudiesof

asampleoffirmaccusedoffraudbetween1996-2003,findnorelationbetween

pressure/motivationfrommanagement’sequityincentivesandthelikelihoodof

accountingfraud.555AstudybyJapEffendiandhiscolleagues, incontrast, finds

thatthelikelihoodoffinancialstatementfraudincreaseswhenmanagementhas

asubstantialamountofstockoptions.556

552ZabihollahRezaee,'Causes,consequences,anddeterenceoffinancialstatementfraud'(2005)16(3)CriticalPerspectivesonAccounting277.553NiamhMBrennanandMaryMcGrath, 'Financialstatementfraud:SomelessonsfromUSandEuropeancasestudies'(2007)17(42)AustralianAccountingReview49554Patricia M Dechow, Richard G Sloan and Amy P Sweeney, 'Causes and consequences ofearningsmanipulation:Ananalysisof firms subject toenforcementactionsby theSEC' (1996)13(1)ContemporaryAccountingResearch1.555Merle Erickson,MichelleHanlon andEdward LMaydew, 'Is there a link between executiveequityincentivesandaccountingfraud?'(2006)44(1)JournalofAccountingResearch113.556Jap Efendi, Anup Srivastava and Edward P Swanson, 'Why do corporatemanagersmisstatefinancialstatements?Theroleofoptioncompensationandotherfactors'(2007)85(3)Journaloffinancialeconomics667.

194

In studiesof risk factors relating to theopportunityvariable,WilliamAlbrecht

andcolleaguesdiscussvariousriskfactorsincreasingtheopportunitytocommit

fraud,rangingfromweakinternalcontroltofailuretodisciplineperpetrators.557

Biennial fraud surveys conducted by KPMG repeatedly conclude that weak

internal control558isamajorcontributing factor to fraud.559DavidFarber finds

that firms experiencing financial fraud often have poor governance relative to

firmsthatdonotexperiencefraud,forinstance.560

Inadditiontothestudiesfocusingoncertainriskfactorsmentionedabove,other

studieshaveattemptedtoidentifyandrankfraudriskfactorsinconnectiontoa

particularindustry,ageographicalarea,and/orincertainworkingcultures.For

examples,ChadAlbrechtandhis colleaguesanalyse fraud incidents in the four

biggest ‘chaebols’561in South Korea.562They find that these organisations have

many inherent fraud risks consistent with the Fraud Triangle. Notable risks

contributing to both pressure and opportunity factors include family

prominence,lackofindependence,theeffortof‘chaelbol’founderstokeepfamily

withintheirfamilies,andpoliticalpressure.Theyalsonotethatcertainpractices

consideredfraudulentinwesternsocietiesarewidelyviewedassmartbusiness

movements in South Korean society. This cultural rationalisation can also be

considered as amajor risk factor contributing to fraud. In a study of auditors’

perceptionof fraud risks inHongKong,AbdulMajid andhis colleagues report

that the most important fraud risk factors are difficult-to-audit transactions,

misstatements in prior audits, indicators of going concern problems,

management’sattitude to financial reporting,andmanagementoperatingstyle,

557Albrechtetal,aboven12.558 Five primary internal control activities are: (1) segregation of duty, (2) system ofauthorisation, (3) independent checks, (4)physical safeguards, and (5)documentand records:ibid.559KPMG,'FraudSurvey1997'(1997);KPMG,'FraudSurvey1999'(1999);KPMG,'FraudSurvey2004' (2004); KPMG, 'Fraud Survey 2006' (2006); KPMG, 'Fraud Survey 2008' (2008); KPMG,'FraudSurvey2010'(2010).560DavidBFarber,'Restoringtrustafterfraud:Doescorporategovernancematter?'(2005)80(2)TheAccountingReview539.561Large conglomerate family-controlled firms in SouthKorea are characterisedby strong tieswithgovernmentagencies.See,Sung-heeChwa,TheEvolutionofLargeCorporationsinKorea:anewinstitutionaleconomicsperspectiveoftheChaebol(EdwardElgarPublishing,2002).562Albrechtetal,aboven479.

195

respectively.563Another study by Malcolm Smith and colleagues in Malaysia

concludesthatthemostimportantfactorsintheeyesofMalaysianauditorsare

operating and financial stability risks, such as high dependence on debt and

deteriorating financial position, followed by risks in relation to managerial

characteristics, including attitude about internal control and known history of

legal violations.564Interestingly, a recent study by Modar Abdullatif in Jordan

findsthatauditingfirmsinJordangiveonlyslightimportancetointernationally-

respectedfraudriskfactorsasindicatorsforpossiblefraud.565Asfortheranking

offraudriskfactors,Jordanianauditorsrankonesrelatingtomanagementstyle,

such as previous fraud allegations and/or violations of laws as being most

important, while surprisingly ranking factors relating to the difficulties in the

client’s business performance, such as high competition and declining market

shares,asleastimportant.

Related to this thesis, there is a risk factor study conducted in Thailand that

shouldbe examined indetail:OrganisationFrauds inThailand:asurveyonrisk

factors. 566 The study was conducted by Pornchai Naruedomkul, Panipa

Rodwanna,andJaruneeWonglimpiyaratin2010withthegoalofidentifyingand

rankingriskfactorscausingfraudulentactivitiesinThaiorganisationsaswellas

validatingthatcorporategovernanceandinternalcontrolcanhelpreducefraud

risk.Triangulationandqualitativemethodswereemployed.Thefirstphasewas

aqualitative in-depth interviewof executives from30non-listed companies to

identify fraud risk factors, followed by a quantitative survey (written

questionnaire) of 236 companies listed on the SET and 261 non-listed

companies.Duringthequalitativestageoftheresearch,livingbeyondmeanswas

identifiedasthemostimportantriskfactor.Otherriskfactorsmentionedbythe

intervieweeswerepressure fromrelatives, lackofproper internalcontrol, lack563Abdul Majid, Ferdinand A Gul and Judy SL Tsui, 'An analysis of Hong Kong auditors'perceptions of the importance of selected red flag factors in risk assessment' (2001) 32(3)JournalofBusinessEthics263.564GeraldVintenetal,'Auditors'perceptionoffraudriskindicators:Malaysianevidence'(2005)20(1)ManagerialAuditingJournal73.565Modar Abdullatif, 'Fraud risk factors and audit programme modifications: Evidence fromJordan'(2013)7(1)AustralasianAccountingBusiness&FinanceJournal59.566 Pornchai Naruedomkul, Pannipa Rodwanna and Jarunee Wonglimpiyarat, 'OrganizationFrauds in Thailand: A Survey on Risk Factors' (2010) 5(1) International Journal of CriminalJusticeSciences203.

196

ofgoodbusinesssystems,closerelationshipsbetweenemployeesandsuppliers,

debts to coworkers, gambling, and lackof accountingand financial knowledge.

Intervieweeswerealsoaskedfortheiropinionsontypesoffraudoccurringmost

frequently andbeingmostdamaging toThai organisations.The responses are,

from most to least, collusion between employees and either customers or

suppliers, overuse/misuse of company assets for personal use, claiming for

reimbursementhigherthanactualexpenses,andaccountingmanipulation.

Aresultofthequantitativestageoftheresearchshowsriskfactorscausingfraud

inThaiorganisationsarerankedbelowfromhighesttolowest:

1. Livingbeyondmeans

2. Financialdifficulties

3. Wheeler-dealerattitude

4. Irritability,suspiciousness,ordefensiveness

5. Unusuallycloseassociationwithsupplier/customer

6. Pastlegalproblems

7. Addictionproblems

8. Complainingaboutinadequatepay

9. Pastemployment-relatedproblems

10. Instabilityinlifecircumstances

11. Excessivepressurefromwithinorganisation

12. Excessivefamily/peerpressureforsuccess

13. Refusaltotakevacations

14. Borrowingmoneyfromcoworkers

15. Controlissues,unwillingnesstoshareduties

16. Complainingaboutlackofauthority

17. Divorce/familyproblems

18. Gambling

As for the third question asked by these researchers in their research in

Thailand,whethercorporategovernanceandinternalcontrolcouldmanagethe

riskof fraud in three categoriesofoccupational fraud (assetmisappropriation,

197

corruption,andfraudulentstatement)567, theresearchersprovidethesummary

offindingsinthefollowingtable.

Table23:SummaryofRiskFactorsinThaiOrganisationsThatCanBeControlledbyCorporate

GovernanceandInternalControl568

FraudRisk

Factors

CorporateGovernance InternalControl

Asset

Misappropriation

Corruption Fraudulent

Statements

Asset

Misappropriation


Statements

Livingbeyond

means

✔ ✔ ✔

Financialdifficulties ✔ ✔ ✔

Wheeler-dealer

attitude

✔ ✔

Irritability,

suspiciousness,or

defensiveness

✔ ✔

Unusuallyclose

associationwith

supplier/customer

✔ ✔

Pastlegalproblems ✔

Addictionproblems ✔

Complainingabout

inadequatepay

✔ ✔

Pastemployment-

reratedproblems

✔

Instabilityinlife

circumstances

✔ ✔

Excessivepressure

fromwithin

organisation

✔

Excessive

family/peer

pressureforsuccess

✔ ✔

Refusaltotake

vacations

✔ ✔ ✔

567Occupational fraud is generally classified into three categories: asset misappropriation,corruption, and fraudulent statements. Asset misappropriation involves theft or misuse of anorganisation’sassets.Corruptioninvolvesemployeeswrongfullyusingtheirinfluenceinbusinesstransactionsfortheirownbenefits.Fraudulentstatementsinvolvefalsificationoforganisation’srecordsanddocuments.See,Holtfreter,aboven18.568Naruedomkul,RodwannaandWonglimpiyarat,aboven566,217.

198

FraudRisk

Factors

CorporateGovernance InternalControl

Asset

Misappropriation


Statements

Asset

Misappropriation


Statements

Borrowingmoney

fromcoworkers

✔ ✔ ✔

Controlissues,

unwillingnessto

shareduties

✔

Complainingabout

lackofauthority

Divorce/family

problems

Gambling

The researchers conclude that corporate governance and internal control

mechanismsadministeredbyThaiorganisationscouldhelpreducecertainrisk

factors in certain categories of fraud, yet theyhavenopositive effect onother

identified risk factors. In relation to asset misappropriation, corporate

governance can reduce fraud risk factors arising from living beyond means,

irritability, close association with a supplier/customer, excessive peer/family

pressure for success, and refusal to take vacations, whereas internal control

helpsreducingriskfactorsfromlivingbeyondone’smeans,financialdifficulties,

excessivepressurefromwithinanorganisation,excessivepeer/familypressure

for success, refusal to take vacations, borrowing money from coworkers, and

unwillingness to share duties. In relation to corruption, corporate governance

haspositiveeffectson risk factorsof addictionproblems, inadequatepay,past

employment-related problems, and instability in life circumstances, whereas

internal control has effects on financial difficulties, close association with

supplier/customer, past legal problems, inadequate pay, instability in life

circumstances, and borrowing money from coworkers. Last, in the case of

fraudulentstatement fraud, corporate governance reduces fraud risk factors of

livingbeyondmeans,financialdifficulties,a‘wheeler-dealer’attitude,irritability,

refusal to take vacations, and borrowing money from coworkers, whereas

internal control only helps reducing risk factors of a ‘wheeler-dealer’ attitude.

The researchers then noted that neither corporate governance nor internal

199

control could help mitigate risk factors stemming from the lack of authority,

divorce/familyproblems,andgambling.

Intheempiricalpartofthisstudy,theaforementionedfraudriskfactorsfoundin

Thai organisations, as proposed by Naruefomkul, Rodwanna, and

Wonglimpiyarat,wereemployedasaguideline indevising interviewquestions

exploring pressure, opportunity, and rationalisation borne by Thai securities

brokersinthecommissionofbrokeragefraudsandrelatingviolations.569

IITheFraudTriangleModelEmployedinthisResearch

Deriving from literaturesdiscussed above, this thesis employs a revisedFraud

Triangleasitsprimarymodeltohelpexploreandidentifyfactorsleadingtothe

commissionofbrokeragefraudandregulatoryviolationsbysecuritiesbrokersin

thecontextofThaisecuritiesmarkets.Semi-structuredinterviewquestionswere

carefully designed to gain information on fraud risk factors perceived by

securitiesbrokers,officers,andinvestorsundereachsideoftheFraudTriangle.

Local societal factors and industry business practices are also explored and

taken into account in the model as well as in the subsequent analysis. The

exploratorymodelisshowninthefigurebelow:

569SeedetailsinChapter5andAppendix4:InterviewQuestions.

200


For the pressure variable, different categories of pressure/motivation factors

influencing brokerage fraud are explored, not only non-shareable financial

problems as proposed in the originalmodel. Based on the extensive literature

reviewedabove,thecategoriesincludefinancialpersonalpressure,non-financial

personal pressure, financial employment pressure, non-financial employment

pressure, financial external pressure, and non-financial external pressure.

Nevertheless, since this research is exploratory and qualitative in nature, it is

foreseeable that interviewees might focus on pressure/motivation factors in

certaincategoriesandfailtodiscussothers.

Theopportunityvariableemployedinthisstudyisrevisedtoincludeanelement

of capability from the Fraud Diamond Model proposed by Wolf and

Hermanson.570Thereasonforsuch inclusion is thatstock-brokeragepractice is

570WolfeandHermanson,aboven495.

201

oftenconsideredhighlytechnicalandthatthecapabilityofindividualbrokersto

successfullyengage insuchfraudulenttransactionsfortheirownbenefitor for

thirdpartiesbenefit iscentraltothecommissionofbrokeragefraud.Therefore

the capability element is considered alongside relevant opportunity factors

allowing securities brokers to commit fraud against clients and/or regulatory

violationsfortheirownbenefit.

Rationalisation, the third lateral of the triangle, holds its significance in the

revisedfraudmodelofthisresearchandisnotreplacedbypersonalintegrityas

suggested by researchers in the area of financial and accounting fraud. Unlike

fraud studies in the auditing area focusing on analyses of records and

observationof individualdecision-makingbehaviour inorganisational settings,

thisresearchfocusesonfactorsandpotentialsituationsthatlendthemselvesto

commission of brokerage fraud in the eyes of active Thai securities brokers.

Therefore, rationalisation statements extracted from in-depth interviews of

participantsarecrucialforfurtheranalysis.

Thefourthandmostsubstantialpartof thisstudy is the incorporation intothe

revisedmodelofsocietal factors,asproposedbyCieslewicz.571Asthisresearch

focuses on brokerage fraud in Thailand, local societal factors and business

practicescouldplayakeyroleinshapingperceptionsofpressure,opportunity,

and rationalisation of Thai brokers in relation to commission of fraud and

relating regulatory violations. The sources of societal factors and business

practice to be included in themodel and the subsequent analysis are derived

frominterviewsoftheparticipantsaswellasfromrelevantliterature.572

571Cieslewicz,aboven24,219.572Suntaree Komin, Psychology of the Thai people: Values and behavioral patterns (ResearchCenter, National Institute of Development Administration, 1990); Henry Holmes, SuchadaTangtongtavy and Roy Tomizawa,Working with the Thais: A guide to managing in Thailand(White Lotus, 1995); Roong Sriussadaporn, 'Managing international business communicationproblems atwork: a pilot study in foreign companies inThailand' (2006) 13(4)CrossCulturalManagement:AnInternationalJournal330;VinitaAtmiyanandanaandJolmJLawler, 'I3Cultureandmanagement inThalland' (2003)CultureandmanagementinAsia228;KrisanaKitiyadisai,'Privacy rights and protection: foreign values inmodern Thai context' (2005) 7(1) Ethics andInformationTechnology17.

202

In conclusion, the revised Fraud Triangle Model employed in this study

incorporatesimportantfeaturesfromprior,revisedandextendedmodelsofthe

FraudTriangle.Startingfromthepressurevariables,theresearcherbelievesthat

therearemultiplesourcesofpressurethatcaninduceormotivateindividualsto

commit fraud, from personal pressure, employment pressure, to external

pressure, not just pressure fromnon-shareable financial problem as originally

proposed by Cressey. In relation to opportunity factors, the researcher agrees

withWolfandHermanson that thecapabilityof the fraudsters isan important

element, especially in the complex area of brokerage frauds and relating

violations. Capability is therefore included in the model as the modifier of

opportunityfactors.Intheareaofrationalisation,theresearcherdoesnotconcur

with the ACFE’s position, which opines that ‘rationalisation may not be

observable’.573Onthecontrary,theresearcherconsidersthatrationalisationcan

besubtlyinferredandextractedfromtheparticipants’statements,whichwould

provide significant insights into the causes of fraud in this context. Finally,

following the pioneering research of Cieslewiz, 574 the researcher similarly

believesthatsocietalandindustrialfactorscanplaykeyrolesintheperception

and the occurrence of fraud in international settings, meaning that societal

factors and business practices are included as important variables. At the

followingstage,alistofmaininterviewquestionstogetherwithoptionalfollow-

up questions are carefully devised to reflect and inquire into these variables.

Nevertheless, it is important to note that since this study is essentially an

exploratory qualitative study, the participants might give more attention to

certainvariablesthanothers,basedontheirinterestsandpersonalexperiences,

aswellasthedynamicoftheinterviews.575

InadditiontotherevisedFraudTrianglemodeldiscussedabove,thesecondary

modelofPredatoryFraudstermightbefurtheremployedforanalyticalpurposes,

depending on findings of the empirical research. This study sets out with

assumptions that brokers who commit fraud and/or regulatory violations are

573TheAssociationofCertifiedFraudExaminers,ConsiderationofFraudinaFinancialStatementAudit,2002,Sec.316.35.574Cieslewicz,aboven24,214.575SeedetailsinChapter5.

203

individualswho attempt to perform their professional roles but are caught in

situationsthatpressurisethemandprovidethemwithopportunitiestocommit

fraudulentactsthatrelievethemfromsuchpressureorsituations.Brokerswho

havecommittedthebrokerageoffencesareoftenfirst-timeoffenderswhowould

notre-commitsimilaractsaftertheyhaveservedpunishment.However,ifthese

underlying assumptions are proven to be incorrect and brokers’ predatory

behaviourisdistinctivelypresent,therevisedPredatoryFraudstermodelshown

in the figure below is employed as a secondary analytical model. Under the

PredatoryFraudstermodel,pressureandrationalisationfactorsarereplacedby

perpetrators’ arroganceandcriminalmindsets.576Asa result, onlyopportunity

factors are to be focused upon in the further analysis. It should be noted that

similartotherevisedFraudTriangle,localsocietalfactorsandbusinesspractices

arealsopresentintherevisedPredatoryFraudstermodel.


576Dormineyetal,aboven23.

204

Chapter5

TheEmpiricalResearchontheThaiBrokers’PerceptionsoftheCausesof

BrokerageFraudsandoftheCurrentThai-AntiBrokerageFraudRegime

IResearchMethodology

This chapter’s first section discusses the methodology used in this empirical

study, starting with a wide-ranging literature review on qualitative research

methodologyandexistinglegal-qualitativeresearch.Theresearchdesignisthen

described in detail: (1) structure of the study, (2) interview phases and

participants,(3)ethicalconsiderations,(4)pilotstudy,(5) interviewquestions,

and(6)validityandreliability.Thesectionendsbydiscussing theresearcher’s

experienceduringthemaininterviewstage,andlimitationsoftheresearch.

ALiteratureReview

1QualitativeEmpiricalResearch

Empirical research relies on gathering evidence not available in the public

domainasawayofcreatingknowledge.Theusualmeansofcollectingempirical

evidenceisbydirectandindirectobservationorinterviewingviaconversations

or surveys. Researchers then analyse evidence to answer research questions

definedbytheresearchersbeforeorduringtheresearch.Therearetwomodes

of analysis in empirical research: quantitative and qualitative. Quantitative

research isusually concernedwithmeasurement, aiming toaccurately capture

aspects of the social world using numbers as units of analysis: percentages,

probabilityvalues,varianceratios,causalrelationshipsbetweenvariables,etc.577

Ontheotherhand,qualitativeresearchfocusesonthesocial-constructednature

of reality.Qualitative researchers attempt to create knowledgeby interpreting

577NigelKingandChristineHorrocks,Interviewsinqualitativeresearch(Sage,2010).

205

participants’experienceandtheparticipants’reflectionsonthoseexperiences.578

Results of qualitative research are presented in a narrative fashion, rich with

descriptive data and insights into participants’ experience in specific settings,

processes, or relationships. 579 In relation to theoretical considerations,

qualitative research is generally based on the interpretivist perspective.

Interpretivist approaches focus on how the social world is experienced and

understoodbytheparticipants.Itassumesthatsocialrealityhasameaningfor

human beings and human action is meaningful.580Interpretivist researchers,

therefore, inquire into individuals’ experience and attempt to develop an

understandingofhowindividualsmakesenseofexperienceinparticularsocial

settings. As a result, qualitative research always has an interpretive character

because a researcher uses contextual data obtained through different data-

collectionmethodstoreconstructthemeaningofeventsand/orhumanactions

throughtheresearcher’sinterpretation.581

Methodsofdatacollectionforqualitativeresearchareclassifiedintofourbroad

categories: observation, participation, interview, and review of documents.582

Each method has its advantages, limitations, and further sub-methods that

researchers must carefully consider in designing their qualitative research. In

this study, in-depth interview is chosen as the method of data collection and

threestagesofinterviewwereconducted.Interviewisthemostcommonmethod

ofdatacollectioninqualitativestudies.583Themethodcanbeconceptualisedas

‘aconversationwithapurpose’584and ‘aguidedconversation’.585Theemphasisis

578Ronald L Jackson, Darlene K Drummond and Sakile Camara, 'What is qualitative research?'(2007)8(1)QualitativeResearchReportsinCommunication21.579KingandHorrocks,aboven577.580Jennifer C Greene, 'Qualitative program evaluation' (1994) 530 Handbook of qualitativeresearch544.581JohnLKeedy, 'Theinteractionoftheorywithpractice inastudyofsuccessfulprincipals:Aninterpretiveresearchinprocess'(1992)31(2)TheoryIntoPractice157.582 Catherine Marshall and Gretchen B Rossman, Designing qualitative research (Sagepublications, 2014); Michael Quinn Patton, Qualitative Research & Evaluation Methods:IntegratingTheoryandPractice(SAGEPublications,2014).583JerryRThomas,JackKNelsonandStephenJSilverman,ResearchMethodsinPhysicalActivity(HumanKinetics,2011).584RobertLKahnandCharlesFCannell, 'Thedynamicsof interviewing; theory, technique,andcases'(1957).585SteinarKvale,Doinginterviews(Sage,2008).

206

on researchers asking questions and listening, and participants answering.586

Skillful researchers listen carefully to answers, and take notes of nuances in

conversations, thebetter tohearthemeaningbeingconveyed.587Thestrengths

ofinterviewarethat,first,themethodquicklyyieldsdatainquantity,especially

whencomparedtoobservationandparticipation.588Second,themethodenables

participants to share views, experiences, beliefs, motivations, and/or

understandingson specificmattersusing theirownwords,providing richdata

foranalysis.589Third,itallowsresearcherstoprobeformoredetailsandensure

thatparticipantsunderstand interviewquestions theway theyare intended.590

Last,whenconductinginterviews,researchershaveflexibilitytouseknowledge,

expertise,andinterpersonalskillstofurtherexploreunexpectedideasorthemes

raisedbyparticipants.

Nevertheless, interviewing has limitations and weaknesses. First, it requires

significant cooperation from interviewees. Researchersmay not be able to get

holdofindividualstheywanttointerview.Evenwhentheydo,intervieweesmay

beunwillingoruncomfortablesharingstories,experiences,oropinionsthatthe

interviewer hopes to explore.591 In certain situations, interviewees may also

have reason not to be truthful.592 Second, successful interviewing requires

various skills in the interviewer. Those include (1) question-framing skill, (2)

interpersonal skills to build trust and rapport with interviewees, (3) active

listening skills, (4) conversational skills and language proficiency, and (5)

decision-makingskillsregardingwhattoaskandhow,whichanswerstofollow-

up, and which to report and interpret.593 Third, voluminous data obtained

through interviews are time-consuming to analyse. Last and most important,

there are intrinsic issues of validity and reliability of qualitative research as

586HRubinandI.S.Rubin,Qualitativeinterviewing:Theartofhearingdata(ThousandOaks,CA:Sage,1995).587Ibid.588Marshall&Rossman,aboven582.589Ibid.590Ibid.591Ibid.592JackDDouglas, Investigativesocialresearch:Individualandteamfieldresearch (SageBeverlyHills,1976).593Kvale,aboven585.

207

researcherssubjectivelyinterpretinterviewdata.594Toincreasethevalidityand

reliability of studies, different strategies, such as use of random sampling,

triangulation, and peer scrutiny, are carefully considered in the research

design.595

Interviewformatsvaryinstructureandinhowinterviewersrespondtoanswers

from interviewees. Three general categories of qualitative interview are

structured, semi-structured, and unstructured.596 In a structured interview,

intervieweeshavealistofpredeterminedquestionstobeaskedinspecificorder.

Thereislittleornovariationofthequestions,andnofurtherprobingquestions

responding to interviewees’ answers. Strengths of this format include ease of

interview administration, and answers can be readily compared.Nevertheless,

data collected by this method usually lack the depth required for most

qualitativestudies.

In complete contrast, an unstructured interview has no predetermined

questions.Questionsaredevelopedduringtheinterview,andbasedprimarilyon

interviewees’ responses. Unstructured interviews are much like an everyday

conversation,yetdifferentiatedbytheuseofprobingascrucialtotheresearch

process.597Thismethodofinterviewisusuallyassociatedwithgroundedtheory

research where theories are developed from an analysis of interview data.598

Disadvantagesofthisinterviewformatarethatthequalityofdatareliesheavily

on conversational skills of both interviewers and interviewees, and interviews

are usually time-consuming.599Also, data obtained are usually less systematic,

making itdifficult forresearchers toanalyseandmakecomparisonsacross the

dataset.

594Ibid.595Seedetailsbelow.596Marshall&Rossman,aboven582.597Ibid.598AnselmStraussandJulietCorbin,Basicsofqualitativeresearch:Techniquesandproceduresfordevelopinggroundedtheory(SagePublications,1998).599Kvale,aboven585.

208

Positionedbetweenstructuredandunstructuredinterviewsaresemi-structured

ones, also known as an interview guide approach. In this format, interviewers

have an outline of discussion topics or a set of key questions to use as an

interviewguide,butarefreetoaskfurtherprobingquestions,andtopursuenew

ideas,basedoninterviewees’answers.600Wordingandsequencingofquestions

can also vary according to the interview’s circumstances and progress. Major

advantagesofthisformatareinencouragingintervieweestoconveyexperiences

andopinionsindetail;dataobtainedarestillsomewhatsystematic,easingdata

analysisandcomparison.601

2EliteInterview

Havingreviewedgeneralcharacteristicsofqualitativeinterviewintheprevious

section,onespecialisedtypeofinterviewisfurtherdiscussedinthissection,due

to its methodological differences and its importance to this study. An elite

interview is of interviewees who are either elite members of the society or

peoplewhoholdprominentpositionsandseethemselvesbetterinformedonthe

interview issues than the interviewer.602These intervieweesoftenassume that

theyaregivinginterviewsasafavourtoaninterviewer,andthattheinterviewer

must be courteous and deferential to them. 603 Common examples of elite

interviewareinterviewsofdiplomats,politicians,governmentofficersandchief

executiveofficersofmultinationalcompanies. IntheSecondInterviewPhaseof

this study, the researcher interviewed six senior officers of the SEC Office on

their respective roles in relation to the focus brokerage fraud and relating

violations. As these officers were considered ‘elite’ in relation to this study,

literatures on the elite interview methodology were carefully consulted and

strategiessuggestedwereincorporatedintotheresearchdesign.

Based on relevant literatures, the elite interview differs from standardised

interviews in three stages: the preparation stage, the interview stage, and the

600Ibid.601KingandHorrocks,aboven577.602LewisAnthonyDexter,Eliteandspecializedinterviewing(EcprPress,2006)18.603Ibid32.

209

dataanalysisstage.At thepreparationstage, theelite interviewoftenrequired

morepreparation.First, it isusuallyharderforthe interviewertogetaccessto

the interviewees.604This can be due to various reasons including difficulty of

scheduling,anover-protectivesecretary,orsuspicionabouttheobjectivesofthe

project. Strategies suggested include an emphasis on the credentials of the

interviewer,adetailedexplanationoftheproject,andtheuseofgatekeepersor

intermediaries to arrange interviews. Second, the issue of confidentiality is

different fromstandardised interviewsdue to the reason that theseelitesmay

notneedrigourousprotectionby the interviewerandmay, instead,prefer that

theiridentitiesberevealed.Moreover,theiridentitiesasmuchastheirpositions

withininstitutionsororganisationsmightbecrucialtothevalidityofthedata.In

otherwords,agreementsonconfidentialityshouldalwaysbenegotiatedbefore

the interview begins.605Third, elites – in commonwithmany highly educated

people –oftendislike the strict-senseof close-endedquestions.Theyprefer to

articulate their views and explain what they think.606Semi-structured, open-

endedquestionsare,therefore,thepreferredformatofinterview.Last,itismost

important that the interviewer does his or her homework and has a good

understandingoftheissuestobecanvassedatinterviewsinceitisoftenthecase

that interviewees challenge the interviewer on the topics of interview and its

relevance.607

Atthe interviewstage, themost important issueisthepowerrelationbetween

the interviewer and the elite interviewees. Unlike other types of qualitative

interviewwheretheinterviewerplaysaleadingroleinsettinguptheinterview

stage and defining the interview questions, the power relation in the elite

interview often shifts to the interviewees who hold important positions and

believe that they are better informed than the interviewer. The interviewees

mayalsoviewthattheinterviewerisintellectuallyinferiorandmaynottakethe

sessionseriously,ortakecontrolofthesessionthemselvesaltogether,resulting

604Ibid36.605JosephAConti andMoiraO’Neil, 'Studyingpower:Qualitativemethodsand theglobal elite'(2007)7(1)QualitativeResearch69.606JoelDAberbachandBertARockman,'Conductingandcodingeliteinterviews'(2002)35(04)PoliticalScience&Politics674.607HarrietZuckerman,'Interviewinganultra-elite'(1972)36(2)PublicOpinionQuarterly159.

210

intheinterviewer’sfailuretoobtainimportantdata.608Thestrategiestomitigate

thispowerrelationissuearemanifold.First,asmentioned,goodpreparationis

required and the interview questions must be very carefully thought out.609

Second,theinterviewerneedstofirstandforemostbuildarelationshipandgain

thetrustofintervieweesinordertocollecthighqualitydata.610Thiscanbedone

partly with the interviewer’s effective self-introduction. It is helpful for the

interviewer to clearly mention their organisations and sponsorship, if any,611

followed by a detailed description of the project.612Some researchers further

suggest the use of inconsequential conversations at the start of the session to

break the ice between the interviewer and interviewees, and to set up the

interview stage.613Third andmost important, elite intervieweesmay view the

issuedifferentlyandnotanswerinterviewquestions.Suggestedstrategiesareto

turnaninterviewintoadiscussionratherthanaone-sidedquestion-and-answer

session.614Itisalsousefultoencourageintervieweestostructuretheiraccounts

oftheresearchissueaswellaslettingthemintroduceotherissuestheybelieve

relevanttothetopicofdiscussion.Suchdeviationcouldprovide insightfuldata

thatleadtoarevision,areinterpretation,anextension,oranewapproachofthe

research.615

Last,atthedata-analysisstage,theinterviewermustcarefullydeterminevalidity

(howappropriateisthemeasuringinstrument?)andreliability(howconsistent

aretheresultsofrepeatedtests?)ofdataobtainedfromeliteinterviews.616Some

interviewees may have their own agendas and subtly pass them during the

interview,ortheymaybeboastfulormayintentionallyfalsifydataorpersonal

opinions. 617 Strategies to enhance the validity and the reliability of elite

608JeffreyMBerry, 'Validity and reliability issues in elite interviewing' (2002) 35(04)PoliticalScience&Politics679.609Ibid.610Susan A Ostrander, '‘Surely you're not in this just to be helpful’ Access, Rapport, andInterviewsinThreeStudiesofElites'(1993)22(1)JournalofContemporaryEthnography7.611Dexter,aboven602,50.612 William S Harvey, 'Strategies for conducting elite interviews' (2011) 11(4) QualitativeResearch431.613Dexter,aboven602,50.614Ibid55.615Ibid19.616Berry,aboven608.617RichardLHall,Participationincongress(YaleUnivPr,1998)201.

211

interviewinginclude(1)theuseofmultiplesources,(2)doingpriorresearchon

the interviewees, and (3) the use of scripted probe-notes to attain consistent

probingintheimportantareasoftheinterview.618

3LegalEmpiricalResearch

Although qualitative research methods are often identified more with social

sciencesandhumanitiesthanwiththedisciplineof law,most lawpractitioners

andresearchersunknowinglyundertakequalitativeresearchonaregularbasis,

intheformofmethodsofestablishingthelawthroughanalysisofcases.619What

is sometimes lacking in legal research compared to thoseotherdisciplines are

studies collecting primary data for qualitative analysis, either via interview,

observation, or participation. Nevertheless, there are growing numbers of

empiricalstudiesinmanyareasoflaw,suchasstudyingcrimeratesandcriminal

justice responses in criminal law, studying the impact of sanctions in

international trade law, contracts, company law, the law of financial markets,

consumer protection, bankruptcy and insolvency, regulation of professions,

family law, labour law, environmental law, alternative dispute resolution, and

administrative law.620 As this study concerns brokerage fraud and relating

violations in securitiesmarkets, some relevant empirical studies are in related

areas of property crime, impact of penal sanctions, financialmarkets, and the

regulationofprofessions.

(a)PropertyCrime

In the research area of property crime, an empirical study on fraud based on

interviewsoftwohundredfiftyinmatesbyDonaldR.Cresseyestablishedthatfor

criminal violationof trust to occur, the factorswhichmustbepresent are: (1)

pressure/motivation, (2) opportunity, and (3) rationalisation.621 The present

618Berry,aboven608.619LisaWebley,'Qualitativeapproachestoempiricallegalresearch'(2010)P.Cane&HMKritzer.TheOxfordHandbookofEmpiricalLegalResearch926.620See also, Peter Cane andHerbert Kritzer,TheOxfordHandbookofEmpirical LegalResearch(OUPOxford,2010).621Cressey,aboven421.

212

studyaimstoretestandelaborateasneededtheFraudTriangleTheorythat is

employed as a theoretical background for this study. A number of studies

subsequent to Cressey’s earlier work have extended the Fraud Triangle

Theory.622Nevertheless,mostoftheseempiricalstudiesareconductedunderthe

disciplines of accounting and auditing, rather than that of law or criminology.

Othernotableempiricalstudiesonpropertycrimesuggest thatproperty-crime

offenders aremore responsive to changes in incarceration rates and levels of

policing than are violent crime offenders.623Part of the explanation is that

offenders in property crimes are more rational calculators than offenders in

‘crimes of passion’ and violence fueled by alcohol. It should be noted that

empirical studies in thisareahaveadirect relevance to this thesis, asCressy’s

FraudTriangleandsubsequentextendedandrevisedmodelsarethetheoretical

backgroundofthisresearchoncausesoffraudandhowtoenhancedeterrenceof

anti-fraudmeasureinThaisecuritieslaw.

(b)ImpactofPenalSection

In research of impacts of penal sanctions, well-established empirical research

literatureassesses issuesof effectivenessof generaldeterrence, incapacitation,

and rehabilitation.624Most of these studies are, however, conducted using a

quantitative research method. For example, association studies on general

deterrence examine changes in enforcement or punishment levels in a single

jurisdiction at different times or variations across different jurisdictions, then

assess how such differences correlate with variation in the crime rate.625In

622SeedetailsinChapter4.623Steven D Levitt, 'Understanding why crime fell in the 1990s: Four factors that explain thedecline and six that do not' (2004) 18(1) The Journal of Economic Perspectives 163; John JDonohueIIIandPeterSiegelman,'Allocatingresourcesamongprisonsandsocialprogramsinthebattleagainstcrime'(1998)27(1)TheJournalofLegalStudies1.624AnthonyBottomsandAndrewVonHirsch, 'Thecrimepreventive impactofpenalsanctions'(2010)TheOxfordhandbookofempiricallegalresearch96.625DavidPFarrington,PatrickALanganandPOWikstrom,'ChangesincrimeandpunishmentinAmerica,EnglandandSwedenbetweenthe1980sandthe1990s'(1994)3StudiesonCrimeandCrimePrevention104;PatrickALanganandDavidPFarrington,'CrimeandJusticeintheUnitedStatesandinEnglandandWales'(1981);MikeMaguire,'Crimedataandstatistics'(2007)4TheOxfordhandbookofcriminology241;AndrewVonHirschetal,Criminaldeterrenceandsentenceseverity: An analysis of recent research (Hart Oxford, 1999); Deryck Beyleveld, 'Identifying,explaining and predicting deterrence' (1979) 19(3) The British Journal of Criminology 205;Anthony N Doob and Cheryl MarieWebster, 'Sentence severity and crime: Accepting the null

213

addition to these individual studies, a meta-analysis626 of deterrence-study

resultswas conducted byTravis C. Platt and his team in 2006.627The findings

from the meta-analysis show statistically significant negative correlations

between punishment certainty and crime rates. On the other hand, a small

numberofresearchershaveemployedquasi-experimentaldesignstostudythe

deterrence effect of particular punishments by constructing a controlled

situation. One example of this kind of research is a study of fare avoidance in

Zurich’s public transport.628The study found that the violation rate decreased

substantiallyastheprobabilityofdetectionroseduetotheincreaseinnumber

of train attendants over time. Similarly, in the research areas of rehabilitation

and incapacitation, most studies are statistically based. Few studies are

conductedusingqualitativemethods.Anotableexample is a studybyStephen

Farrall on the use of probation in reducing offending behaviour in United

Kingdom,629whichemploy interviewas thedata collectionmethod. The study

finds that there is little evidence to suggest that interventions by probation

officers play a direct role in desistance. When desistance occurs, it is largely

attributed to the probationers themselves and from the changes in the social

context.

Inconclusion,thequalitativeempiricalresearchinthisareagreatlycontributes

totheunderstandingofcorrelationsbetweenpenalsanctionsandbehaviourof

individuals,notablytherefutationofthecommonnotionthattheincreaseinthe

magnitude of sanctions and that the increase in the probability of detection

wouldproduceabetterresult.Suchfindingsdirectlyinfluencerecommendations

proposed in latter chapters of the thesis, which are essentially for relevant

government agencies to focus on providing better information to brokers and

hypothesis'(2003)Crimeandjustice143.626Ameta-analysisispoolingofsimilardatasetsanduseofstatisticalmethodstoevaluateeffectsizeofeffectsfoundacrossallthepooleddata.627Travis C Pratt et al, 'The empirical status of deterrence theory: Ameta-analysis' (2006) 15Takingstock:Thestatusofcriminologicaltheory367.628 Martin Killias, David Scheidegger and Peter Nordenson, 'The Effects of Increasing theCertainty of Punishment A Field Experiment on Public Transportation' (2009) 6(5) EuropeanJournalofCriminology387.629StephenFarrall,Rethinkingwhatworkswithoffenders:Probation,socialcontextanddesistancefromcrime(WillanCullompton,2002).

214

investors, as well as improving their detection capabilities, rather than

increasingthecurrentsanctionsimposedonoffendingbrokers.

(c)FinancialMarketRegulation

Many empirical studies exist in the area of financial market regulation. It is

interesting to note that these studies are not exclusively conducted by

academics, but also by various stakeholders in the market, such as lawyers,

financial economists, and regulatory agencies, under different agendas. 630

According to JuliaBlack, currentempirical studiesare looselycenteredaround

sixareasofissueordebate,whichare:(1)theefficientmarketshypothesisand

mandatory disclosure rules, (2) investor behaviouralism and their impact on

investor protection, (3) the impact of rules relating tomarketmisconduct, (4)

therelationshipbetweenlegalrulesandsecuritiesmarketdevelopment,(5)the

unintended impact of regulation, and (6) the dynamics of financial market

regulatory regimes.631 Two areas that are more relevant to this study are

investorbehaviouralismanditsimpactoninvestorprotectionandtheimpactof

rulesrelatingtomarketmisconduct.Twonotablequalitativestudiesoninvestor

behavioralism are a study of the behaviour of online investors in Australia by

Dimity Kingford-Smith and Kirsty Williamson in 2004632 and research into

victimsof fraudscommissionedbytheBritishColumbiaSecuritiesCommission

in2006.633Thefirststudyfindsthatinvestorsemployawiderangeofsourcesof

information, yet the views of peers are themost significant factorsmotivating

investmentdecisions.Furthermore,thestudyreportsthatsomeinvestorstrade

for the fun or excitement of trading, similarly to gamblers. This group of

investors is particularly vulnerable to risks inherent in online trading.634The

second study, interestingly, reported that the two most vulnerable groups of

mortgage scams are pre-retirement investors approaching retirement without

630Julia Black, 'Financial markets' in Peter Cane and Herbert M. Kritzer (eds), The Oxfordhandbookofempiricallegalresearch(OxfordUniversityPress,2010)151.631Ibid.632Dimity Kingsford-Smith and CWilliamson, 'How do online investors seek information, andwhatdoesthismeanforregulation?'(2004)1(2)JournalofInformation,LawandTechnology1.633JuliaBlack,Involvingconsumersinsecuritiesregulation(Citeseer,2006).634Kingsford-SmithandCWilliamson,aboven632.

215

adequate funds, and theaffluentmiddle-agedmalewhoassumeshimself tobe

knowledgeableaboutinvestments.Asforempiricalstudiesinthetopicofmarket

misconduct, twoseparatestudiesoninsidertradingbyUptalBhattacharyaand

HazemDaouk in2002,635andLauraBeny in2006636similarly indicate that the

merepresenceofinsidertradingprohibitionsdoesnotaffectmarketoperations.

Nevertheless,theenforcementofinsidertradingregulationhasapositiveeffect

onpriceformationandliquidityofsecurities.

Theimpactoftheseempiricalstudiesonthispieceofresearchispredominantly

ontheresearchdesignandtheinterviewquestionformulationstages.Anumber

of interview questions together with follow-up questions are formulated to

exploreinvestors’relationshipwiththeirbrokersinconnectiontotheirdifferent

investmentpatternsandmotivations,notablyinthecasesofelderinvestorsand

daytraders.

(d)RegulationofProfession

Similartotheresearchareaoffinancialmarketregulation,thatofregulationof

professions is rich with empirical studies. Two key issues that receive much

attention fromresearchersare tensionbetween the interestsof theprofession

and thepublic, and themosteffectivemethodsof regulatingprofessions.637On

tension between the interests of professionals and the public, a notable

qualitative study on self-regulation shows that contrary to popular belief that

self-regulation is always self-serving, there is no linear relationship between

professionals’ intentions and regulatory outcomes. Self-regulation sometimes

simultaneously serves the interests of both the profession and the public.638

Studies on service quality provided by professionals find that in certain, less

lucrativeareasofpractice,includinglegalaidandtribunalwork,therewaslittle

635UtpalBhattacharyaandHazemDaouk, 'Theworldpriceof insidertrading'(2002)57(1)TheJournalofFinance75.636LauraNyantungBeny,'Insidertradinglawsandstockmarketsaroundtheworld:Anempiricalcontributiontothetheoreticallawandeconomicsdebate'(2006)32J.Corp.L.237.637LindaHaller,'Regulatingtheprofessions'inPeterCaneandHerbertKritzer(eds),TheOxfordhandbookofempiricallegalresearch(2010)216.638ChristineParker,'JustLawyersRegulationandAccesstoJustice'(1999).

216

difference inservicequalityprovidedbytheprofessionalsandtheunregulated

service providers.639 Regarding effective methods of regulating professions,

researchersattempttoanswerthekeyquestionofwhatregulatorytechniquesor

whichmix of such techniques can provide optimal outcome. A key studywas

conductedby JohnBraithwaiteandcolleagues in1992, resulting indesignofa

regulatory pyramid.640They found that regulators, at the earliest enforcement

stage, often engaged in dialoguewith regulatees and employed incentives and

encouragementtoinducecompliance.However,effectiveregulatorsensurethat

more forceful sanctions, known as ‘big stick’, are available, while making soft

demandsforcompliancefromregulatees.Regulatorsthenrespondtofailuresto

complybyescalatingsanctionsuptheregulatorypyramidthroughmoresevere

intervention measures to secure compliance. At the top of the pyramid lies

formalprosecutionforregulatorybreach,whicheffectiveregulatorsonlyusein

last resort.641 It is to be noted that Braithwaite’s theory of the regulatory

pyramid, based on his qualitative empirical studies over the years, forms the

basis for the recommendations suggested in this thesis. Further details on the

useofregulatorypyramidtoregulatebrokeragefraudandrelatingviolationscan

befoundinChapter6ofthisthesis.

BResearchDesign

1Structure

After the lawsand regulationsaswell as casesonbrokerage fraud in theThai

securitiesmarkethadbeenchosenforfurtherinvestigation,itwasdecidedthat

primary interviewdatawere required toenhance theunderstandingof factors

leading to the commission of offences, especially from the perspective of

securitiesbrokers.Theresearchapproachof theempiricalpartof thisstudy is

deductive, in which the researcher develops a theory and hypotheses then

639RichardMoorhead,AvromSherrandAlanPaterson,'Contestingprofessionalism:legalaidandnonlawyersinEnglandandWales'(2003)37(4)Law&SocietyReview765.640AyresandBraithwaite,aboven25.641KeithHawkins,Lawaslastresort:Prosecutiondecision-makinginaregulatoryagency(OxfordUniversityPressonDemand,2002).

217

designs a research strategy to test such theory and hypotheses accordingly.642

The theoryofFraudTrianglewas selectedas themain theoreticalbackground

andeighthypothesesrelatingtobrokeragefraudinThailandbasedonthetheory

were subsequently developed.643The empirical programme discussed in this

chapter was designed to test the application the Fraud Triangle Theory in

explainingsuchphenomenainthecontextoftheThaisecuritiesmarket,andto

addressthehypothesessetforth.

Figure15:TheStructureoftheEmpiricalPartoftheStudy

642Theoppositeofthedeductiveapproachisaninductiveapproach,inwhicharesearcherdrawsgeneralisationoutofobservationanddevelopsatheoryfromtheanalysisofthedatacollected.See,AlanBryman,'EncyclopediaofSocialScienceResearchMethods'(2004).643SeedetailsinChapter1.

DeductiveApproach

DecisiononQualitativeResearchandSemi-StructureInterview

EthicalIssuesConsideration

PreliminaryInterviewQuestions

PilotInterview

RevisedInterviewQuestions

MainInterview:PhaseOneMainInterview:PhaseTwoMainInterview:PhaseThree

ThematicAnalysis

218

At the early design stage, qualitative research was chosen for its strength in

examiningunderstandingofsubjects’experiencesofphenomena.Theresearcher

then chose to employ a semi-structured interview as themain data-gathering

tool due to the exploratory nature of this study. A set of main questions was

carefully prepared in advance. Also, based on interviewee’s answers, probing

questionswereallowedtobeaskedtoclarifyanswersortoexplorenewissues

raisedbyinterviewees.

Interviews were conducted with three main objectives. The first was to gain

views and perceptions held by relevant personnel in the Thai capital market

relating to the factors on the three sides of the triangle (pressure,opportunity,

rationalisation) that together are said to lead to the commission of fraud and

relevantregulatoryviolations.


219

The second objective was to gain the interviewees’ opinions on different

components of the current anti-brokerage fraud regime and how to improve

their efficiency, such as licensing examinations, compulsory training, legal

proceedings,theimpositionofsanctions,etc.Thethirdandlastobjectivewasto

gain other information on the securities brokerage industry and the securities

brokerage profession that may assist in the subsequent analysis. Examples of

such information are income satisfaction, occupational mobility, interviewees’

level of knowledge of the law and its enforcement, effect of the recent

liberalisationofbrokeragefeesonthebrokers’welfare,etc.

Structuring interviewsinvolvedthreephases.PhaseOneinterviewedsecurities

brokers. Phase Two interviews were of regulators, staff of the Office of the

SecuritiesandExchangeCommission.PhaseThreeinterviewedinvestors,whoin

thisstudyarerepresentativesoftheThaiInvestorAssociation.644Notethatonly

the first and secondphaseswereplanned at the initial design stage.The third

interview phase was added after first and second interview phases were

completedandthefieldworkreportwaspresentedatseminar.Itwassuggested

by panel members that an interview of investors should be additionally

conductedtocomplementtheinterviewofsecuritiesbrokersandtheinterview

ofregulatorsinthefirstandthesecondphases,respectively.

Since most interviewees’ English proficiency was under-fluent, all interviews

were conducted in Thai. Conversations were recorded digitally, and later

transcribedandtranslatedintoEnglish.Transcriptsofthefirstphase(securities

brokers) were fully translated for a detailed thematic analysis using NVivo

qualitative-research software. Because of time and resource constraints, the

transcriptsofthesecond(regulators)andthethird(investors)interviewphases

wereonlypartiallytranslated.

After decisions on data gathering weremade, relevant ethical research issues

wereconsideredandstrategies toaddress themwere included in the research

644ThaiInvestorsAssociation<www.thaiinvestors.com>.

220

design.645Next, interviewquestionswerecarefullydevelopedand tested in the

pilot interview stage. Information and experience gained frompilot interviews

were used to revise interview questions. Potential participants were then

contactedwithassistanceofgatekeepersofeachinterviewphases.Finally,three

phases of the interview were conducted in Thailand from October 2013 to

August 2014. Details of each stage are discussed in detail in the following

sections.

2InterviewPhasesandParticipants

(a)PhaseOne:InterviewofSecuritiesBrokers

The firstphase,or thecorecomponentof thisstudy,wasan interviewofretail

securities brokers. Interviews focused on brokers’ perception of causes,

opportunities, and rationalisation in the commission of brokerage fraud and

related regulatory violations together with their views of current anti-fraud

regulations.Also, the interviewencouragedbrokers toexpress theirviewsand

opinionsabouttheirjobdescriptions,workingculture,remunerationstructures,

relationshipswithclients, internalcontrolmechanisms,andotherwork-related

issuesthathelptheresearcheridentifythepotentialcausesoffraud.

Participants in Phase One were eighteen retail securities brokers from nine

securitiesbrokeragecompaniesinthreedifferentcategories.Forthepurposeof

this study, the researcher divided securities brokerage companies in Thailand

into three categories based on shareholding structures and business relations,

whichare(1)commercial-bankrelatedsecuritiescompanies,(2)localsecurities

companies,and(3)foreignsecuritiescompanies,respectively.Commercial-bank

relatedcompaniesaresecuritiescompanieshavingcommercialbanksasmajor

shareholdersand/orhavingadirectbusinesspartnershipwith thebanks,such

as client-database sharing. Local companies are securities companies whose

majority shareholders are Thai nationals or Thai legal persons. Last, foreign

companies are securities companies whose majority shareholders are foreign645ApprovedResearchProtocolNo.2013/498.

221

nationals, or foreign legal persons, and/or are securities companies operating

business in Thailand as subsidiaries of foreign securities companies.646The

underlyingreasonforsuchdivisionofsecuritiescompaniesisthatdifferencesin

their internal structure andworking culture are hypothesised to have varying

impacts on pressure, opportunity, and rationalisation as perceived by their

employee brokers during the commission of fraud and related violations.

Eighteen participants are therefore divided equally into three groups of six

participants, with each group made up of two people from each of the three

companies.

Recruitmentofparticipantsinthisphasewasconductedintworounds.Thefirst

round was carried out using purposive sampling to identify and select nine

information-richparticipants,whowereknowledgeable,available,andwillingto

participate in the study.647The second round of recruitment was carried out

usingsnowballsamplingtogainaccesstoafurthernineparticipantsworkingat

thesamesecuritiescompanieswiththeparticipantsinthefirstgroup.648Theuse

ofsuchsnowballsamplingtechniqueiscentraltothedesignoftheresearchsince

interviewdataderived fromtwobrokersworking in thesamecompanywould

be compared and cross-checked to increase the reliability and validity of the

research.

In preparation, nine targeted securities companies in the required categories

werefirstidentified.Onepotentialparticipantfromeachtargetedcompanywas

646SeedetailsinChapter3.647Purposive sampling or nonprobability sampling is a technique widely used in qualitativeresearch for the identification and the selection of individual or groups of individual that areespeciallyknowledgeableabouttheresearchissueorthephenomenonofinterest.Thismethodofsamplingemphasisestheavailabilityoftheparticipantsandtheirwillingnesstoparticipateinthe research, as well as their ability to communicate their experiences and opinions in anarticulateandreflectivemanner:LawrenceAPalinkasetal,'Purposefulsamplingforqualitativedata collection and analysis in mixed method implementation research' (2015) 42(5)AdministrationandPolicyinMentalHealthandMentalHealthServicesResearch,533-534.648Snowballsamplingorreferralsamplingisasub-typeofapurposivesamplingtechnique.Thistechniqueuses initial participants to nominate additional participantswhomeet the eligibilitycriteriasetbytheresearcherandcouldcontributetothestudy.Theterm‘snowballsampling’isan analogy to a snowball increasing in size as it rollsdownhill. The technique is aparticularlyuseful tool forbuildingnetworks and increasing thenumberof participants in the areawheregainingaccessisdifficult:DavidMorgan,'Snowballsampling'(2008)2TheSAGEencyclopediaofqualitativeresearchmethods,816.

222

thencontactedwiththehelpofMissNitivadeeTasuwanin,alicencedsecurities

broker, who agreed to be a gatekeeper and a local contact for this interview

phase. In choosing the first nine participants, with the consultation of the

gatekeeper, securities brokers holding different positions and having various

levelofexperiencewerechosen.Amongthefirstgroupofpotentialparticipants

wereteamleaders,experiencedbrokers,andanovicebroker.Whencontactwas

made, the information sheet was sent to the potential participants for their

consideration.Itisstrikingtonotethattheacceptanceratewas100percentand

many participants later expressed that they were eager to talk about the

research issue.At the conclusionof each interviewsession,using the snowball

samplingtechnique,theresearcheraskedeachparticipanttorecommendoneof

hisorhercolleaguesworkinginadifferentteamwithinthesamecompanytobe

the second participant. The researcher then made contact with the

recommended persons and nine further interview sessions were scheduled

shortlythereafter.Underlyingreasonsfortheinclusionofthesecondparticipant

fromthesamecompanywas toenrichdatabeingobtainedandto increase the

validityandreliabilityoftheresearch,asdatabetweenthetwoparticipantsfrom

the same company can be cross- gathered, classified, and studied checked for

consistency.

Due to ethical concerns, identities of the participants and their employing

companiesarenotrevealedinthereportingofdatafromthisphase.Participant

codescompriselettersandnumberssystematicallyemployedtorepresenteach

participant.Somedemographicdetailsoftheparticipatingbrokersareshownin

thetablebelow.649

649Althoughitwouldbebeneficialtoreaders, it isimpossibletoincludethegendersandageoftheintervieweesinthedemographictable.Doingsowouldbeabreachofresearchethics,posingsignificantriskstotheparticipants.SincetheThaiBrokeragecommunityissmall,specifyingthegenders and age of the intervieweeswouldmake it possible for readers to trace and identifyparticipants. Itwasmade clear in the ethics application that such demographics and personalinformationoftheparticipantswouldnotberevealedinthetext.

223

Table24:TheDemographicsoftheParticipantsintheFirstInterviewPhase

Participant Typeof

Securities

Companies

Securities

Company

Position Income

Scheme

Experience

/Years

Dateof

Interview

B1A Commercial-

BankRelated

B1 Team

Leader

Incentive

Scheme

10 18/11/2013

B1B Commercial-

BankRelated

B1 Broker Incentive

Scheme

9 22/11/2013

B2A Commercial-

BankRelated

B2 Novice

Broker

Fixed

Scheme

8

Months

18/11/2013

B2B Commercial-

BankRelated

B2 Broker Incentive

Scheme

5 2/12/2013

B3A Commercial-

BankRelated

B3 Team

Leader

Incentive

Scheme

10 3/12/2013

B3B Commercial-

BankRelated

B3 Team

Leader

Incentive

Scheme

22 11/12/2013

F1A Foreign F1 Broker Incentive

Scheme

3 20/11/2013

F1B Foreign F1 Broker Incentive

Scheme

2 20/11/2013


Scheme

4 25/11/2013


Scheme

8 6/12/2013


Scheme

13 26/11/2013


Scheme

10 18/12/2013

L1A Local L1 Broker Incentive

Scheme

8 15/11/2013

L1B Local L1 Broker Incentive

Scheme

8 19/11/2013

L2A Local L2 Team

Leader

Fixed

Scheme

11 27/11/2014


Scheme

8 4/12/2014

L3A Local L3 Team

Leader

Incentive

Scheme

8 12/12/2014

224

Participant Typeof

Securities

Companies

Securities

Company

Position Income

Scheme

Experience

/Years

Dateof

Interview


Scheme

10 19/12/2014

Fromthetable,fiveteamleaders,12brokers,andonenovicebrokerparticipated

in interview Phase One. Second, 16 participants were in the incentive

remuneration scheme. Only two participants were in the fixed scheme. The

longestperiodofworkexperiencewas22yearswhereastheshortestwaseight

months.Theaverageworkexperienceoftheparticipantswas8.3years.

(b)PhaseTwo:InterviewofRegulators

The second phase involved interview of regulators in the area of brokerage

fraud, officers from the Office of the Securities and Exchange Commission.

Interviewing in this phase focuses on the regulator’s perception of causes,

opportunities, and rationalisation in the commission of brokerage fraud and

relatedregulatoryviolations.Theinterviewalsofocusedonofficers’perception

of theeffectivenessof thecurrentanti-brokeragefraudregimeandonworking

policiesandregulatoryenforcementproceduresthattheofficersareallowedto

sharewiththeresearcher.

ContactwiththeOfficeoftheSecuritiesandExchangeCommissionforpotential

interviewees was made by Dr Prasong Vinaiphat, thesis panel member and

former Deputy Secretary-General of the SEC, who kindly agreed to be a

gatekeeper and a local contact for this second interview phase. The initial

researchplanwastointerviewfiveofficersinfiveinterviewsessions.However,

atthestartofthefinalsession,anintervieweeaskedforoneofhercolleaguesto

also be present in the interview. As a result, six were interviewed in five

sessions.AsimilarsetofmaininterviewquestionsusedininterviewPhaseOne

wasdeemedapplicable in thisphase, thebetter to compareperceptionsof the

brokersandregulatorsontheresearchissues.

225

UnliketheparticipatingsecuritiesbrokersininterviewPhaseOne,participating

officersinthissecondphaseweregivenachoicewhethertheywouldliketheir

names to be disclosed. All officers chose to have their names and positions

directly quoted in the research. The details of the participating officers in this

phaseareshowninthetablebelow.

Table25:TheDemographicsoftheParticipantsintheSecondInterviewPhase

Interview

Session

Participant Position Department Dateof

Interview

1 DuangpornVibulsilp Senior Executive

Officer

Licensing 28/1/2014

2 KanchanaSoralum Senior Executive

Officer

Licensing 28/1/2014

3 SumethVichienchai Senior Executive

Officer

Prosecuting 31/1/2014

4 RatanaNiensawang Senior Executive

Officer

Brokerage

BusinessAudit

31/1/2014

5 OrataiNimthaworn,

SupathamChanveeratham

Senior Executive

Officer

Senior Executive

Officer

Brokerage

BusinessAudit

31/1/2014

(c)PhaseThree:InterviewofInvestors

InterviewPhaseThree involved investors in theThai securitiesmarket on the

issue of brokerage fraud. As mentioned in the research design section above,

onlythefirstandsecondphaseswereplannedfromtheoutset,thisthirdphase

beingaddedafterthefirstandsecondphaseswereconcludedanddataobtained

from these interviews presented in a fieldwork seminar in May 2014. The

researchpanelmemberssuggestedtotheresearcherthatviewsandopinionsof

investors on the research topic should also be obtained to complement data

alreadygatheredfromsecuritiesbrokersandregulators.

226

In designing the investor interview phase, the main issue was selection of

potential participants so that they represented retail investors in the Thai

securitiesmarkets.Sincetherearemanytypesofmarketinvestors,suchasday-

traders, short-term investors, long-term investors, volume-stock traders, low-

volumeinvestors,high-volumeinvestors,etc.,inwhichexperienceandexposure

tobrokeragefraudandrelatedviolationscandiffergreatly,identifyingtheright

participantswhocouldprovidereliableandvaliddatawasacomplicatedmatter.

Studies on investors are usually conducted via quantitative research using

questionnairesduetostrengthincollectingdatafromalargenumberofdiverse

participants. Nevertheless, employing triangulation and including a broadly

administered survey was undesirable because of limited time and resources.

Facingsuchanissue,theresearcherconsultedtheresearchpanelmembersand

wasadvised thatan interviewof representatives from investorassociationsor

organisationswasanadequatealternativeforthepurposeofthisstudy.

With the assistanceofDrPrasongVinaiphat, panelmember and gatekeeperof

the first interview phase, the researcher was introduced to Dr Kanate

Wangpaichitr, the Vice-President of the Thai Investors Association, 650 who

agreedtobethegatekeeperandthemaincontactof thethird interviewphase.

DrWangpaichitr kindly facilitated a contact with three representatives of the

Thai Investors Associations and three interview sessions were scheduled in

threesessionsovertwodaysinAugust2014attheStockExchangeofThailand.

Thesamesetofmaininterviewquestionsusedinthefirstandthesecondphases

wasemployedinthisphase,tocomparetheattitudesoftheinvestorstobrokers

andregulators.

Similar to the first interview phase, identities of the representatives from the

ThaiInvestorsAssociationarenotrevealed.Codescompriselettersandnumbers

and are employed to represent each participant. The demographics of

participatinginvestorsaretabledbelow.

650ThaiInvestorsAssociation<www.thaiinvestors.com>.

227

Table26:TheDemographicsoftheParticipantsintheThirdInterviewPhase

Interview

Session

Participant TypeofTrading

AccountUse

Investment

Experience/Years

Dateof

Interview

1 IR1 TraditionalandInternet 7 4/8/2014



3EthicalIssues

This study is conducted under theNational Statement on Ethical Conduct in

Human Research (2007) and is approved by the Human Research Ethics

Committee(HREC)underFullEthicalReview(ApprovedResearchProtocolNo.

2013/498). At the research design stage, ethical considerations relating to the

studywere carefully considered, being (1) risks involved, (2) consent, and (3)

confidentiality and data storage. Strategies to minimise risks and uphold

researchintegrityweredevelopedandembeddedinthedesignoftheempirical

studyfromtheearlieststage.

The first ethical consideration entailed risks associatedwith the study.Due to

thisstudy’snature,whichisresearchonfraudandrelatedviolationsintheThai

SecuritiesMarket,themostsignificantriskinvolvedwasalegalriskfacedbythe

researcherandparticipants.Ininterview,therewaspossibilitythatparticipants

might reveal wrongdoing committed by themselves or any third party, which

maysubjectbothresearchersandparticipantstodisclosethatinformationtothe

authorities. To address this, research on relevant law and regulations was

conducted.ItwasfoundthatunderThailawandtheregulationsoftheSEC,the

researcherandtheparticipantshavenoobligationtoreportsuchinformationto

the authorities, provided that thewrongdoing is in the scopeof the four focus

offencesofthisstudy.

Althoughthereisnoobligation,theresearchertookfurtherstepstoprotectand

minimiselegalandotherrisksforparticipants.Firstly,minimalpersonaldetails

228

of participants were recorded and only when necessary. Codes were given to

represent participants and companies. Similarly, in the third interview stage,

names of the representative investors were not reported and their personal

details are recordedatminimum.Contrastingly, in the second interviewphase

where officers of the Office of Securities and Exchange Commission were

interviewed, participants were given a choice to disclose their names and

positions.Allofficerschosetorevealtheiridentitiesandaskedtheresearcherto

directly quote their names and positions in the research. Secondly, the

participantswereasked tobe carefulwhengivingexamplesormentionedany

actionorwrongdoingofanythirdparty.Theparticipantswereaskedtorefrain

frommentioningtheoffender’snameorthenamesofhisorheremployer,unless

such incidenthadalreadybeenreportedandpubliclyrecordedby therelevant

authority.Last, iftheparticipantsfeltatanytimeduringtheinterviewthatany

interviewquestionwaspersonally sensitiveormade themreluctant todiscuss

anyissueduetoconcerns,theyweretoldthattheymightchoosenottoanswer

anyquestionandcouldaskfortheinterviewtoceaseatanytime.

Thesecondethicalconsiderationisconsentoftheparticipants.Attheinterview

session outset, each participant was given an information sheet to read. The

information sheet containsdetailsof theproject, risks involved, confidentiality

anddata-storagemechanisms,participants’rightstowithdrawfromtheproject

at any time before the publication of the study, and contact persons if the

participantslaterhadanyqueriesorconcerns.Theresearcherthenreadtheoral

consentstatementtotheintervieweeandaskedhimorhertoconfirmhisorher

informedvoluntaryconsenttoparticipateininterviewandtheirpermissionfor

theconversationtobedigitallyrecordedforfurtheranalysis.

Thethirdandlastconsiderationwasconfidentialityanddatastorage.Duetothe

sensitive nature of the project, only minimal personal details of participants

wererecordedandonlywhennecessary.Allinformationgivenininterviewwas

keptconfidentialasfarasthelawallows.Onlytheresearcherandoneassistant,

who together transcribed the recordings and translated the transcripts from

ThaitoEnglish,hadaccesstothevoicerecordings.Alldigitaldatawasstoredon

229

the researcher’s password-protected computer and hard copies of the

transcriptswerestoredinalockedfilingcabinet.

4PilotStudy

Twenty-six preliminary interview questions were first developed based on

components of the current anti-brokerage fraud regime (preventivemeasures,

internal controlmechanisms, and sanctions) and on components of the revised

FraudTrianglemodelsemployedhere(pressure,opportunity,rationalisation,and

societal factors). After the ethics committee approved the ethical review in

September2013,theresearchertravelledtoThailandtoconductthreesessions

of pilot interviews with securities brokers the researcher knew personally.651

Pilot interviews were conducted with these purposes: (1) to extend the

researcher’s knowledge of the current anti-brokerage fraud regulations and of

thesecuritiesbrokerageindustry,(2)toimprovetheinterviewquestionsforthe

main interview phases, and (3) to increase the researcher’s proficiency and

experience in conducting qualitative interviews. Based on information and

experience obtained in the pilot interview stage, the interviewquestionswere

revisedforclarityandaccuracyofwording.Preliminaryquestionsweredropped

andnewquestionswereadded.Inaddition,alistofpotentialprobingquestions

foreachmainquestionwasalsopreparedduringthisstage.

5InterviewQuestions

The final list of revised interview questions consisted of twenty-eight main

questionsorganisedunderfiveheadings.Detailsandobjectivesofeachquestion

togetherwithexampleofprobingquestionscanbefoundinAppendix4.

651The three securities brokers who participated in the pilot interviewwere not recruited asparticipantsinthemaininterviewstage.

230

6ReliabilityandValidityoftheResearch

Inanyresearch,quantitativeorqualitative, it is importantthatresearcherscan

demonstrate that their studies are credible. Such credibility determines the

quality of research findings and leads to the research being accepted as

truthful. 652 In quantitative research, such credibility is widely known as

‘reliability’and ‘validity’.Reliability isemphasisedwith the ideaofreplicability

orrepeatabilityofresultorobservation.653Threetypesofreliabilityreferredin

quantitative research relate to (1) the degree to which ameasurement, given

repeatedly,remainsthesame,(2)thestabilityofameasurementovertime,and

(3)thesimilarityofmeasurementswithinagiventimeperiod.654Reliability,on

the other hand, determines whether the research truly measures what is

intendedtobemeasuredandwhethermeansofmeasurementareaccurate.655

As for qualitative research, concepts of reliability and validity are viewed

differently as the research seeks to understand phenomena in context-specific

settings, rather than manipulating and measuring phenomena of interest.656

While quantitative researchers seek casual determination, prediction, and

generalisation of findings, qualitative researchers seek illumination,

understanding, and extrapolation to similar situations. 657 Due to such

differences,many researchers argue that the term ‘reliability’ and ‘validity’ as

defined for quantitative research should not be applied to the qualitative

paradigm,meaningthatdifferentevaluativecriteriaarerequired.658Lincolnand

Guba, intheirwidelyacceptedwork,suggest ‘trustworthiness’asakeytermin

652NahidGolafshani, 'Understandingreliabilityandvalidity inqualitativeresearch'(2003)8(4)The qualitative report 597; Krippendorff, Klaus, Content analysis: An introduction to itsmethodology(Sage,2004).653Golafshani,aboven652,598.654JeromeKirkandMarcLMiller,Reliabilityandvalidityinqualitativeresearch(Sage,1986).655Golafshani,aboven652,598.656Patton,aboven582.657 Marie C Hoepfl, 'Choosing qualitative research: A primer for technology educationresearchers'(1997)658Marilyn Healy and Chad Perry, 'Comprehensive criteria to judge validity and reliability ofqualitative researchwithin the realism paradigm' (2000) 3(3)Qualitativemarket research:Aninternationaljournal118;CarolineStenbacka, 'Qualitativeresearchrequiresqualityconceptsofitsown'(2001)39(7)Managementdecision551;YvonnaSLincolnandEgonGGuba,Naturalisticinquiry(Sage,1985).

231

evaluating quality of qualitative research. 659 To achieve trustworthiness in

research, fourcriteriamustbeestablished,namely ‘credibility’, ‘transferability’,

‘dependability’,and‘confirmability’,respectively.660

(a)Credibility

The first criterion ‘credibility’ is confidence in the truth of findings, which is

equivalent to ‘internal validity’ in quantitative research criteria. According to

LincolnandGuba,qualitativeresearchersseektoensurethat‘thedataspeakto

thefindings.’661LincolnandGubafurthernotethatensuringcredibilityisoneof

themostimportantfactorsinestablishingtrustworthiness.662Severalstrategies

are suggested by researchers to promote credibility in qualitative research,

including(1)thedevelopmentofafamiliaritywiththecultureofparticipants,663

(2) theuseof randomsampling,664(3) triangulation,665(4)peerscrutinyof the

research project, 666 and (5) thick description of the phenomenon under

scrutiny.667

Inthisstudy,theresearcherhasemployedthesixstrategiesabovetobolsterthe

credibilityoftheresearch.First,familiaritywiththecultureoftheThaisecurities

brokerageindustryhadbeendevelopedlongbeforeinterviewstookplace,asthe

researcher has also been an investor in the Thai securities market. The

researcher also gathered, classified, and studied in detail over three hundred

administrative cases relating to brokerage fraud and related violations during

earlystagesofthisstudy.668Also,pilot interviewswiththreesecuritiesbrokers

659LincolnandGuba,aboven658.660Ibid.661Ibid.662Ibid.663David A Erlandson,Doing naturalistic inquiry: A guide tomethods (Sage, 1993); Silverman,David,Doingqualitativeresearch:Apracticalhandbook(SAGEPublicationsLimited,2013).664RoyAPreece,Startingresearch:anintroductiontoacademicresearchanddissertationwriting(PinterPubLimited,1994).665Lincoln and Guba, above n 658; John Brewer and Albert Hunter,Multimethod research: Asynthesisofstyles(SagePublications,Inc,1989).666AndrewKShenton, 'Strategies forensuring trustworthiness inqualitativeresearchprojects'(2004)22(2)Educationforinformation63.667Ibid.668SeedetailsinAppendix3.

232

were conducted before the main interviews took place. Second, the random

sampling strategy is partly employed in this study at the first interviewphase

through the use of snowball sampling technique in the recruitment of second

participantsfromeachsecuritiescompany.

Third, various forms of triangulation are used in the research design of this

study. Triangulation is adopted in this study with the use of documentary

analysis of regulations and cases in the first part added to semi-structured

interviews of the second part. Moreover, triangulation of data sources or

informants isalsoemployed.Viewpointsandexperiencesofsecuritiesbrokers,

regulators, and investors are explored and comparable or vefiriable against

others.Fourth,peerscrutinyoftheprojectisundertakenthroughouttheproject

with the consultation of the research supervisor, the panelmembers, and the

gatekeepersofeachinterviewstage.Theresearcheralsopresentedthefieldwork

report in themid-term reviewpresentationwherequestions andobservations

weremade,helping the researcher refine researchmethodsand strengthening

analysisandargumentsinlightofsuchquestionsandcomments.

Lastly, it isimportantthatthickdescriptionregardingsettings,procedures,and

interaction is provided as it helps to convey the actual issues and situations

under investigation,helping readers todeterminewhether theoverall findings

accurately reflect the data gathered. Detailed descriptions of this study are

providedthroughoutthischapter.

(b)Transferability

Thesecondcriterion, ‘transferability’referstothegeneralisabilityortheextent

towhichthefindingsofonestudyhaveapplicabilityinothercontexts,whichis

equivalent to ‘external validity’ in quantitative research criteria.669Since the

findings of qualitative research are usually specific to a small number of

particular of environments and participating individuals, it is harder to

669SharanBMerriam,Qualitativeresearchandcasestudyapplications ineducation.Revisedandexpandedfrom(ERIC,1998).

233

demonstratethatfindingsandconclusionsareapplicabletoothersituationsand

populations.670Nevertheless, Lincoln and Guba point out that researchers still

have responsibility to ensure that sufficient contextual information about the

projectisprovidedtoenablethereaderstomakejudgmentsaboutthepossible

transferabilityoffindingstoothersettings.671Heretheresearcherhasprovided

contextual information about the project togetherwith detailed description of

lawandrelevantinstitutions,enablingreadersorotherresearcherstodetermine

transferabilityofthefindingstosimilarorfurtherstudiesonsecuritiesoffences

intheThaisecuritiesmarket.

(c)Dependability

The third criterion, ‘dependability’ refers to the quality that the findings are

consistentandcouldberepeatediftheworkweretobeconductedagaininthe

samecontext,withthesamemethods,andwiththesameparticipants,whichis

equivalent to the ‘reliability’ of quantitative research. 672 Nevertheless, the

changing nature of the phenomena scrutinised by the qualitative researchers

oftenrenderssuchrepeatabilityproblematic.673LincolnandGubaarguethatdue

tocloselinkagebetween‘credibility’and‘dependability’,ademonstrationofthe

formerpartlyensuresthelatter.674Inaddition,theresearchprocedureshouldbe

reported in detail, enabling future researchers to repeat the work, if not

necessarilytoachievethesameresults.675Detailedreportingalsoallowsreaders

todevelopanunderstandingofthemethodsandtheireffectiveness.Inthisstudy

ofbrokerage fraudandrelatedviolations, theresearcherhasprovideddetailed

reportinthischapter.

670Bryman,aboven642.671LincolnandGuba,aboven658.672Shenton,aboven666.673Marshall&Rossman,aboven582.674LincolnandGuba,aboven658.675Shenton,aboven666.

234

(d)Confirmability

‘Confirmability’ refers to a degree of neutrality or the extent to which the

findingsof a study are shapedby theparticipants rather than researcherbias,

motivation, or interest. This is equivalent to ‘objectivity’ of quantitative

research.676Strategiestoincrease‘confirmability’ofqualitativeresearchinclude

member-checking and participants’ validation, of which both have been

employed in this study. Some participants have asked to review interview

transcriptsandhaveconfirmedtheircorrectness. Inaddition, initialanalysisof

the findings was discussed with key participants, gatekeepers, and research

panel members. This process confirmed that the analysis was accurate and

sound.

CTheMainInterviewStage

Themaininterviewstageofthisresearchconsistedofthreephasesofinterviews

conducted from October 2013 to August 2014. This section describes the

researcher’sstrategiesandexperienceduringthemaininterviewstages.

1PhaseOne:InterviewofSecuritiesBrokers

The first phase, an interview of 18 securities brokers from nine securities

companies in three categories: commercial bank related, local, and foreign

securitiescompanies.Aftertheresearchethicsapplicationwasapprovedbythe

university,theresearchertravelledtoThailandtopreparefortheinterviewsin

October2013.At thepreparation stage, the researcher first identified targeted

securities companies and made contact with nine potential participants with

assistance of the gatekeeper. Nine interview sessions were scheduled in

November 2013 at times and locations convenient to interviewees. At the

conclusion of each interview, using the snowballing technique, the researcher

asked the interviewees torecommendhisorhercolleagues tobe invited tobe

676Ibid.

235

thesecondparticipantsfromthesamecompany.Ninefurtherinterviewsessions

werescheduledinDecember2013.

Most interview sessions (12 from 18) were scheduled during lunch-breaks at

restaurantsofeachinterviewee’schoice.Sessionslastedapproximatelyonehour

and15minutes.Otherinterviewswereconductedduringtheafternoontrading

period(threesessions)andintheeveningaftertradinghourshadended(three

sessions) at the interviewees’ offices. These sessions lasted around

approximately one hour and45minutes.Of the 18 sessions, 14 sessionswere

fully completed as all main interview questions were asked. The other four

sessionswerecompletedpartiallyduetolackoftime.Notethatallparticipants

wereenthusiasticandgavepositivefeedbackoninterviews.

2PhaseTwo:InterviewofRegulators

The second phase consisted of an interview of senior officers from different

departments of The Office of the Securities and Exchange. Five interview

sessions were scheduled over two days at the Securities and Exchange

Commission building at the end of January 2014. Note that interviews in this

phasewereconductedamidstthe2013-2014Thaipoliticalcrisis.677Onthefirst

day of the interview, three sessions were originally scheduled. However, only

two sessions were completed before the researcher and participating officers

hadtoevacuatethebuildingduetothenewsthatprotestersweremarchingto

shutdownthebuilding.Asaresult, thethirdsessionwaspostponedandthree

sessions were conducted on the second day. Each interview session lasted

approximatelyonehour15minuteswithseveral interruptionsduetoconcerns

aboutthepoliticalsituation.

Interviewquestionsemployedinthefirstphasewereusedagaininthesecondto

compare views and opinions of regulators and brokers on similar issues.

Nevertheless,participatingofficersfoundsomequestionsirrelevantandrefused

677‘Thailand crisis: Protesters launch Bangkok 'shutdown', BBC (online), 13 January 2014<http://www.bbc.com/news/world-asia-25708092>.

236

to give opinions on somematters, such as the internalwork environment and

corporatestructureofsecuritiescompanies.Inaddition,officerswerereluctant

to give answers to questions not directly within their specific departments’

responsibility and referred thequestions to other participants. The researcher

furthernotedthat,unlikeparticipatingbrokersinthefirst interviewphase,the

officersoftenintroducedanddiscussedissuesoutsidethescopeoftheinterview

questions. This is consistent with literature on interviewing elites where the

power-relation in the interview is shifted from the interviewer to the

interviewees holding prominent positions and seeing themselves better

informedontheissuesthantheinterviewer.678

Facing such a situation the researcher adopted strategies suggested in the

literature such as (1) preparation on interview issues and emphasis on the

interviewer credentials, (2) using inconsequential conversation at the start of

thesessiontobreaktheicebetweentheinterviewerandintervieweesandtoset

uptheinterviewstage,(3)turninganinterviewintoadiscussionratherthana

one-sided question-and-answer session, (4) encouraging interviewees to

structuretheirownaccountoftheinterviewsituationandissues,and(5)letting

the interviewee introduce his or her notions of what he or she regards as

relevanttothediscussion, insteadofpresuppositionssetbythe interviewer.679

As a result, a number of main questions not directly relevant to these

intervieweeswereomittedinthesubsequentsessions,aswellasrearrangingthe

order of the remaining questions based on the dynamic of the discussion. The

researcher also let the interviewees lead the discussion and allowed them to

freely talk and express viewpoints on any issue they thought relevant and

beneficialtothestudy.

3PhaseThree:InterviewofInvestors

Thethirdinterviewphasewasaddedtothestudyafterthefieldworkreportwas

presentedattheMay2014seminar.Afterpotentialparticipantswereidentified,

678Dexter,aboven602,50.679Ibid19.

237

theresearchertraveledtoThailandtomakecontactwiththerepresentativesof

the Thai Investors Associationwith the assistance of Dr KanateWangpaichitr,

gatekeeper and main contact for this phase. Interview sessions with three

representatives from the Thai Investors Associationwere scheduled over two

days in August 2014 at the Stock Exchange of Thailand. Each session lasted

approximatelyonehour15minutes.

A similar set of interview questions, with additional questions on the

interviewees’ investing experience, was employed again here to compare the

perception of investors against those of the brokers and the regulators. The

dynamic of the interview was mostly similar to the interview of securities

brokers, inwhich the researcher led the session by asking onemain question

following by several probing questions. Nevertheless, the researcher noted

during interview that, unlike participating brokers and officers, participating

investorsclearlyshowedlackof interest intheinterviewtopic.Withtheuseof

probingquestions,theresearcherfoundthattheparticipants’mainconcernwas

not the legal issue of brokerage fraud and related violations, but rather the

inequality of trading information available to major investors and minor

investorsandthebadmarketsituationatthetimeoftheinterview.

DResearchLimitations

This section discusses limitations of this study. Themost obvious limitation is

thetimeconstraint.Withoutthetimelimitation,thenumbersoftheinterviewees

could be greater and the length of the conversation could be longer, thus

increasing depth, and strengthening validity and reliability of the study. The

periodinwhichthisstudywasconductedalsoposedanotherlimitation.Firstly,

theinterviewofregulatorsinthesecondphasewasconductedinthemiddleof

theThaipoliticalcrisisinwhichtheSECOfficewasoneofthemaintargetsofthe

protestors. This greatly affected the interview settings. The conversation

between the researcher and the officerswas often interrupted andmore than

oftenturnedtothetopicoftheongoingcrisis.Oneinterviewsessionalsohadto

be re-scheduled due to the SEC Office’s immediate evacuation order as the

238

protestorsweremarchingtooccupythebuilding.Secondly,astheliberalisation

oftheThaibrokerageindustrytookeffect inJanuary2012,changesintheThai

brokerage industrywerestill takingshapeat the time the firstand thesecond

phases of interviewswere conducted (November2013 to January2014). Both

the participating brokers and regulators expressed their uncertainty on the

effect of such liberalisation on the industry. Therefore the hypothesis that the

liberalisation of the brokerage industry has affected the securities brokers’

working behaviour and the occurrence of brokerage fraud may have been

somewhatprematuretotest.

Another limitation lies in the research design itself. Since there is no prior

research employing the theory of the Fraud Triangle to directly examine low-

level brokerage fraud, as well as the fact that there are few studies on fraud

factors in Thai organisations with none focusing on securities brokerage

companies, this research is ground-breaking and exploratory in nature. As a

result, pressure, opportunity and rationalisation factors leading to the

commissionofbrokeragefraudidentifiedfromthelimitednumberofinterviews

are unlikely to be conclusive. Beyond this pioneering initial study, further

research, particularly quantitative research, is welcome to further identify

additionalfactorsandtotestfortheirinfluence.

The next limitation lies in selection of participants for this study. Since the

researcherwantstoobtainawiderangeofqualitativedata,securitiesbrokersin

differentpositions(novicebrokers,experiencedbrokers,andteamleaders)and

remuneration schemes (fixed and incentive) were chosen as participants in

interviewPhaseOne. Further studies focusingonbrokers in specificpositions,

and/or in a remuneration scheme, could providemore in-depth data andmay

identify additional and more specific fraud factors associated with specific

groups of brokers. Also, selection of participants in the additional investor

interview in Phase Three was made with time, resource, and expertise

constraints.Due to thediversebodyof investors in theThai securitiesmarket,

quantitative researchusingquestionnaires could also supplement the in-depth

239

interviewemployedhere.Without such constraints, triangulation research can

beconductedtoobtainmorecompletedatafromtheinvestors’perspective.

A final limitation to mention lies in the language barrier associated with the

translationoftheinterviewtranscripts.SinceallintervieweesareThai,andtheir

English proficiencywas not fluent, all interviewswere conducted in Thai and

transcriptswere later translated intoEnglish.Although the researcherand the

translating assistant made every effort to retain the tone andmeaning of the

conversation,translationsmaynotcapturethewholemeaningofdataobtained

frominterviewees.

IIFindingsfromtheEmpiricalResearch

Thesecondpartofthischapterisadiscussiononthefindingsfromtheempirical

research. The data analysis technique employed in this study is first reviewed

followed by detailed findings from the three interview stages. The section

concludes with a comparison of findings and a brief discussion on their

regulatoryimplications.

ADataAnalysisTechnique

The qualitative data analysis method of this study is a thematic analysis,

conducted with assistance of NVivo qualitative analysis computer software.

Thematicanalysisisdefinedas ‘aprocessofencodingqualitativeinformation’.680

Themethod emphasises identifying, examining, and recording patternswithin

the data, which describe a phenomenon and/or associated with a specific

question.681These patterns or themes thus become the categories for analysis.

Theanalysisisusuallyperformedthroughcoding,whichinvolvesidentifyingand

recordingpassagesoftextthatexemplifysimilartheoreticalordescriptiveideas.

680 Richard E Boyatzis, Transforming qualitative information: Thematic analysis and codedevelopment(Sage,1998).681Virginia Braun and Victoria Clarke, 'Using thematic analysis in psychology' (2006) 3(2)Qualitativeresearchinpsychology77.

240

Thepassageswithsimilar ideasare thenput ingroupsandaname isgiven to

eachgroup,knownasacode.682Theuseofcodesenablestwoformsofanalysis.

Firstly, it establishes amethod ofmanaging qualitative data, thus enables the

researchertoexaminethedatainastructuredway.Secondly,thelistsofcodes,

especiallywhendeveloped intoahierarchy, canbesystematicallyemployed to

examine further analytic questions such as relationships between the themes

and to conduct case-by-case comparisons.683The accepted process of thematic

analysis consists six phases which are (1) familiarisation with data, (2)

generating initial codes, (3) searching for themes among codes, (4) reviewing

themes,(5)definingandnamingthemes,and(6)producingthefinalreport.684

Inthisstudy,theresearcherstartedtheanalysisprocessbycreatinginitialcodes

basedoncorecomponentsoftherevisedFraudTriangleModelsuchaspressure,

opportunity, rationalisation, and societal factors. Codes in response to certain

predeterminedinterviewquestionswerealsocreatedatthisearlystage,suchas

reprimand, suspensionof licence, and revocationof licence. The researcher next

readthroughtheinterviewtranscriptsseveraltimesthen,usingNVivosoftware,

codedpassagesoftextthatexemplifiedinformationand/orideasrelatingtothe

initialcodes.Duringthefirstroundofcoding,anumberofadditionalcodeswere

developedbasedonnewthemesthatappearedintranscripts.Examplesofthese

codesare sourcesof income andoccupationalmobility. Codingand re-codingof

thetranscriptswereconductedseveraltimestoensurethecompletenessandthe

reliability of the data. At the middle stage, codes and datasets were further

refined and categorised into a hierarchy. A number of smaller codes were

createdtodividelargedatasetsintosmallerunitsforanalyticalpurpose.Lastly,

theresearcherattemptedtoconnectand/orcomparegroupsofcodesinvarious

hierarchies to create overarching themes that explained studied phenomena

and/orprovidedanswerstoquestionsofthisresearch.

682GrahamRGibbs,Analysingqualitativedata(Sage,2008).683Ibid.684BraunandClarke,aboven681.

241

Figure17:CodingDiagramme

BFindingsfromtheFirstInterviewPhase:SecuritiesBrokers

1GeneralData

(a)JobDescriptions

Thirteenparticipatingbrokersreportedtheirmainjobdescriptioninvolving:(1)

finding new clients, (2) looking after the interests of existing clients, and (3)

putting in tradingorders for clientswhohold traditional accounts and solving

any problem in the Internet trading system for clients who hold Internet

accounts.Infindingnewclients,theusualmethodsare(1)recruitingfriendsor

familymemberstoopennewtradingaccounts,(2)recruitinginvestorsattending

investmentfairsorseminars,and(3)gettingnewclientsonrecommendationof

existing clients. Note that participants working for commercial bank-related

242

securities companies exclusively reported they could also find new clients by

engaging in cold-calling potential clients from client databases provided by

parentorrelatedcommercialbanks.

Amongfiveparticipatingteamleaders,fourreportedhavingtheirownpersonal

clients, and their main tasks were similar to other brokers with additional

responsibilities in managing the team. One team leader, on the other hand,

reportedthatshedidnothaveherownclients.Heronlytasksweretofindnew

clients for theteamandtomanagetheteam. Inmanagingtheteamofbrokers,

the team leaders have various roles including: (1)making sure that the team

reachesmonthlytradingtargetssetbythecompanyandearnsenoughtocover

allworkingexpenses,(2)findingnewclientsfortheteam,(3)providingtraining

andgivingadvicetonewteammembersonbothtradingtechnicalitiesandclient

service standards, (4) co-signing important documents, (5) approving new

tradingaccounts,(6)makingsurethatteammembersfollowcompanyrulesand

regulations,(7)monitoringteammembers’conduct,(8)attendingmeetingswith

executives,and(9)fixinganyproblemwiththetradingsystem.

Note that team leadershavedifferent styles inmanaging teamsand regulating

team members’ conduct. Some are hands-on by taking their monitoring role

seriously, whereas others have taken an arm’s-length approach and leave

regulatoryresponsibilitytothecompliancedepartment:

‘Iwouldlookcloselyhowheworks,monitoringhimclosely.Imightneedtocheckallhis

activitiesduring thedays.Howmanyclientshavehecalled?Hasherecordedall trading

orders? Imightaskhimtogivemeareportat theendof thedayeveryday forawhile.’

(L2A,TeamLeader,LocalSecuritiesCompany)

(b)TeamStructuresandRelationships

Allparticipatingbrokersreportedsimilarworkingstructures,althoughnamesof

positionsaresomewhatdifferentamongfirms.Undercurrentregulation,aretail

team at head officemust have at least five brokers including the team leader,

whereasateamatabranchofficemusthaveatleastthreemembers.Thus,Thai

243

securitiesbrokersalwaysworktogetherasateam.Sixparticipantsreportedthat

their teams actually worked together as a teamwith information sharing and

divisionsoflabourbasedonexperienceandexpertise,whereastheothertwelve

participantsreportedthattheteamstructurewasjustaformality,aseachbroker

workedaloneandonlytookcareofhisorherownclients:

‘Itisquiteironicthatalthoughwesayitisa‘team’,werarelyworkasone.Itismorelike

anindividualjob.Everythingisbasedontradingvolumeandcommissionfeeswegenerate

for thecompany. Ifwehavespecialnewsor information,werarelysharethatwitheach

othersinceweneedtosavethatforourownclients.Yes,theteamsystemcanbebetter.

There could bemore group tasks or activities but I do not thinkmy team leader cares

muchaboutthat.’(F3B,Broker,ForeignSecuritiesCompany)

Onissuesofworkatmosphere,allbutoneparticipantreportedbeinghappywith

thework atmosphere in their current teams. Five participantsmentioned that

theyhadbeen inabadworkingenvironmentbeforeandultimatelydecided to

leavetoanewcompany.Thebadatmospheretheymentionedwasintheformof

competitive colleagues, very ambitious team leaders, being taken advantage of

byteamleaders,andexperiencingalackofsupportfromthebackoffice.

Asfortherelationshipwithintheteam,allbutoneparticipantreportedthatthey

hadagoodrelationshipwiththeircolleagues.Theycontendedthatcolleaguesin

the same teamwere alwayshelpful and stuck together.Theydidnot see their

colleaguesascompetitorssinceeachhadtheirownclientsandstrictlyrefrained

from interferingwitheachother’s clientsunless theywererequested todoso,

suchaswhenonewassickorwasonaholiday.Fourparticipantswentsofaras

tosaythat theysawtheircolleaguesas their familysincetheywereveryclose

andhadbeenworkingtogetherforalongtime.Forexample:

‘We have been together since the day we started 8 years ago and moved through 3

companiestogether.SoIwouldsayweknoweachotherverywellandhelpeachotherin

thecourseofwork.Ihavenoneedtofearthatmycolleagueswouldtakemyclientsaway,

unlikefromwhatIhaveheardfrommyfriendsinotherteams.Wearelikefamilyactually.’

(L1A,Broker,LocalSecuritiesCompany)

244

As for the relationship between team members and the team leader, all

participating brokers and team leaders stated that, unlike a normal corporate

structure,teamleadersdidnothavepowertoissueanyorder.Teamleadersin

securities companies were viewed more as mentors or advisors to less

experienced team members. From thirteen participating brokers, eight had a

close and informal relationshipwith their team leaderwhereas the other five

participantshadanarm’s-lengthandformalrelationshipwiththeirteamleader.

Manyparticipantscontendedthatthecharacteroftheteamleaderwasthemost

important factor dictating the team’s working culture. Understanding and fair

team leaders helped to create a goodwork atmospherewhere teammembers

feltsecuredandwerehappywiththeirwork.Ontheotherhand,risk-takingand

ambitious team leaders put pressure on teammembers to reach high trading-

volume targets, which in turn led to the teams’ competitiveworkingmethods

and atmosphere. It should be noted that one participant reported that hewas

havingabadrelationshipwithhisteamleader.Heclaimedthathisteamleader

wastrickyandhadbeentakingadvantageofhimbyassigningtheteamleader’s

clientswiththebrokertomanagebutstillaskedforashareofcommissionfees

fromtradesmadebythoseclients.Theperceivedinjusticewasdescribedinthis

way:

‘Well, in principle, he has a duty to support all teammembers. But in reality,my team

leader has his own clients so he gets both salary and his share of commission fees. He

earnstwofold.Heisalsotakingadvantageofusbyputtingsomeofhisclientswithusand

demandsus to sharewithhim largepercentages of a share of commission feeswe get.’

(F3B,Broker,ForeignSecuritiesCompany)

(c)Earnings

Anearlysectionof the interview inquired into theremunerationstructureand

earningssatisfactionofparticipatingbrokers.Theparticipantsconfirmedthat,in

thecurrentsystem,thereweretworemunerationschemesforbrokersandteam

leaders:fixedsalaryandincentiveschemes.Asforteamleaders,theparticipants

asserted thatmostwere in the incentive scheme inwhich theymanaged their

teamsaswellastakingcareoftheirownpersonalclients.Theincentive-scheme

245

leaders, therefore, earned threefold:a fixedsalary, a shareof commission fees,

andateammanagementfee.Ontheotherhand,asmallnumberoffixed-salary

teamleadersdidnothavetheirownclients.Theyonlyearntheirsalaryandteam

management fees. Nevertheless, the amount of salary for fixed-salary team

leaderswashigherthantheincentive-schemeteamleaders.

Other than the fixed salary, the share of commission fees and the team

management fees, brokersmay also earn income from two other sources. The

firstsourceofadditionalincomeisfromthesaleofmutualfundunitstoclients

where sellers get a certain amount of fees. Nevertheless, many participants

reportedthat theypreferrednot todoso,unless forcedby thecompanies.The

secondsourceofincomeistheprofitgainedfromstocktradingforthemselves,

whichcanbe legalor illegaldependingonwhether thebrokershavecomplied

withallregulationsrelatingtothematter.685Onebrokerreflected:

‘My income is from a fixed salary plus a share of commission fees that clients paid to

securities companies. So it isverymuchbasedon themarket condition. If themarket is

goodandmanyclientsengageintrade,wewillhavehighincome.Ourclientsaretheone

givingusourtradingvolume.Whetherornotwewouldearnenoughmoneyforalivingis

exclusiveduetothem.’(L1A,Broker,LocalSecuritiesCompany)

Whendiscussingtheearningtheme,twofurtherprobingquestionswereasked:

income satisfaction based on current lifestyle and future plans, and income

satisfactionbasedoncurrentresponsibility.Onthefirstquestion,fromthirteen

participating brokers, eight participants reported to be satisfied with their

current level of income relative to their current lifestyle and future plans.

Reasonsgivenbytheparticipantsincluded:(1)heorshewasgoodatpersonal

financialplanning,(2)heorshethoughtthatreceiving15,000baht/monthwhen

themarketwasverybadwasnotsobad,(3)heorsheknewthatonehadtosave

whenthemarketwasgoodandspendthesavingswhenthemarketwasbad.On

theotherhand, fiveparticipatingbrokersreportedtobedissatisfiedrelativeto

desiredlifestyleandfutureplans.Reasonsgivenincluded:(1)heorshebelieved

thattheceilingrateforfixedsalarywastoolow(15,000baht/month),(2)heor685SeedetailsinChapter3.

246

shethoughtthatincomedependedtoomuchonthemarketcondition,andluck

onthepartofclients, (3)heorshewasworriedthat incomefluctuatedwidely

andfoundthatitwashardtodolong-termfinancialplanning.

From five participating team leaders, all reported to be satisfied with their

incomebasedonthecurrentlifestyleandfutureplan,reasonsgivenincluded(1)

heorshewashavingstableincomeduetolargenumbersofpersonalclients,(2)

heorshewasrealisticwithpersonalgoalsandknewownlimitations,and(3)he

or she earned on averagemuchmore than his or her friendswhowere doing

otherjobsandreceivedonlyfixedsalary.

On the second question about the income satisfaction relative to level of

responsibility, from thirteen participating team members, eleven participants

reportedtobesatisfied.Reasonsgivenincluded:(1)heorshehadtoworkfrom

10amto4.30pmonly,(2)heorshecouldmanagehisorherownworkroutine,

(3)heorshehadonlyfewmajorclientsand,thus,hadalotoffreetime,(4)heor

she lovedmaking clients gain profits and be happy, (5) he or she had lighter

workloadthanfriendsworkinginotherindustries.Twounsatisfiedparticipants

gave reasons that: (1) they thought the risks involvedwere toohigh, (2) there

were toomany rules and regulations to complywith, and, (3) therewere too

manytrickyclients.Fromfiveparticipatingteamleaders,fourparticipantswere

satisfiedwith incomebased on the level of responsibility. Reasons givenwere

similar to those of the team members. The only team leader that was not

satisfied with her income was also the only one that was on a fixed-salary

scheme. She complained that she had to pay for marketing and promotional

expenses fromherownpocket, andwould like tohavemoresupport fromthe

company.

(d)OccupationalMobility

On the issue of occupational mobility, two probing interview questions were

asked.The first inquired intodifficulty of brokers and team leaders inmoving

from one securities company to another. From 13 participating brokers, two

247

reportedthatitwaseasyforthem.Onestatedthatheorshehadonlytwomain

clientsandbothwerecertaintomovewithhim.Anotherparticipantstatedthat

heorshehadmoved twicealreadyandcouldalwaysguarantee thenumberof

clientsandtradingvolumethatwouldaccompanyher.Oneparticipantratedthat

it is moderately hard to move to another securities company. She stated that

Thai clients tended to stick to their brokers and she had moved a few times

already. Nevertheless, she has lost a number of clients in themoving process,

resulting inunnecessary lossesof income.Tenparticipantsexpressed that it is

hardforthemtomovetoanothercompanyandwouldliketorefrainfromdoing

so if possible. The reasons given include: (1) they did not think they could

persuadetheirclientstomovewiththem,(2)theydidnotwanttostartoverand

havetofindnewclientsagain,(3)theybelievedthatclientswereattachedtothe

brandsofthecompaniesmorethantoindividualbrokers,(4)theyneededtopay

damagestotheexistingcompaniesforthebreachoftheiremploymentcontracts,

and (5) they contended that brokers normally moved as a team, not as

individuals:

‘It’sdifficulttomovetoanothercompany.Themostdifficultpartistogetyourclientsto

switchtothenewcompanywithyou.Also,brokersnormallymovetoanewcompanyasa

team,notindividually.’(B2B,Broker,CommercialBankRelatedSecuritiesCompany)

Fiveteamleadersweregiventhesamequestions.Onestatedthatitwaseasyfor

themtomovesincetheycouldguaranteethattheirteamandclientswouldmove

withthem.Twoparticipantsrespondedthatitwasmoderatelyhardforthemto

doso.Bothsaid that itwaseasy for themtomovealonebuthard tomove the

wholeteamwiththem.Thelasttwoteamleadersreflectedthatitwashardfor

themtomovesincetheydidnotthinkthemajorityoftheirteammembersand

clientswouldmovewiththem.

The secondprobingquestion inquired into thedifficulty facedbyparticipating

brokersandteamleaders in leavingthebrokerage industryandstartinganew

career.Fromalleighteenparticipants,onlytwoparticipantsclaimedthatitwas

easy for them to start a new career.On the opposite side, sixteenparticipants

248

responded that it was difficult for them to leave the industry due to a

combinationofthesereasons:(1)theybelievedtheyweretoooldtostartanew

career, (2) theybelieved that the experience gained as brokerswasnot useful

andvaluabletootherindustries,(3)theydidnothaveenoughcapitaltobefull-

time investors, (4) theydidnothaveknowledgeand capital to start theirown

business,(5)theylovedthefreetimeandthelifestyleofasecuritiesbroker,and

(6) they felt guilty to leave existing clients to other brokers. Guilt felt at the

thoughtofleavingclientswasexpressedthisway:

‘Ihavetakencareofmyclientsforalongtime.IfeelIhavemydutytothem.Iwanttobe

withthemaslongasIcanandespeciallywiththosewhomovewithme.Toquitandleave

themwith other brokers, Iwould feel very guilty. It’s not only aboutme. It’s aboutmy

clients too. Itwouldbe veryhard forme toquit this job.’ (L2B,Broker, Local Securities

Company)

2GeneralPressureFactors

Throughout the interview,main and probing questionswere asked to inquire

intodifferent typesofpressurebornebysecuritiesbrokers,whichmay leadto

thecommissionofbrokeragefraudandrelatedviolations.Thetypesofgeneral

pressure identified from the interviews were: income pressure, colleague

pressure, team leader pressure, corporate pressure, client pressure, income

fluctuationpressure,andpressurefromtheliberalisationofbrokeragefees.

(a)IncomePressure

All 18 participating brokers agreed that income was the primary source of

pressure in thesecuritiesbrokerage industry.Theparticipantscommented the

current rates of base salary and share of commission fees employed in the

industry were acceptable. Nevertheless, some expressed that they would be

happier if the rateswere to be increased, given thatmost securities company

officeswereinthecitycentreresultinginhighlivingexpenses.Theparticipants

expressedthatsincetheirincomeandworkingperformanceiscloselytiedtothe

stock trading volume made by their clients each month, they were under

249

pressuretoconvincetheirclientstoconductasmanytradeswithashighvolume

as possible while still gaining profits from the transactions. The participants

furtherexplainedthattherewaslesspressurewhenthemarketwasgoodsince

shares prices generallywent up and investorswould investmore resulting in

largenumbersoftradebeingmade.Ontheotherhand,badmarketsituationsput

enormous pressure on securities brokers. During such periods, clients would

turn their shares into cash and refrain from engaging in any trade until the

marketsituationisimproved.Itisveryhardforsecuritiesbrokerstoachieveany

tradingvolumeduringsuchperiodseventhoughtheystillhavetheneedtoearn

enoughtocovertheirbasesalary.

Drawing from different parts of the interviews, fifteen participants identified

their large income fluctuation as the core element of income pressure. Six

participants reported to feel under great pressurewhile nine stated that they

hadwaystocopewithit.Thosewhowereunderpressurestatedthatduetothe

vastdifferenceintheir incomewhenthemarketwasgoodandthemarketwas

bad, it was hard for them to make long-term financial plans for long-term

investmentssuchasbuyingahouseoracarsincetheymaynotbeable topay

installmentseverymonth.Whensuchsituationshappened,theyneededtofinda

loantopayfortheexpenses.Thepressurewasreportedtogreatlyincreasewhen

the bad periods continued for a long time. Accordingly, some participants

expressed their views that income fluctuation was one of the causes of

regulatoryviolationsduetothebrokers’needtoincreasetheirtradingvolumeto

maintain the level of their incomeespeciallywhen themarketwasbad.As for

thosewho could copewith the income fluctuation, theirmain reasonwas that

they couldmanage to save somemoneywhen themarketwasgoodandspent

thatamountwhenthemarketwasbad.Thechallengeoffluctuatingincomewas

describedthiswaybyonebroker:

‘Iwillhavetoadjustmylifestyleallthetimetoreflectthefluctuatingincome.Forexample,

last month I might receive the total income of 50,000 baht, but thismonth I may only

receive the income of 20,000 baht. Thus, it is very difficult to plan my spending. The

fluctuatingincomeandthefactthatIhavetoadjustmyspendingallthetimealwaysmake

meworried.’(B1B,Broker,CommercialBankRelatedSecuritiesCompany)

250

(b)SelfPressure

Eleven participantsmentioned self-pressure in interview. They expressed that

duetothenatureofthejobwhereeachbrokerexclusivelytookcareofhisorher

own clients and earned his or her income from the clients’ stock trading, it

naturally imposed self-pressure upon brokers. They pressured themselves to

findways andmeans to at leastmeetmonthly trading targets and, if possible,

persuadetheirclients to trademoreso theycouldearnmorecommission fees.

Manyparticipantsstatedthattheysettheirpersonalgoalsandtriedtocompete

withthemselvesbyworkingharderinordertogivebetterrecommendationsto

theirclients.

(c)ColleaguePressure

Oneprobingquestion inquired intopressurecolleagues inthesameteamor in

differentteamsputoneachother.Of18participants,17reportedthattheyhad

not felt any pressure from their colleagues in the same team at all. They

explainedthatasecuritiesbrokerisaveryindividualjob.Eachbrokerhadhisor

her own clients so there was no team activity or direct competition between

colleagues. Most companies also had a policy not to disclose brokers’ trading

volumeorincometoothers.Thuscolleaguesinthesameteamrarelycompared

oneselfagainstothers.Theparticipants furthermaintained that ingood teams,

teammembers always helped each other out and provided support to novice

members.Manyparticipantsstatedthattheysawteammembersastheirfriends

whom they also hung out with after work. One participant who felt pressure

fromcolleaguesadded thathewas ina situationwhereanother teammember

triedtostealhisclients.Hewasveryangryandupset.However,heagreedthatit

wasanabnormalsituationthatrarelyhappened.

(d)TeamLeaderPressure

Team-leader pressure was a theme constantly raised in interview. Several

participantsmentionedhearingofmanyincidentswhereteamleaderswerenot

251

satisfiedwithteamperformanceandputpressureonteammemberstoachieve

higher tradingvolumes.Nevertheless, from13participating teammembers,12

maintained that theywerehappywith current team leaders andhadnotbeen

excessivelypressuredtoincreasetheirvolume:

‘Myteamleader isverynice.ShewillaskfromtimetotimewhetherImeetmymonthly

target yet, but won’t put pressure onme. She knows I have triedmy best already. For

otherteams,Ihaveheardthatsometeamleadersareverystrictandalwaysputpressure

on their team members to perform better.’ (B2B, Broker, Commercial Bank Related

SecuritiesCompany)

Fromtheconversationswithfiveteamleaders,allofthemclaimedthatwhenthe

marketwasbadandtheteam’stradingvolumewaslow,theywouldratherput

pressureonthemselves toworkharderand findmorenewclients,rather than

imposingmorepressureontheirteammembers.

(e)CorporatePressure

One probing question inquired into the level of pressure that securities

companies impose upon securities brokers. All thirteen teammembers agreed

that they had not faced direct and excessive pressure from their employing

companies since they only had to achieve adequate volume to cover their

monthly salary. Itwasonlywhen they couldnot cover the salary for a certain

periodthatthecompanieswouldstartputtingpressureonthem.

On the contrary, the five participating team leaders answered that their

companiesdidpressurethemtoachievehigherteamtradingvolumesfromtime

totime.Itwasuptothemwhethertofollowsuchinstructionsandhowtoreach

thenewtargets.Nevertheless,allteamleadersclaimedthat,iftheybelievedthat

their team members had already done their best, they would not put more

pressureonthemembers,butratheronthemselvestofindwaystomeetthenew

targetssetbythecompanies.

252

(f)ClientPressure

From18participatingbrokers,17mentionedthroughoutinterviewthattheyhad

experienceddifferent formsofpressure imposedby theirclients.Note that the

onlyparticipantwhodidnotmentionclientpressurewasanovicebrokerwho

had less thanoneyearofexperience.Theparticipantscomplained that today’s

clientshadveryhighbargainingpowersincetheycouldeasilyaskforachange

from one broker to another or open trading accountswithmultiple securities

companies. Thai securities brokers, therefore, had to do everything to please

their existing clients in order to retain them and persuade them to engage in

larger volume of trade. Examples given by the participants included executing

trades inthewaysthatdidnot fullycomplywiththeregulationsand/orgiving

extra services outside the normal scope of brokerage service, such as booking

concerttickets,pickingtheclients’childrenfromschools,doingreportsfortheir

studies,etc.Forexample,onebrokerlamented:

‘It is impossibletochange.Ifmyclientsdon’twanttochangethewaytheycommunicate

withme,howcanI?CustomerisGod.Clientscanalwaysswitchtoanewbrokeriftheyare

unhappywiththeexistingones.IfIdon’tcommunicatewiththemthewaytheywantto,or

ifIhavetoomanyrequirements,theycaneasilyswitchtoanewbrokerandIwilllosemy

clients.’(B1A,TeamLeader,CommercialBankRelatedSecuritiesCompany)

Themajorityofparticipantsalsocomplainedthattheyhadsufferedfromtricky

clients who tried to take advantage of them. The most frequent incidents

mentionedduringtheinterviewswerewhereclientsinsistedonmakingtrading

orders via the brokers’ mobile phones. Since the orders were not properly

recorded,ifthetradesresultedinlosses,theclientswouldsaythattheydidnot

makesuchordersandthatthebrokershadengagedinthetradesontheirown.

Severalparticipantsfurtherexplainedthattheyhadtriedtoasktheirclientsto

call the office lines instead so that the orders could be properly recorded.

However,theirclientsrefusedtodosoandtheydidnothaveotherchoicesbutto

accept the risky practice since they did not want to lose the clients to other

brokersorothersecuritiescompanies.

253

3SocietalFactors

As the Fraud Triangle model was originally developed in the United States

contextandlaterstudies686haveidentifiedthatthemodelmaynotofferthebest

explanationofthecausesoffraudindifferentculturalsettings,oneofthemain

objectivesof theempiricalpartof thisstudywas, therefore, to identifysociety-

level cultural factors specific to Thailand and/or the Thai brokerage industry

that could have an impact on the perception and the commission of the focus

brokerage offences by Thai securities brokers. From the interviews with

eighteen securities brokers, two societal-level factors,which vastly differ from

thosepresent in theUnited States,weredistinctly identified.Theses are: (1) a

close personal relationship between brokers and clients and (2) brokers’

goodwilltowardtheirclients.

As for relationships betweenbrokers and clients, it couldbe gleaned from the

interviews that Thai securities brokers usually have a very close relationship

with their clients and many brokers see their long-time clients as personal

friends. This is in contrast to the relationship between brokers and clients in

moredevelopedmarkets,especiallyintheUnitedStates,wherebrokersusually

haveonlybasicknowledgeoftheirclientsandmayhavenevermettheirclients

in person.687The US situation is clearly reflected by the Financial Industry

RegulatoryAuthority(FINRA)’s688recentemphasisontheKnowYourCustomer

Rule (KYC), which required US securities firms and brokers to obtain clients’

essential factsand investmentobjectives in regard toopeningandmaintaining

alltradingaccounts;689aproblemordeficitrarelyseeninThailand.

Accordingtoparticipants,Thaisecuritiesbrokershavecloserelationshipswith

clients and such relationships often extend beyond professional boundaries.

Manyparticipantsstatedthattheyconsideredtheirclientsastheirfriendswho

686Cieslewicz,aboven24.687Stonemanetal,aboven6.688The Financial Industry Regulatory Authority (FINRA) is aself-regulatory organisation thatregulatesallsecuritiesfirmsandbrokersintheUnitedStates.689FINRARule2090,effectiveJuly9,2012.

254

theycouldtalktoandspendtimewithoutsidework.Theyalsosenttheirclients

giftsonbirthdaysandspecialoccasions,aswellasattendedpersonalceremonies

suchasweddingsandfunerals.Severalparticipantsaddedthattheyhadavery

specialrelationshipwiththeirmajorclients.Theysawthemselvesasjuniorsand

paidrespecttotheclientsliketheywoulddototheirseniorfamilymembers.At

thesametime,theclientskindlytreatedthemasyoungmembersofthefamily,

bygivingadvice,connections,andsometimesfinancialassistance.Basedonsuch

close personal relationships between brokers and clients, several participants

further stated that they would go out of their way to find ways to generate

profits and give better services for their clients, which sometimes include

violating minor regulations for the clients’ benefit or for convenience. This

relationshipwasdiscussedbyaparticipantinthisway:

‘Ialwaystakethebestgoodcareofmyclients.Trustisthemostimportantinthisindustry.

Ithinkyouknow.ForThaipeople,whenwetrustsomeone,theybecomeourfriendsand

thingsbecomemorepersonal.Itreatmyclientswhoareofthesameageornotmuchmore

thanmeasmy friends. I sometimescall themtosayhior talk to themaboutsomething

else outside trading. It’s good to know themwell andmake them feel comfortable. For

thoseolderthanmeandthosewhoaremajortraders,IactlikeIamtheiryoungrelatives

whocareaboutthemandgivethemrespect.It’simportanttoremembertheirbirthdays.I

always have birthday gifts formy clients aswell as gifts for special occasions likeNew

Year and Thai New Year.’ (B3A, Team Leader, Commercial Bank Related Securities

Company)

ThenatureoftherelationshipbetweenThaisecuritiesbrokersandclientsstated

above is consistent with the general character of Thai society postulated by

sociologistsas‘anaffiliatesocietyinwhichpeoplegreatlydependuponeachother

andthusfindsecurityindependenceandpatronageratherthanindividualism’.690

Barton Sensenig also conceptualised the basic drive of Thais as the need to

establishextensivenetworksofpersonalrelationshipsbasedonfriendship,love,

warmth,andsocialacceptance.691Duetosuchneeds,feelingsaregenerallymore

important than reasons, which tend to result in low self-discipline among the690NielsMulder, InsideThai society:Religion,everyday life, change (SilkwormBooks, 2000) 51;Sensenig, Barton, 'Socialization and personality in Thailand' (1975) 8 Journal of DevelopingSocieties109.691Mulder,aboven690.

255

Thais.692The influential cross-cultural studies conducted by Geert Hofstede,

where six dimensionsof nationalculture are identified and scored relative to

othercountries, furtherconfirmed thecollectivistnatureof theThaisociety.693

On the dimension of Individualism vs. Collectivism (IDV), Thailand obtains a

scoreof20,comparedto91fortheUnitedStates.694Thelowscoreof20reflects

thatThailandhasmoreofacollectivistculturewhereloyaltytothemembersof

the in-group is paramount, and overrides most other societal rules and

regulations. The study also points out that personal relationships are key to

conducting business in Thailand and it often takes time and patience to build

successfulbusinessrelationships.

In a more specific study of work-related values in Thailand, Suntaree Komin

identifiedninevalueorientationsoftheThaisbasedontwonationwidesurveys

conducted in the 1980’s.695The two orientationsmost related to the personal

rather the professional relationship between Thai securities brokers and their

clients found in this studyare (1) thegrateful relationshiporientationand (2)

theflexibilityandadjustmentorientation,respectively.Thegratefulrelationship

orientationischaracterisedbythehighpresenceofgratefulfeelingor‘bunkhun’

betweentwopersons:onewhorenders thehelpoutofkindnessandtheother

who receives such help. The latter would always remember and be ready to

reciprocate the kindness given whenever he or she can. 696 Secondly, the

flexibilityandadjustmentorientationreferstothegeneralcharacteroftheThais

who are more situation-oriented rather than principle-oriented or system-

oriented.697As the Thais are situation-oriented, decision-shifting behavior is

692Ibid.693SixdimensionsofnationalculturalproposedbyGeertHofstedeare(1)powerdistanceindex(PDI), (2) individualism vs. collectivism (IDV), (3) uncertainty avoidance index (UAI), (4)masculinityvs.femininity(MAS),(5)long-termorientationvs.short-termorientation(LTO),and(6) indulgence vs. restraint (IND). – Seee, Geert Hofstede, 'Dimensionalizing cultures: TheHofstedemodelincontext'(2011)2(1)Onlinereadingsinpsychologyandculture8.694GeertHofstede,Thailand<http://geert-hofstede.com/thailand.html>.695Nine value orientations identified and ranked according to their relative importance fromhigh to low are (1) ego orientation, (2) grateful relationship orientation, (3) smoothinterpersonal relationship orientation, (4) flexibility and Adjustment orientation., (5) religio-psychical orientation, (6) education and competence orientation, (7) interdependenceorientation,(8)fun-pleasureorientation,and(9)achievement-taskorientation:Komin,aboven572.696Ibid.697Ibid.

256

commonandthemotivatingfactorismorethanoftenthepersonalrelationship

and the situation over the principle and the system. In the context of the

relationshipbetweentheThaibrokersandtheirclients, itcanbeinferredfrom

theinterviewsthatitisnotunusualforthebrokerstofeelgratefultowardstheir

clients, especially towards the major ones, and many would voluntarily take

risksinviolatingcertainrulesforclients’benefit.

The other societal factor particular to Thailand and/or the Thai brokerage

industry that appears frequently during the interviews with the participating

brokers is the goodwill that the brokers have for their clients. A number of

participantsreportedthattheyoftenfeltpersonallyresponsiblefortheirclients’

interestsandwouldliketoseetheirclientsobtainingasmanyprofitsaspossible.

They stated that they sometimes did trade beyond or contrary to the clients’

instructionssincetheybelievedtheycoulddobetterfortheirclients.Anumber

ofparticipantsstatedthattheyvoluntarilyviolatedtheruleprohibitingbrokers

from making trading decision for their clients with good intentions. They

explainedthattheyknewtheirclients’tradingpatternswellsotheyoftenputin

tradingordersbasedonsuchpatternsevenwithouttheclients’instruction.They

assertedthattheyknewthatitwasagainsttherulebuttheywouldfeelguiltyif

theylettheopportunitiespassandiftheymissedtheopportunitytoprovidethe

bestservicetotheirclients.Thepresenceofthisgoodwilltowardsothersamong

theThaisiswelldocumentedinthecross-culturalmanagementliterature.698The

value characterised by a genuine kindness and generosity without expecting

anythinginreturnisknowninThaias ‘nam-jai’andisoneofthemostadmired

values in Thai culture.699Nevertheless, the strong presence of this local value

mayleadtoconflictswithothervaluessuchascomplianceandprofessionalism,

asinthecontextoftherelationshipbetweenThaibrokersandtheirclientsfound

inthisstudy.Forexample,abrokerreferredto‘nam-jai’inthisway:

‘IthinkitisaspecialcharacteristicofThaibrokers.Iusedtoworkinaforeignsecurities

company.Foreignbrokerswillnotmaketradingdecisionsonbehalfoftheirclients.They698Holmesetal,aboven572;Sriussadaporn,aboven572;AtmiyanandanaandLawler,aboven572;Kitiyadisai,aboven572.699Holmesetal,aboven572.

257

always respect their clients’ instructions and will not do anything without the clients’

instructions,eventhoughtheyknowthattheclientswillbenefitiftheyhadmadecertain

decisionsonbehalfoftheclients.Ontheotherhand,Thaibrokersareusedtothe‘nam-jai’

way of thinking. Sometimes clients have already made their own trading decisions.

However, if thebrokersdisagreeor think thatsuchdecisionscouldbedetrimental,Thai

brokers are likely to keep asking their clients to change their decisions. I think this is a

special characteristic of Thai people. Theywant the clients to get the best, even if such

decisionsareagainsttheclients’instructions.Thus,somebrokersdecidetomaketrading

decisions on behalf of their clients, and are found to commit this offence.’ (B3A, Team

Leader,CommercialBankRelatedSecuritiesCompany)

4SpecificFactorsContributingtotheCommissionofFocusOffences

The participants were asked for their views and opinions on pressure,

opportunity, and rationalisation factors of the four focus offences. Other

importantinformationrelatingtoeachoffenceprovidedbytheparticipantswas

alsocodedandshowninthissection.

(a)TheOffenceofFailingtoProperlyRecordTradingOrders

Difficulty in complying with the voice orders recording regulation was a

recurring theme throughout the interview, and more so than other focus

offencesincludedinthestudy.Althoughalleighteenparticipantsagreedthatit

wasagoodruletoprotectbothbrokersandclients,sincetherecordscouldbe

usedasevidencewhenthereweredisputes,seventeen agreedthatitwasoneof

thehardestregulationstofullycomplywith.Thefirstexplanation,mentionedby

sixteenoftheeighteenparticipants,wasthatclientsnowadaysprefertocallthe

brokers’mobilephonestomaketradingordersinsteadofcallingthesecurities

companies’lineswhereconversationswereproperlyrecorded.Tenparticipants

stated that they had asked their clients to stop calling their mobile phones

withoutmuchsuccessastheclientsrefusedtodoso.

In order to protect themselves and to comply with the regulation, the

participating brokers stated thatwhen the clients called theirmobiles to give

trading instructions, if possible, theywoulduse theoffice lines to call back to

258

recordthevoiceordersbeforeexecutingsuchorders.However,theparticipants

expressedthattheywerenotabletodoso,inmostcases,sincetheyusuallyhad

to take care of many clients at the same time and also stock prices usually

movedtoofast.Iftheywaitedtocallbacktorecordtheorders,theywouldnot

beabletobuyorsellthestocksatthepricestheclientsinstructed.Asaresult,

theyhadtoexecutetheordersfirst, thenattheendoftheday, theycalledthe

clients to confirm and record that they had correctly executed the trading

orders.Tenparticipantscommentedfurtherthattheywerefrustratedthatthe

SECOfficedidnotrecognisevoicerecordsoforderconfirmationasthe‘proper

records’underthecurrentregulation.Theyexpressedthattheywouldlikethe

SECtotakethecurrent industrialpractices intoaccountsandbemore flexible

withtheinterpretationoftheregulation.

The second explanation given by five participants was that they found the

regulation outdated. They claimed that the regulation should be updated to

reflectcurrenttechnologiesandpracticeswherepeoplepreferredcallingmobile

phones than landline telephones aswell as sending orders via textmessages,

emails, or other messaging applications. They suggested that the SEC should

additionallyrecognisevoiceordersrecordedfromtheirmobiledevicesaswell

astextmessagestheclientssenttothempertradinginstructions:

‘This is one of themain problems for a lot of brokers. I think the lawwas drafted long

beforeeveryonehasamobilephone.Fortradingorderstoberecorded,clientswillhaveto

call brokers on a landline’s work number. However, nowadays clients always call their

brokers on the brokers’ mobile phones. Nobody calls each other on their landlines

anymore. 90% of my clients always call me on mymobile phone.’ (B1A, Team Leader,

CommercialBankRelatedSecuritiesCompany)

The third explanation given by three participants for the lack of proper voice

record was that, in many cases, clients had never given actual trading

instructionstobrokers.Theorderswereputinthesystembythebrokerswho

manage investment portfolios for their clients or by thosewho employed the

clients’accountstotradeforthemselves.Asaresult,therecouldbenogenuine

voicerecordofconversationbetweentheclientsandthebrokers:

259

‘It’s all about the income and trading volume. If a brokermakes decisions for clients or

usesaclient’saccountfortheirowntrades,therecannotbealegitrecord.Ortheremight

besomethingbetween thebrokerand theclient thatcannotberecorded, suchas inside

informationoragreementstoengageinsharepricemanipulation.’(F3B,Broker,Foreign

SecuritiesCompany)

After the participants had expressed their general views and opinions on the

offence, they were asked about pressure or motivation factors, opportunity

factors,andrationalisationthattogethermayleadtotheviolationaccordingto

theFraudTriangletheory.Startingwithpressurefactors,factorsmentionedby

the participants, from most to least frequency, were (1) client pressure, (2)

marketpressure,(3)incomepressure,and(4)ideology.

Clientpressurewerereportedbyseventeenparticipantsas themainpressure

leading to theviolationof theregulationasclients insistedoncallingbrokers’

mobiles or sending text messages to give trading instructions. They further

commentedthatalthoughtheyknewthattakingorderswithouthavingproper

voicerecordswasagainsttherule,theyhadnochoicesincemostclientsrefused

tocooperateandtheyfearedthattheywouldlosetheclientsiftheyrefusedto

takesuchorders:

‘Clients always call us viamobile phones andwe can’t deny servicing them right away.

Thisisespeciallytruetomajorclients.Ifwedon’tdoastheyaskandtheyfeelhappy,they

caneasilymovetheiraccountstootherbrokers.Thatwouldhaveaverybadaffectonmy

income and also the company would not be happy with me.’ (F1A, Broker, Foreign

SecuritiesCompany)

Secondly, thirteenparticipants identifiedmarketpressureasanotherpressure

factor leading toviolation.They suggested thatwhen themarketwasgoodor

whencertainstockswerevolatile,theywouldneedtoexecuteordersquicklyfor

thebenefitoftheirclients.Theydidnothaveenoughtimetomakecertainthat

thevoiceorderswereproperlyrecordedornot.

260

The third pressure factor mentioned by seven participants was income

pressure. The participant stated that when trading volume was low, brokers

wouldfeelthepressuretofindwaystoincreasethevolumeinordertomaintain

their status and income level. Two prevalent practices were to unlawfully

manage investment portfolios for clients and to employ client’s accounts to

trade for themselves. When engaging in such unlawful practices, the brokers

could easily raise their trading volume by engaging in larger numbers of

transactionsthantheywouldnormallyget.Nevertheless,sincethebrokerswere

the ones who make such decisions, there could be no genuine voice records

betweentheclientsandthebrokers:

‘Theonlyreasonisthatbrokersneedtogainasmuchvolumeaspossiblesothatwecan

earnmore commission fees. As I said before, the currentmarket is not very active and

brokersneedtoworkhardertomaintaintheirlevelofincome.Thus,sometimesweneed

tomakedecisions forour clientsand thencall themback to confirm theorders. I know

that this practice is risky and against the law, butwe have no choice.Most brokers are

doing thesame thing tomaintain their levelof income.’ (F3A,Broker,ForeignSecurities

Company)

The last factor reported by four participants was an ideology factor. The

participantsadmittedthattheyfoundtheregulationoutdatedanddidnotwell

reflect the current societalpractice.Asa result, theywere less thanwilling to

fullycomplywiththeruleandstatedthattheruleshouldbeupdatedtokeepup

withthechanges.

The interview then asked the participants’ views and opinions on the

opportunity factors in committing the offence of failing to properly record

tradingorders.All eighteenparticipants reported that itwaseasy for them to

committhisoffencewithorwithoutintention.Whenfurtheraskedwhetherthe

violationhappenedoftenornot, sixteengave theiropinions that theviolation

happened often. The participants further commented that the violation

happenedmoreoften latelyasmoreclients insistedoncallingor sending text

messages to the brokers’ mobile phones to make trading orders due to the

growingpopularityofsmartphonesandmessagingapplications.

261

ThelastsideoftheFraudTriangleisrationalisationbytheoffenderstoreduce

their cognitive dissonance.Rationalisations that theparticipants employed, or

believed that other brokers employed, when committing the violation was

extracted from the interview conversations. Itwas found that three groupsof

verbalisation came up frequently during the interview. The first groupwas a

claimthattheregulationwasobsoleteandcouldnotcatchupwithtechnological

advancement and changing industrial practices. The examples of these

rationalisations included: ‘The law needs to be updated to keep up with

technologyandtoreflectthereality’and ‘Brokersarenotatfault.Thelawneeds

tobeamended to reflect currentpractice.’ The second group of rationalisation

suggested a denial of responsibility, in which the participants claimed that

pressurethecircumstancesleftthemnochoicebuttocommittheviolation.The

majorityoftheparticipantsalsoshiftedblametotheirclients,forexample: ‘My

clientssendmeorderstoexecuteviatextandsaythattheyareinmeetings.How

canIcallthemback?’and ‘Ineedtoplaceordersimmediately.It’stoolatetouse

anoffice linetocalltheclientback.’The thirdand last groupof rationalisation

wasanappealtohigherloyalties.Manyparticipantsclaimedthattheyviolated

the regulations for the benefit of their clients. The examples are: ‘I don’t get

anythingfromnotrecording.Idon’thaveanybadintention.Ijusthavetodowhat

myclientsaskmetoandhavetomakethemhappy.’and‘IfIwaittocallthemback

andmissthepricemyclientswant,theywillbeveryunhappy.’

Table27:FactorsLeadingtotheCommissionoftheOffenceofFailingto

ProperlyRecordTradingOrders(SecuritiesBrokers)

PressureFactors -Clientpressure

-Marketpressure

-Incomepressure

-Ideology

OpportunityFactors -Technicallyeasytocommit

-Frequentlyhappens

-EasytodetectbytheSECofficers

Rationalisation -Claimthattheregulationisobsolete

-Denialofresponsibility:shiftingblametoclients

-Appealtohigherloyalties:forthebenefitofclients

262

(b)TheOffenceofMakingTradingDecisionsonBehalfofClients

When asked about the current regulation forbidding securities brokers from

making trading decisions for their clients, sixteen of eighteen participants

agreed that it was a proper rule. They stated concertedly that since the fund

belonged to clients, the clients themselves should be the onewhomade final

decisionsandthebrokersshouldonlyprovideinformationandsuggestions.The

participantsexplainedthatclientsaskedtheirbrokerstomaketradingdecisions

for them due to various reasons including: (1) clients had been with their

brokersforaverylongtimeandtrustthemfully,(2)clientsdidnothavetimeto

followthemarket,(3)clientsfeltthattheydidnothaveadequateknowledgeto

maketradingdecisions,and(4)clientsbelievedthatbrokerscouldmakebetter

tradingdecisionsthantheycould.Thebrokerscommentedthattheywereina

difficult positionwhen their clients asked them tomake trading decisions, as

therewasahighriskinvolved.Theyfurtherexplainedthatwhenthedecisions

resultedinprofits,theclientswouldgladlyacceptthetransactionsthebrokers

made.However,ifsuchdecisionsresultedinlosses,disputescouldeasilyoccur.

Many clients attempted to avoid being responsible for losses by rejecting the

transactionsmade by the brokers and bringing the disputes to the securities

companies and/or the SEC Office on the grounds that they did not give such

trading instructions and that thebrokersmadedecisionson their own,which

wereinbreachoftheregulation:

‘It should be as the rule says. Brokers should only give advice and let clients make

decisionsthemselves.However,someclientsreallytrusttheirbrokersandaskingthemto

maketradingdecisionsontheirbehalf.Itisindeedariskything.Ifthedecisionsareright

andcreateprofits,theclientswillbeveryhappy.Howeverifitresultsinlosses,therewill

alwaysbebigdisputesbetweenthebrokersandtheclients.’(L3B,Broker,LocalSecurities

Company)

Nevertheless, the brokers contended that, even though the risk involved was

taken into account, they found it hard to refuse their clients’ requests. The

reasongivenwas thatmaking tradingdecisions for clientshadnowbecomea

common industrial practice. The participants feared that, if they refused, the

263

clients would be unhappy and would decide to take their business to other

brokerswhoagreetomakesuchdecisionsonbehalfoftheirclientsasapartof

theirnormalservice.Ontheotherhand,twoparticipatingbrokerswhodidnot

agreewiththerulecommentedthatsecuritiesbrokersshouldbeabletomake

trading decisions for their clients if the clients gave prior consent and later

confirmed such transactions. It should be noted that seven from eighteen

participatingbrokersadmittedtomakingtradingdecisionsfortheirclientsfrom

timetotimewhereasfiveadmittedtomakesuchdecisionsontheregularbasis.

Theparticipantswere then asked to identify pressure/motivation factors that

lead to the violation of the regulation. Income pressure, client pressure,

goodwill,marketpressure,andcompanypressurewereidentified,fromhighest

to lowest frequency, respectively. Fourteen participants reported income

pressure as themain source of pressure leading to the violation. They stated

that,sincesecuritiesbrokers’incomereliedheavilyonthetradingvolumethey

hadeachmonth,whentheyhadlowvolumetheyneedtofindwaystoincrease

thevolumetomaintaintheirlevelofincome.Makingtradingdecisionsfortheir

clientswastheeasiestwayforthemtoraisethevolumesincetheycouldengage

in higher numbers of transactions than the clientswouldmake.Nevertheless,

elevenparticipantsclaimedconcertedlythatalthoughthebrokersmightdecide

toengageintransactionstoincreasetheirmonthlyvolume,theyusuallydidso

ingoodfaithandwithgreatcareforthebenefitoftheirclients.Theystatedthat

they had to be very careful and only engaged in transactions thatweremost

likely result in profit, since if the transactions resulted in losses, the clients

would be unhappy and could easily move their trading accounts to other

securitiescompanies:

‘Ithinkthesebrokerswanttoearnmorecommissionfees.Iftheymaketradingdecisions

for their clients, they will be able to buy and sell shares as often as they wish. These

brokerswillbeable togeneratemorevolumeandmeet theirmonthly targetasaresult.

However,itisnotaseasyasitseems.Thebrokerswhochoosetomaketradingdecisions

on behalf of clientswill need tomake sure that they aremaking profits for the clients.

Otherwise, the clientswill complainand thebrokerswill get into trouble.’ (F1B,Broker,

ForeignSecuritiesCompany)

264

The second source of pressure mentioned by twelve brokers was client

pressure.They stated that,during the courseof theirwork, their clientsoften

askedthemasbrokerstomakealltradingdecisionsandtheyfoundthatitwas

hardforthemtorejecttherequestssincetheywereafraidoflosingtheclients

to other brokers who agreed to do so. The third source of pressure or

motivationfactormentionedbytenbrokerswasgoodwillthatbrokershadfor

their clients. They explained that brokers usually knew their clients’ trading

patterns.Ifthebrokerssawachancetomakeaprofit,theymightdecidetoput

in tradingordersbasedon theclients’usual tradingpatternseven though the

clients did not ask them to do so. Several participating brokers further

commented that they considered such practice as a part of good service they

gavetotheirclients.

Thefourthsourceofpressureidentifiedwasmarketpressure.Fiveparticipants

believedthatmakingtradingdecisionsforclientswasnowacommonindustry

practice, and thosewho refused to do sowould be at a disadvantage against

their colleagues who agreed to provide the service to their clients. The last

source of pressure was company pressure identified by one participant. One

broker provided that since the market was bad and most brokers in the

companyhadlowtradingvolume,hiscompanyputpressureonthebrokersby

threateningtoreducetheirsalariesiftheycouldnot increasethevolume.Asa

result,hiscolleaguesandhehadtoconvincetheclientstoletthemmaketrading

decisionssoastoengageinlargernumbersandvolumeoftransactions.

Whenaskedabouttheopportunityfactorsrelatingtocommittingthisviolation,

allparticipantsagreedthatitwastechnicallyeasyforsecuritiesbrokerstomake

trading decisions for clients as they could either log into the Internet trading

system using the IDs and passwords provided by the clients or log into the

system as themselves and had the clients called them to record the trading

instructions. In addition, the participants expressed that it was hard for the

officerstodetectthattheclientsthemselvesdidnotmakethedecisions,unless

voice orders were not properly recorded. When further asked whether the

violation happened frequently or not, thirteen believed that the violation

265

happened very frequently and throughout the industry,whereas five believed

thattheviolationoccurredintermittentlyandonlyincertaincircumstances.The

first group stated that clients always asked their brokers to make trading

decisionsandmostbrokershadtocomplywithsuchrequests,eithervoluntarily

due to the need to increase trading volume, or involuntarily due to

overwhelming pressure. The second group of participants, on the other hand,

believed that the violation only occur from time to time and only in specific

conditions where the relationship between the brokers and the clients were

verycloseandthebrokersagreedtotakesubstantiverisks.Itwasnotedthatall

fiveparticipants in this secondgroupalsomaintained that theyhadnotmade

anytradingdecisionsfortheirclientsatthetimeoftheinterview.

As for rationalisation that the participants employed, or believed that other

brokers employed when making unlawful trading decisions, four groups of

rationalisationwereidentifiedfromtheinterviews.Thefirstthreegroupswere

similar to those employed in the offence of failing to properly record trading

orders,whichare:(1)aclaimthattheregulationwasobsoleteandneedstobe

changed, (2) adenialof responsibilitywhere thebrokers shifted theblame to

theclients,and(3)anappealtohigherloyaltieswherethebrokersclaimedthat

theyviolatedtheregulationsfortheclients’benefitandnotforthemselves.The

fourthandtheadditiongroupofrationalisationwasaclaimthateveryoneelse

inthebusinesswascommittingtheviolationsotheyhadtodothesameinorder

to competewith the others. The examples are: ‘It’sanormalcustomerservice,

everyoneintheindustryprovideit.’and‘Itwouldbehardforanybrokertosurvive

intheindustryifherefusedtodoit.’

Table28:FactorsLeadingtotheCommissionoftheOffenceofMakingTradingDecisionson

BehalfofClients(SecuritiesBrokers)

PressureFactors -Incomepressure

-Clientpressure

-Goodwill

-Marketpressure

-Companypressure

266


-Frequentlyhappens(13)/Intermittentlyhappens

andonlyinspecificcircumstances(5)

-DifficulttodetectbytheSECofficers

Rationalisation -Claimthattheregulationisobsolete

-Denialofresponsibility:shiftingblametoclients


-Claimthateveryoneintheindustryiscommitting

theviolation

(c)TheOffenceofUsingaClient'sAccountfortheBroker'sOwnBenefit

ThebrokerswerenextaskedfortheirviewsandopinionsontheSECregulation

prohibitingsecuritiesbrokersfromusingclients’accountsfortheirownbenefit.

The participant in the very first interview pointed out that there were two

different illegalpracticesthat fallunderthesameregulation.The firstwasthe

useofclients’accountswithouttheclients’permission,andthesecondwasthe

useofsuchaccountswithpermission.Theparticipantstatedthatalthoughboth

practicesweresimilarlyprohibited,intheeyesofsecuritiesbrokers,theywere

verydifferent.Asaresult,interviewquestionswereslightlyalteredandthetwo

practiceswereseparatelyinvestigatedinthelatterinterviewsessions.

The participantswere first asked for their views on the illegal use of clients’

tradingaccountswithouttheclients’permission.Allparticipantsagreedthatit

was wrongful conduct that no brokers should commit. When asked how

securitiesbrokersmightemploytheirclients’accountsfortheirownbenefit,the

participants explained that brokers could technically log into their clients’

accountstoengageintransactionswithouttheclients’knowledge.Indoingso,

the brokerwould obtain higher trading volume similarly towhere theymade

trading decisions on behalf of their clients. Nevertheless, many participants

pointedoutthattheydidnotthinkthewrongdoingwasworththerisksincethe

brokerswouldonlyobtainhighervolumefiguresbutnottheactualprofitfrom

thetrade,whereasthelikelihoodthattheclientswoulddetectirregularitemsin

267

monthlystatementsprovidedbythecompanieswashigh.Asaresult,inrelation

to opportunity factors, all participants reported that it was hard to use the

clients’accountsinsuchmannerandthattheviolationrarelyoccurred.

Whenaskedforpotentialpressurefactorsthatcouldinducebrokerstoengage

in such risky practice, the participants identified incomepressure as the only

potential factor. Itwasnoted thatno rationalisation for thisunlawfulpractice

wasofferedbyintervieweessinceallparticipantsstatedthattheoffenceshould

notbecommittedinanycaseandnoparticipantadmittedtohavingusedtheir

clients’accountswithouttheaccountowners’knowledge.

Table29:FactorsleadingtotheCommissionoftheOffenceofUsingaClient'sAccountforthe

Broker'sOwnBenefitwithouttheAccountOwner’sPermission(SecuritiesBrokers)


OpportunityFactors -Technicallydifficulttocommit

-Rarelyhappens

-Easytodetectbytheclients

Rationalisation -Noneoffered

The researcher next asked the participants about the practice of using the

clients’ accounts with the account owners’ permission. The participants

explained that if securities brokers would like to trade stocks for themselves,

theyhadtofollowspecificrulesandgetpriorapprovalfromtheSECbeforethey

could engage in certain transactions.As a result, itwasnot convenient for the

brokers to use their own accounts, especially if theywould like to buy or sell

volatilestockswherepricesmovedquickly.Manybrokers,therefore,askedtheir

clientsforpermissiontousetheclients’accountstotrade,inordertocircumvent

theregulations.Theparticipantsfurtherexplainedthatthereweretwomethods

ofdoingso.Thefirstwasknownasprofitsharingwherebrokersputfundsinto

the clients’ accounts to trade. If therewereprofits from such transactions, the

brokers would share the profits with the clients. The second was the use of

nominee accountswhere securities brokers asked their friends or their family

268

members to open trading accounts, traditional or Internet accounts, with

securitiescompanies.TheclientsthengaveloginIDsandpasswords,alongwith

ATMcardsthatlinkedtothetradingaccounts,tothebrokers.Thebrokerswould

be able touse suchnominee accounts to trade for themselves via the Internet

tradingsystem:

‘I think it is the caseof brokersusing their clients’ ports to trade anddivide theprofits

between the brokers and the clients. Alternatively, some brokers may open accounts

undertheirfriends’names,butusethebrokers’moneytotrade.Iusedtodothelatter,but

therewerealotofproblems.Itwasverydifficulttolookafterclientsandmanagemyown

port at the same time. So, I stopped trading formyself.’ (B1B,Broker,CommercialBank

RelatedSecuritiesCompany)

Itshouldbenotedthatasmanyaseightfromeighteenparticipatingbrokershad

a misunderstanding on the SEC regulation concerning the use of securities

brokers’tradingaccounts.TheystatedduringtheinterviewthatthecurrentSEC

regulationstrictlyforbadethemfromhavingtheirowntradingaccountsandthat

they could not legally engage in trade for ownprofits.However, the other ten

participants correctly explained that they were allowed to have their own

tradingaccountsbuttherewerestepsthattheyhadtofollowbeforetheycould

engageinstocktrading.

The participants were next asked for their views and opinions on the SEC

regulationsprohibiting suchpractice.Fourteenparticipantsagreedwith itwas

wrongforthebrokerstousetheirclients’accountsfortheirownbenefitwhile

four showed hesitation and asserted that brokers should be able to use their

clients’ accounts if the account owners gave permission. The participantswho

agreed with the rule stated that it was wrong for securities brokers to use

nominee accounts or share tradingprofit arrangementwith their clients. They

pointedout that itwas right for theSEC to requirebrokerswhowould like to

tradeforthemselvestoobtainpriorapprovalfromtheSECsincedoingsowould

createaconflictofinterestbetweenbrokersandclients.Thebrokerswhotrade

forthemselvesweremorelikelytopaymoreattentiontotheirowntradingthan

togivegoodservicestotheirclients:

269

‘Ithinkthisisagoodrule.Ifbrokershavetradingaccounts,theyaremorelikelytofocus

ontheirownaccountsandfail totakegoodcareoftheirclients.Mostbrokersthattrade

forthemselvesaremorelikelytotradevolatilestockstogetquickprofits.Sotheyhaveto

watchthetradingscreenatalltime.Itwouldbeeasytomaketradingvolumeforoneself,

buttheycannotlookaftertheirclients.Theycannotbegoodbrokers.Iftheywouldliketo

tradeforthemselves,itwouldbebetterforthemtoquitandbefulltimeinvestors.’(L2A,

TeamLeader,LocalSecuritiesCompany)

In relation to pressure ormotivation factors leading to the commission of the

violation, the participants identified, from the highest to the lowest frequency,

greed and jealousy, income pressure, ideology, and company pressure as the

potential factors.Thirteenparticipants identifygreedand jealousyas themain

motivatingfactor.Theyexpressedthatwhentheysawtheirclientsearninglarge

profits from trading, based on their advice and recommendations, they felt

jealousandwould like to earn suchprofits too.Threeparticipants agreed that

theyfeltincreasinglybitterwhenthemarketwasbadandtheywerestruggling

to get any trading volume, yet the clients couldmake some profits due to the

brokers’advice.Asaresult,theyfeltentitledtotradeforthemselveseventhough

itwasagainsttheSECregulation:

‘Inthecasewheretheclientsgivepermission,it’sthegreedthatthebrokerswouldliketo

gainprofitssimilartotheirclients.Yes,thisisastrongone.Whenweseeourclientsgain

good profits at the same timewhenwe have our own financial issues. It is such a bad

feeling.Wewant to get that profits soweneed to find accounts to trade.’ (L1A,Broker,

LocalSecuritiesCompany)

Thesecondfactorwasincomepressureasmentionedbysevenparticipants.The

participants explained thatwhen they traded for themselves using the clients’

accounts, they also obtained higher trading volume that would be used to

calculate their shares of commission fees at the end on the month. The third

motivating factormentionedby threeparticipantswasan ideology factor. The

participantsassertedthattheydisagreedwiththecurrentregulationsrequiring

securities brokers to obtain prior approval before they could put in trading

orders for themselves. They believed that it was not wrong to trade for

themselvesandthattheyshouldnothaveinferiorrightstotheirclients.Thelast

270

factor was company pressure mentioned by one participant. The participant

stated that his company had pressured him to quickly increase his monthly

trading volume. One of the methods he employed was to engage in large

numbersoftransactionsusinganomineeaccounthehad.

Intermsofopportunityfactors,allparticipantsreportedthat itwastechnically

easy for securities brokers to set up and use nominee accounts to trade for

themselves,whereasitwasslightlyhardertoengageinaprofitsharingscheme

with the clients. They also believed that most Thai securities brokers had

nomineeaccountsandtheviolationhappenedveryoften.Itwasnotedthatnine

participantsadmittedtohaveandusenomineeaccountstotradeforthemselves

atthetimeoftheinterview,whereasfourstatedthattheyhadtheaccountsbut

nolongerusedthem:

‘Ibelieveeverybrokerhasnomineeaccounts.It iseasytoopenones.Justfindfriendsor

relatives to open trading accounts andbank accounts and ask forATM cards that come

withsuchbankaccounts.Itissoeasynowgiventhatwecanuseonlinebankinganddonot

have toget into thebranch. It isveryeasy toavoiddetectionandcircumvent the rules.’

(F3B,Broker,ForeignSecuritiesCompany)

Only five participants claimed that they had never had a nominee account

throughout their career. Lastly, the participants agreed that the violation was

very hard to detect by both securities companies and the SECOffice since the

brokers could use their smartphones to put in trading orders via the Internet

systematanyplaceandatanytimetheywouldliketo.Threeparticipantsstated

concertedlythattheonlycircumstancewherethesecuritiescompaniesandthe

SEC Officewould find out about the violationwaswhen the trade resulted in

lossesandthebrokersfailedtoputadequatefundsintothetradingaccounts.In

such cases, the actual accountowners,whowere called topay for thedeficits,

usuallyreporteddisputestheyhadwiththebrokerstosecuritiescompaniesand

theSECOffice.

Rationalisation employed, or believed that other securities brokers employed,

whenusingtheirclients’accounts fortheirownbenefitcouldbeextractedand

271

classifiedintothreegroupswhichwereaclaimtoentitlement,adenialofinjury,

a claim that everyone is committing the violation. A claim of entitlement was

mostfrequentlymentionedduringtheinterviews.Manyparticipantsstatedthat

theywanted to earn profits from trading too and should be allowed to do so.

Examplesoftheserationalisationsincluded: ‘Brokershelpmyclientsearnprofits

allthetime,it’snormalthattheywanttoearnforthemselvestoo.’and‘Weneedto

makemoneytoo’.Thesecondtypeofrationalisationwasadenialofinjury.Three

participants claimed that they did not think their clients would be negatively

affected if they engaged in trade for themselves too. Examples of these

rationalisationswere:‘Idon’tthinkitisthatdamagingforustotradeforourselves

too.’ and ‘Idon’t seeanythingwrongwithusingnomineeaccounts to trade.’ The

thirdandlastgroupofrationalisationwasaclaimthateveryonewascommitting

theviolation.Anexamplewas: ‘It’sanormalpracticenow.Everyonehasanduses

nomineeaccounts.’


Broker'sOwnBenefitwiththeAccountOwner’sPermission(SecuritiesBrokers)

PressureFactors -Personalgreed

-Incomepressure

-Ideology

-CompanyPressure


-Frequentlyhappens

-Difficulttodetectbysecuritiescompaniesandthe

SECOffice

Rationalisation -Claimtoentitlement

-Denialofinjury

-Claimthateveryoneiscommittingtheviolation

(d)TheOffencesofDeceptionandMisappropriation

Theparticipantswerelastaskedfortheirviewsandopinionsontheoffencesof

fraudandmisappropriationwhere securitiesbrokersdishonestlydeceive their

272

clientsformonetarybenefitand/ormisappropriatetheclients’fundsorshares.

All participants agreed that the offenceswere very serious anddamaging, and

thatnobrokershouldcommitsuchoffences.Fiveparticipantscommentedthat

theoffendingbrokersshouldbepunishedasseverelyaspossibleandshouldnot

beallowedtoworkintheindustryagain:

‘Fraudandappropriationofclients’assetaresowrong,nodifferentfromthieving.Brokers

who commit them should be punished very severely. It’s a shame to all of us in the

industry.’(F1A,Broker,ForeignSecuritiesCompany)

The researcher then asked the participants to explain how securities brokers

mightcommittheseoffencesagainsttheirclients.Itwasnotedthatthemajority

ofparticipantsstatedthattheycouldnotanswerforcertainsincetheyhadnever

committed or even thought to commit such offences. The participants,

nevertheless, agreed to sharewhat they had known from their colleagues and

from cases published in the SEC Newsletter. Eleven participants reported

similarly that they had heard of cases where brokers fabricated documents

and/orforgedclients’signaturestowithdrawortransferfundstotheirownor

third parties’ accounts. Seven participants reported cases where brokers

deceived clients to transfer funds to the third parties’ or brokers’ personal

accounts insteadof the securities companies’ accounts, and ran awaywith the

funds. Six participants mentioned cases where clients overly trusted their

brokers by signing blank withdrawal and/or share transfer forms, or let the

brokers hold their ATM cards for convenience. Five participants reported that

theyknewofcaseswhereoffendingbrokersforgedsignaturestochangeclients’

postal addresses and fabricated monthly statements issued by securities

companiestoconcealthewrongdoing.Onebrokerdescribeditthisway:

‘FromwhatIread,theyforgesignaturesandaddressesofclients.Theaddressesofclients

are very important since trading confirmation documents will be posted there. So the

clients will know whether there is anything wrong with their accounts. The offenders

wouldhavetosomehowchangetheaddressesoftheclients.Theymighthavetoalsoforge

cashwithdrawal documents. I don’t know how they do it so this is all I can say.’ (L1A,

Broker,LocalSecuritiesCompany)

273

Inrelationtopressureormotivatingfactorsthat leadtothecommissionofthe

offences,seventeenparticipantsidentifiedgreedastheonlyfactor:

‘Greed,personalgreedalone.Tometheyaredifferenttypeofhumanbeingfromnormal

brokerslikeus.’(F1A,Broker,ForeignSecuritiesCompany)

However,oneparticipantgavethree further factors thatwere:(1)urgentneed

for funds to settle a failed investment, (2) gambling debts, and (3) family

members’illness.Threeparticipantsfurthercommenteditwaseasyforbrokers

to be greedy since they knew the amount of funds their clients had in the

accounts.

When asked about opportunity factors, all participants commented that the

offencehappenedveryrarelyanditwasveryhardtocommittheoffencessince

securities companies nowadays offer good security systems to their clients,

including: (1) a separation of front and back offices, (2) regular account

inspections and audits by the back office and the compliance department, (3)

confirmation calls to clients when the back office received fund withdrawal

requests, and (4) monthly statements itemizing every transaction. Several

participants also added that most clients nowadays checked their trading

accounts via the Internet including on their smartphones regularly. If clients

were careful and did not overly trust their brokers, itwould be very hard for

brokerstocommitfraudand/ormisappropriation:

‘Itisdifficulttocommitthisoffence.Atthemoment,clientsareabletoquicklyaccesstheir

trading records. For examples, clients can check their transactions and tradingaccounts

online. They also have an option to transfer money directly to the securities company

insteadoftransferringittotheirbroker,whichisasaferoption.Thus, it isveryhardfor

brokers to misappropriate their clients’ funds.’ (B3A, Team Leader, Commercial Bank

RelatedSecuritiesCompany)

Sixparticipantsagreedthattheydidnotthinktheoffencescouldbecommitted

opportunistically or by impulse since careful planning and preparation were

required to successfully commit the offences, especially in order to hide the

274

wrongdoing from the clients and the securities companies. In addition, three

amongthesixfurthercommentedthatbrokerswhocouldcommitfraudand/or

misappropriationagainsttheirownclientsmustbeverydifferentfromordinary

brokers. To them, brokers usually had a close and lengthy relationship with

clients, which made it mentally difficult for brokers to commit serious

wrongdoing against those they knewwell and had beenwith them for a long

time. One went so far to say that brokers who committed fraud and/or

misappropriation against their clientsmust have an intention to do so before

theyenterintotheindustry.

Similar to the findings in the offence of unauthorised use of clients’ accounts

without the account owners’ knowledge in the previous section, no

rationalisation could be identified from the interviews since all participants

stated that the offences should not be committed in any case and that no

participantshadpreviously committed fraudormisappropriationagainst their

clients.

Table31:FactorsleadingtotheCommissionoftheOffencesofDeception

andMisappropriation(SecuritiesBrokers)

PressureFactors -PersonalGreed

OpportunityFactors -Technicallyhardtocommit

-Rarelyhappens

-Easytodetectbyclientsandsecuritiescompanies


(e)LinkagesBetweentheFocusOffences

Thelastquestioninthissectionwaswhethertheparticipatingbrokerscouldsee

any linkages between the four focus offences being studied. All eighteen

participantsreportedthattheycouldseelinksbetweentheoffenceoffailingto

properlyrecordtradingorders,theoffenceofmakingtradingdecisionsonbehalf

of clients, and the offence of unauthorised use of a client's account with

275

permissionfromtheclient.Theystatedthatoneofthemainreasonsforthelack

of proper records was that brokers had made trading decisions for clients

and/orusednominee accounts to trade for themselves.When the SECofficers

conducted on-site inspections, if the brokers failed to provide the records, the

inspection could reveal that the other two offences had been committed. Five

participantsfurthercommentedthat,intheiropinion,thesethreeoffenceswere

prevalentintheindustryandthatmost,ifnotall,securitiesbrokerswouldhave

committedthematonepointduringthecourseoftheircareers.

Only two participants identified the connection between the three offences

above to themore severe offence of the use of a client’s account without the

account owner’s permission and the offences of fraud and misappropriation.

They suggested that brokers who had serious financial problems and had

successfully made decisions for clients and/or used nominee accounts to

increase their income might be further tempted to commit fraud and/or

misappropriationtoobtainmoremoney.Threeparticipants,ontheotherhand,

stronglycommentedthatbrokerswhocouldcommitseriouswrongdoingagainst

theirownclientswereverydifferentfromnormalbrokersasdiscussedabove:

‘As for cheating clients or taking their money, those who have bad financial problems

mightwanttodoit. Idon’tknow.Iguessiftheykeepbreakingtherulesandhavenever

beencaught.Somemightwanttogoforsomethingbig.ButIwillnotdoitmyselfnomatter

what. I don’t think it’s worth the risk.’ (B3B, Team Leader, Commercial Bank Related

SecuritiesCompany)

5 Differences in Contributing Factors Between the Three Types of Securities

BrokerageCompanies

One of the main research questions of this study is whether the differences

between the three types of securities companies (commercial-bank related,

foreign, and local) lead to different explanatory factors in relation to the

brokerage fraudandrelatedviolations.Onemainquestionandseveralprobing

questionswereaskedtogaintheparticipants’viewsontheissue.Severalmain

differences between different types of securities companies were constantly

276

mentioned during the interviews. These differences included working

procedures, internal relationships and culture, new client recruiting methods,

and the level of back office and IT support. However, only the difference in

method of recruiting new clients was agreed by all participants to be a clear

difference attaching to the type of security companies. Other factors, such as

banana of firms, market reputation, or working culture of an individual team

werethoughtnottodiscriminatebetweentypesofcompany.

Tobemorespecific,fourteenparticipantsmentionedthattheyhadexperienced

differentworkingmethodsindifferentsecuritiescompaniestheyhadbeenwith,

such as the aggressiveness of trading strategies, the rigor with which the

companies enforced their internal rules, and the flexibility in documentary

assessment. Nine participants gave opinions that such differences could be

attributedtospecificcharacteristicsofasinglecompanyorotherfactorssuchas

theuniquestyleofeach team, thebananaof thecompanies,or thecompanies’

market reputation, but not the types of securities companies based on

shareholding structure as hypothesised by the researcher. Nevertheless, five

participants observed that commercial-bank related securities companies

usually had clearermethods and guidelines andweremore strict in enforcing

their internal rules. They further gave opinions that this could be due to the

securitiescompanies’closetiestotheirparentcommercialbankfromwhichthey

inheritedworkingculture.Twoparticipantsmadeacommentthattheybelieved

foreign securities companies were most aggressive in their trading strategies

andlocalcompaniestendedtobemostlenientwithinternalrules.However,no

otherparticipantsconfirmedsuchstatements.

As for internal relationship and working culture within the firms, five

participants mentioned that they had experienced different working cultures

during their employment with different types of company. Nevertheless, only

one attributed such differences to the types of company. The other four

participants,onthecontrary,attributedsuchdifferencestothestyleoftheteam

leaders and the strategies they imposed on their teammembers. Twobrokers

also made a comment that securities brokers in the same team usually stuck

277

togetherforalongtimeandwhentheymoved,theyusuallymovedasateamand

notasan individual.Therefore, the teamculturewasmore important than the

corporateculture:

‘Whenbrokersmovefromonecompanytoanother,wemoveasabiggroup.Thus,evenif

we move to a new firm, we still work together and the culture is the same. It doesn’t

matterwhether thenewfirmis thesametypeof firmas theprevious firmthatwehave

moved from. I haveworkedwith this set of colleagues for almost10years already, so I

know them verywell. Thework environment is quite relaxedwith notmuch pressure.’

(L3A,TeamLeader,LocalSecuritiesCompany)

Four participants mentioned that the level of back office and IT support was

anothermaindifferencetheyexperiencedfromtheirtimewithdifferenttypesof

company.However,allattributedsuchdifferencetothebananaratherthanthe

typeofthecompanies.

Themethodofrecruitingnewclientswastheonlymajordifferenceamongfirms

that all eighteen interviewees attributed to the type of securities companies

during the interview.Theparticipants explained that itwas easier for brokers

working for commercial bank-related securities companies to find new clients

since they have an exclusive access to client databases of the parent banks.

Securitiesbrokersworking for localand foreigncompanies,on theotherhand,

had to rely on recommendations of existing clients and the recruitment of the

general public at financial events or at seminars were the main methods in

recruitingnewclients.

Inpractice,thebankwouldreferorsendlistsofclientswithgooddepositstoits

relatedsecuritiescompany,whichthengavetheliststotheiremployingbrokers

todocoldcalling topersuade theclients toopen tradingaccounts.Asa result,

brokers working for bank-related companies usually have a larger number of

clients andhave lesspressure in findingnew clients thanbrokers in local and

foreign companies. In other words, they can easily tap into new investors

whereasbrokersworking for localand foreignsecurities firmshave to fiercely

competeforexistinginvestorsinthemarket.

278

In conclusion, differences between the three types of securities companies

categorisedbytheresearcher for thepurposeof thisstudywere limitedto the

available methods in recruiting new clients and, to a certain extent, to the

internalworkingprocedures.Itispossiblethatsuchdifferencesmaycontribute

tothedifferencesincontributingfactorsleadingtothecommissionoffraudand

relatedviolationssincebrokersworkingforcommercialbank-relatedsecurities

companiesmay have lesser pressure in finding new clients and retaining new

clients,aswellashavelesseropportunityincommittingtheviolationsduetothe

stricterrulesenforcedbythecompanies.

6 The Impact of the Liberalisation of Brokerage Fees upon the Commission of

FraudandRegulatoryViolations

One of the main research questions of this study is the effect of the 2012

liberalisation of brokerage fees upon Thai securities brokers. From seventeen

participants 700 who were asked about their experience with liberalisation,

thirteenintervieweesreportedthattheywerenotaffectedandfeltnopressure

from liberalisation. The main reason given was that they did not have high

volume clientswho couldnegotiate for a reduction of brokerage feeswith the

securities companies. On the other hand, four participants reported to be

affected and felt the pressure as their major clients had already asked for a

reduction of fees and their companies had to yield. One participant expressed

that they thought the new systemwasunfair since she had toworkharder to

retaintheclientswhilegettinglesserincomeduetothediscountedratesgiven.

The other participant reported being hit hard by liberalisation since other

companies constantly tried to takehermajor clients awayand that shehad to

keepincreasingthediscountstoretainherclients:

‘I,myself, have two big clientswho asked for a reduction in commission fees. As I said

before,whenthecompanyagreedtogivethemsuchreduction,myshareislower.Ihadto

involuntarilyyieldtothisorelsetheywouldasktomovetheirtradingaccountstoanother

700Oneparticipatingbrokerwas anovicebroker at the timeof the interview. Sincehe startedworkingintheindustryaftertheliberalisationhadalreadybeenineffect,thequestionswerenotasked.

279

brokeroranothercompany.Deepdown,Ithinkthisisgrosslyunfair.IworkashardasI

used to yet my income is getting lower and lower.’ (F3B, Broker, Foreign Securities

Company)

7SecuritiesBrokers’KnowledgeofLawandEnforcement

Aseriesofprobingquestionsrevealedthelevelofbrokers’knowledgeoflawand

enforcement. On the subject of the knowledge of law and regulation, six of

thirteen interviewees maintained that they had good knowledge and

understandingofthecurrentlaw.Amongthem,twoparticipantsstatedthatthey

had tried to keep up to date with the rules as much as possible to protect

themselves.Threeotherbrokerssaidthattheyhadrecentlyreceivedadetailed

briefing fromcomplianceofficers from their companies. Sixparticipants stated

thattheyhadadequateunderstandingofthelawtodotheirworkasabrokerbut

were unsure of certain regulations or found the law hard to comply with in

practice. They claimed that certain ruleswere toohard to complywithdue to

clientpressureand/ormarketvolatility, suchas theSEC’srequirement to fully

recordallvoiceorders:

‘I thinkeverybrokerhasadequateknowledgeontherulesandregulations.Butwhether

theywillcomplywithsuchrulesisactuallybasedoncertainsituations.Weknowthatwe

needtoclosely followclients’orders, fullyrecordsuchorders,anddonot interferewith

clients’ assets. However, in certain situations, we have to do otherwise.’ (F3B, Broker,

ForeignSecuritiesCompany)

Fiveteamleaderswerealsoaskedquestionsabouttotheirlevelofknowledgeof

law and regulations. Four team leaders maintained that they had good

knowledgeofthelawtothelevelallowingthemtoconfidentlyteachtheirteam

members. However, one team leader stated that they only had adequate

knowledge of the law since thereweremany new regulations and they found

themunclear inmany areas. This team leader gave an example of engaging in

tradeincertainwaysinwhichtheybelievedwereright.However,shewaslater

informedbythecomplianceofficersthatitwaswrongforhertodoso.

280

On the issue of the knowledge of enforcement, all eighteen participants

reportedly received the enforcement information sent by the SEC Office to

securities companies,whichwas then forwarded to the brokers. Nevertheless,

the attention given to such information varied among the participants. Seven

fromthirteenbrokersreportedtogivealotofattentiontotheinformationsince

theywantedtoknowwhotheoffenderswereandwhytheywerepunished.They

wentontosaythatsuchinformationledthemtoreviewwhattheyweredoing

and tried to protect themselves more. On the other hand, the other six team

members reported to only skim through the news, as they found these cases

repetitiveandonlywantedtoknowwhether theoffendersweresomeonethey

knew. These six participants further stated that reading such news did not

actually lead them to change theirworkingmethodsbecause: (1) they already

compliedwiththerules,(2)theybelievedtheyknewwhattheyweredoing,and

(3) theydidnot think they could change theirworkingmethodsanyhowsince

theirclientswouldnotcooperate.

From five team leaders, four stated that they had paid much attention to the

enforcement information. Itwas interestingtonotethatonly twoteamleaders

said that they had changed their working methods based on the news of

punishments. The other three team leaders maintained that they could not

changetheirworkingmethodseveniftheywouldliketosincetheirclientshad

resistedthechangesandtheywerefearedoflosingtheirclientsfromdoingso.

8SecuritiesBrokers’AttitudeTowardsLicenceExaminationandTraining

As all participating brokers have to pass the licence examinations in order to

obtain their securities brokerage licences, they were asked to express their

viewsandopinionsontherigorandusefulnessoftheethicspartofthetest.Nine

of eighteen interviewees commented that the ethics section of the test was

adequately rigorous, whereas the other nine brokers believed that the ethics

partwas tooeasyandwasnot as important to the test-takers as the technical

part.Theparticipantswerefurtheraskedwhetherthecontentoftheethicstest

suchas theoriesandexampleswereapplicable to theactualpractice.Onlyone

281

participant commented that the content of test was extensively useful in the

course of work. The other seventeen participants, however, agreed that the

usefulness of the content of the test was limited. Reasons given included: (1)

actualworkingenvironmentsweredifferentfromthoseintheory,(2)manyrules

were not sensible in actual practice, (3)many ruleswere not straightforward

and not easy to comply with, (4)manymore factors needed to be taken into

accountswhenmakingdecisionsinreallifethanthoseexamplesituationsinthe

books, and (5) they were pressured by clients to make decisions against the

rules.

The next question asked for participants’ views on the ethics training they

received after they started working as securities brokers. All eighteen

participantsstatedthattheyhadtoattendcompulsorytrainingsessionsheldby

the SECOffice every two years in order to renew their licences. Nevertheless,

manyparticipantscommentedthatmost trainingsessions focusedontechnical

knowledge rather than on regulations and ethics. Probing questions then

inquiredwhethertheirsecuritiescompanieshadprovidedadditiontraining.Six

participantsreportedthattheircompanieshadprovidedthemwithtrainingon

both the technical and regulatory knowledge, whereas twelve participants

maintainedthattheircompaniesdidnotdoso.Itwasnotablethatamongthesix

participants who reported to receive further training, four brokers worked in

two commercial bank-related securities companies and the other two

participants worked for foreign securities companies. Finally, all participants

wereaskedwhether theregulatory trainingprovidedby theSECOfficeand/or

the securities companieswere beneficial to them. Seven participants reported

that such trainingwas useful since they had obtained updated information on

importantrulesandcases.Theyalsostatedthatthetraininghelpedremindthem

about what they should do and should not do. On the other hand, eleven

participants reported that they did not find the regulatory training beneficial.

Reasonsgivenwere that: (1) they found the trainingboringandrepetitive, (2)

they alreadyknewwhat theyweredoing, (3) evenwhen theyknewwhatwas

right orwrong, they could not fully complywith the rules due to income and

clientpressure,(4)theybelievedthattrainingontechnicalknowledgewasmore

282

important, and (5) they believed that if certain brokers had poor morals, no

trainingwouldstopthosepeoplefromviolatingtheregulations

9SecuritiesBrokers’AttitudeTowardsInternalMonitoringandSanctions

Theparticipantswereaskedwhethertheiremployingsecuritiescompanieshad

providedthemwithethicalmanualsorcodesofconduct that theymayconsult

whennecessary.Tenparticipantsreportedthattheircompaniesprovidedthem

withamanual,eitherinpaperorinelectronicform,whereaseightinterviewees

reported that their companies did not do so. However, the feedback on the

manualwasmixed. Eight participants stated that themanual they hadwere a

generaloneforeveryemployeeinthecompany,whichwasnotusefultothemin

relationtotheirbrokeragework.Sevenparticipantsmentionedthattheydidnot

thinkthemanualwasusefulsincetheyhadnotimetoconsultit,astheyhadto

actandmakedecisionsquickly. Itwasnotablethatfiveparticipantsmentioned

that cautioning emails from the compliance department were more useful to

themthantheethicsmanual.

Thenextprobingquestionwasontheefficiencyofthecompliancedepartmentin

monitoring and regulating conduct of securitiesbrokers. Fourteenparticipants

believedthattheircompanies’compliancedepartmentshadworkedadequately,

efficientlyandrigorously,whereastheotherfourintervieweesviewedthattheir

departmentsdidnotworkwellenough.Askedtoelaboratethemeasuresthatthe

compliance departments had employed to monitor the brokers’ conduct, the

participants explained that the monitoring and regulatory activities of their

compliance officers included: (1) conducting regular inspections of voice and

trading records, (2) providing notifications, and guidelines on new laws and

regulations, (3) notifying relevant employees to prepare required documents

before SEC officers conducted onsite inspections, (4) giving advice to brokers

wheretherewerelegal issuesordisputesbetweenbrokersandclients,and(5)

acting as intermediaries between brokers and the regulators. The satisfied

participantsstatedthattheyfoundthecomplianceofficerstobestrictbuthelpful

aswellasperformingtheirdutyseriously.Onthecontrary,theparticipantswho

283

were not happy with their compliance officers complained that their officers

werenotattentiveandkeptdistance.Twointervieweesalsosuggestedthattheir

companies had too few compliance officers, leading to the lack of efficiency in

monitoringbrokers’conduct.

‘They are doing a good job in providing clarifications on the rules when issues arise.

However, I don’t think they are doing well enough to protect brokers from potential

misconducts. Inother firms that Iused toworkwith, the compliancedepartmentswere

moreattentiveandhadacloserrelationshipwithbrokers.Inthosecompanies,Icouldjust

visit the department and consulted themwhen I faced risky situations.However, atmy

current company, the compliance department keeps distance from brokers. They will

monitorandreviewbrokers’conducttoseewhetherwehavecompliedwiththerules,but

we don’t feel comfortable to consult them about potential misconducts.’ (B3A, Team

Leader,CommercialBankRelatedSecuritiesCompany)

10SecuritiesBrokers’AttitudeTowardsAdministrativeSanctions

Oneofmainobjectivesoftheinterviewinthisfirstphasewastoobtainbrokers’

views and perceptions of the different sanctions imposed upon the offenders.

Thefirstseriesofquestionsrelatedtothethreeformsofadministrativesanction,

whicharereprimand,asuspensionoflicence,andarevocationoflicence.

Seventeen participants were asked for their opinions on the administrative

sanctionsofreprimand.701Allofthemagreedthatareprimandwasanexcellent

initial sanction. Several participants added that a reprimand served as a good

warningto first-timeoffendersandmadethosesubject tothesanctionbecome

more careful during the course of theirwork. The sanction also sent a strong

signal to potential offenders, and those working around them, that the

behaviours in question were not acceptable and must not be committed. The

participantswerethenaskedwhethertheysawbeingreprimandedasasanction

to be feared. Five participants replied that a reprimand caused fear. These

participantssaidthatiftheyweretobereprimanded,theywouldbelikelyto:(1)

feelbadandashamed, (2) lose theirclientsandteam leaders’ trust,and(3)be

701Oneparticipantwasnotaskedthequestionduetothelackofinterviewtime.

284

closely monitored by the compliance department and the SEC Office. On the

other hand, twelve participants replied that the administrative sanction of

reprimanddidnotmakethemfearful.Theygavereasonsthat:(1)areprimand

hadnoactualeffectupontheircourseofworkandtheirincome,and(2)usually

therewasnofurthersanctionimposedbytheemployingcompanies.

The next question revealed securities brokers’ attitudes towards the

administrativesanctionofasuspensionoflicence.Onlyoneofeighteenbrokers

disagreed that the use of a suspension of licence deterred brokers from

committing brokerage frauds and related violations. On the other hand,

seventeen interviewees agreed with the use of a suspension of licence as the

main sanction to deter brokers from committingbrokerage frauds and related

violations.Nevertheless,manyparticipantsstatedthatthesuspensionoflicence

should only be applied to the offenders who intentionally committed serious

offences, not to those who made mistakes or repeated minor offences. When

askedwhetherasuspensionoflicencewasasanctionwhichtheyfeared,sixteen

participants agreed that they feared the sanction very much, whereas two

participantsinterestinglycontendedthatitwasnotasfearfulasonemightthink.

Those who stated that the suspension was feared further expressed that a

suspension of licence was a very serious sanction. If a broker were to be

suspended,heorshewouldnotbeable towork legallyandwouldnot receive

any income during the suspension period. The suspended brokerswould also

have bad records and lose credibility in the eyes of clients and employing

companies.Inaddition,anumberofparticipantsaddedthatthethingtheymost

feared in relation to a suspension was whether they could maintain the

relationship with their clients, as they could not serve the clients and had to

transfer the clients to their colleagues. They speculated thatmany clientsmay

decidetoleavethemforotherbrokers.Thus,itwouldbeveryhardforthemto

resumeworkingafterthesuspensionperiodhadended.

Ontheotherhand,twoexperiencedbrokersassertedthatasuspensionoflicence

wasnottobefeared, ifthesuspensionperiodwasnotverylong.Theirreasons

werethat:(1)thesuspendedbrokerswouldstillbeabletotradestocksandearn

285

someprofitsasinvestors,(2)theycouldstillgiveadviceandrecommendations

to their clients via mobile phones when they were suspended, (3) they had

trustedcolleagueswhowouldbehappytoputintheirclients’tradingordersfor

them,(4)theybelievedthattheircompanieswouldfindwaystohelpthem,and

(5)theybelievedthattheywouldbeabletoretainmostoftheirexistingclients

duetotheirgoodrelationshipswiththeclients,meaningtheywouldbeableto

resumeworkwithouttoomanyproblems.

Other than the main themes above, other interesting data were gathered in

regardtosuspensionoflicence.Firstly,anothereightbrokersalsoassertedthat

theyknewhowtocircumventthesuspension,inthesimilarfashionexplainedby

the two brokers. The second interesting point was that many securities

companies helped their suspended brokers by transferring them to work in

other departments that did not require a brokerage licence during the

suspensionperiod, so that thebrokers could still gain some income.The third

and last point was that different securities companies had different policies

regardingthereturnofsuspendedbrokers.Afewcompanieshadastrictpolicy

ofnot takingsuspendedbrokersbackafter thesuspensionperiodhadexpired,

whereas others would let suspended brokers resume their work as normal,

provided that they could still retain some clients. For example, one broker

described:

‘It’snotthatscary.Well,asIsaid,thecompanyrecentlysuspendedme.Iwassuspended

foronemonth.AssoonasIknew,Itransferredallmyclientstomyfriend.Myfriendthen

transferred all commission fees frommy clients back to me. If the suspension is for a

monthortwo,wecaneasilymanage.Icanusemymobilephonetocallmyclientsandgive

myrecommendationsasnormal.Theyjustneedtocallmyfriendtoplacetheirorders.But

ifthesuspensionislongerthanthat,itcouldbetroublesome.Myclientswouldn’tbehappy

becauseitwasinconvenienttothem.’(F2B,Broker,ForeignSecuritiesCompany)

The participants were then asked for their attitudes towards a revocation of

licence, which is the most severe administrative punishment. All sixteen

participants702agreedwith the use of the revocation as themain sanction for

702Theresearcherhadtoskipthequestionsontwosessionsduetothelackofinterviewtime.

286

seriousoffences.Manyaddedthatthosewhoselicenceswererevokedshouldnot

beallowedtocomebacktothe industryandshouldalsobesubjecttocriminal

punishments. When asked whether they feared this sanction, all participants

agreed thata revocationof licencewasaveryscarysanctionsince theywould

haveto leavetheindustryandmightnotbeabletofindnewjobseasilydueto

badrecords.Nevertheless,manyparticipantsstatedthat,unlikeareprimandora

suspensionoflicence,theydidnotreallytakeintoaccountarevocationoflicence

asapotentialsanctionthattheymightbesubjectto,sincetheydidnotthinkthey

wouldevercommitseriousbrokerageoffences.

Thelastprobingquestionaskedduringthissectionoftheinterviewwaswhether

their clients would know if the participants had been administratively

sanctioned by the SEC Office. All twelve participants who were asked the

question suggested that if the punishment in question were reprimand, the

clients would not know of the sanction, since it was unlikely that any client

would pay attention to the enforcement information. If the punishmentwas a

suspension of licence, seven participants thought that their clients would

naturallyknowsincetheyhadtotransfertheclientstotheircolleaguesandhad

toexplaintotheclientswhathadhappened.Fiveparticipants,ontheotherhand,

believedthat, if thesuspensionperiodwasnot longerthanonetotwomonths,

the clients might not know that their brokers had been suspended since the

brokerscouldgivesomeexcusesfortheirprolongedabsences.

When further askedwhether the SECOffice should informclientsdirectly that

theirbrokershadbeenreprimandedorsuspended,tenoutoftwelveparticipants

suggested that clients should not be informed directly and that the brokers

shouldbegivenchancestoredeemthemselves.Theysaidthatiftheclientsknew

thattheirbrokerswerereprimandedorsuspended,mostclientswouldbeoverly

worried and might decide to leave the brokers, making it very hard for the

brokers to continue working in the industry. On the other hand, two

interviewees would like the SEC Office to inform clients directly so that the

clients couldmake an informed decision whether they would still want to be

withthosebrokersornot.

287

11SecuritiesBrokers’AttitudeTowardsCivilSanctionsandRemuneration

One of the themes the participating brokers constantlymentioned throughout

the course of interviewwas a civil disputewith their clients. They stated that

suchdisputescouldrangefromtyposinplacingtradingorderstoanaccusation

of fraud. All participants agreed that clients had the right to pursue

compensationanddamages,buttheyalsoassertedthat,fromtheirexperiences,

many clients had tried to take advantage of brokers and securities companies

too. They explained that when transactions resulted in losses, tricky clients

alwaystriedtofindwaystoputblameonbrokersand/orsecuritiescompanies

sothattheydidnothavetobeliableforthelosses.Commontricksreportedby

theparticipantswere:(1)clientsinsistingoncallingbrokersviamobilephoneso

thatthevoiceorderswerenotproperlyrecordedandthenclaimingthattheydid

notmakesuchordersifthetraderesultedinlosses,and(2)encouragingbrokers

to make trading decisions on their behalf and refusing to acknowledge the

arrangementwhenthetraderesultedinlosses.

When asked whether civil disputes and sanctions were to be feared, sixteen

participants reported that they found civil disputes and sanctions were more

frightening thanadministrativeandcriminal sanctions.Theygave reasons that

civil disputes could occur because of simple unintentionalmistakes, butmight

result in high compensation and damages. They further stated that due to the

existence ofmanipulative clientswho tried to take advantage of brokers, they

havetobeverycarefulandprotectthemselvesasmuchpossible.

Severalparticipantswerefurtheraskedaboutwhatwouldhappenwhenclients

broughtdisputestotheknowledgeofsecuritiescompanies.Theyexplainedthat

mostofthetime,thecompaniesviathecomplianceofficers,wouldtrytosettle

civil disputes as soon as possible and before thematterswere brought to the

attention of the SEC Office. Most disputes were therefore settled through

negotiationandwerenotbrought to theattentionof theSECOffice for further

administrative proceedings. In paying restitution and damages to the clients,

securities companiesmayormaynothelp their brokersdependingon several

288

factors including: (1) types of offences or disputes, (2) blameworthiness, (3)

valueofdamages,and(4)therelationshipbetweenthedisputedbrokersandthe

executivesofthecompanies.

12SecuritiesBrokers’AttitudeTowardsCriminalSanctions

Fifteen participants703 were asked for their views on the use of criminal

sanctions to deter brokerage frauds and related violations. All participants

agreedthat,inadditiontoadministrativesanctions,criminalsanctionsshouldbe

imposeduponoffendersinseriousoffencessuchasmisappropriationofclients’

funds. The participants were then asked whether they had considered the

possibilitythattheymightbesubjecttocriminalsanctionsduringthecourseof

theirwork.Nineparticipantsreportedthattheyhadtakensuchpossibility into

accountsincetheywereawarethatsecuritiesbrokeragewasariskyjobandthey

had to regularly deal with tricky clients. As a result, they tried to protect

themselves asmuchaspossible.Threeparticipants in this groupmade similar

commentsthatwhattheyreallyfearedwasnotthesanctions.Rather,itwasthe

threatsmadebytheirclientsthattheywouldfilecriminalcomplaintsagainstthe

participants,iftheparticipantsdidnotcomplywiththeclients’requested:

‘I think about this all the time. If I recommend certain shares to a client and he loses

money.HemightbesoangryandclaimthatIcheathimagainstthepolice.Whetherit is

rightorwrong,subjectingoneselftoacriminalcomplaintistroublesome.SoIamalways

very careful when I deal with my clients.’ (B2B, Broker, Commercial Bank Related

SecuritiesCompany)

On the other hand, six participants reported that they had not taken such

possibility into account since criminal caseswere very rare and they believed

that theywouldnevercommitsuchseriousoffences.Theygavereasons that it

was much easier to commit small offences than serious offences. Any honest

broker might be subject to administrative and/or civil sanctions due to their

unintentional mistakes. However, they believed that to be subject to criminal

703Thequestionswerenotaskedinthreesessionsduetothelackofinterviewtime.

289

sanctions, one had to have a malicious intent to commit serious offences, in

whichheorsheclaimedheorsheneverwould.

13SecuritiesBrokers’AttitudeTowardstheSECRegulatoryandEnforcement

Functions

Thelastthemeexploredwastheparticipatingbrokers’attitudetowardstheSEC

Office’s regulatory and enforcement function. From eighteen participants, six

brokers reported a positive perception, whereas four reported a mixed

perception and eight reported a negative perception. Those who reported

positiveviewsexpressedthattheythoughttheSECOfficehaddoneagoodjobin

issuing regulations, conducting inspections, and giving out sanctions. One

participant stated that the SEC officers had done a very thorough on-site

inspection at their workplace and another participant complimented that the

SECofficehaddoneagoodjobinprotectingboththeclientsandthebrokers.

Fourparticipantsprovidedmixedreviewsandexplainedthattheyweresatisfied

withcertainfunctionsoftheSECOfficebutnotothers.Oneparticipantsuggested

thathewassatisfiedwithhowtheSEC imposedadministrativesanctionsupon

offenders, but questioned the agency’s application and interpretation of the

regulations.Anotherparticipantmaintainedthatshewassatisfiedingeneralbut

thoughtthattheSEC’sinspectionprocedurewasunclearandreliedtoomuchon

particularofficers’discretions:

‘I believe that the sanctions are applied appropriately, but I don’t believe that the SEC’s

interpretationandapplicationof the lawandregulationsarealwaysappropriate.As I’ve

said before, some law or regulations of the SEC are unclear or not sensible in the first

place. I don’t think it is fair to punish brokers for a breach of these regulations.’ (B1A,

TeamLeader,TeamLeaderSecuritiesCompany)

The third participant stated that he thought the SEC had done a good job in

catching wrongful brokers but failed to catch misbehaving investors. The last

participant in thisgroupstated thatheorshe thought theSEChad insufficient

officersandmuchwrongfulconductwasoverlookedasaresult.

290

Eightparticipants,ontheotherhand,weredissatisfiedwiththeSEC’sregulatory

andenforcement function.Oneparticipatingbroker commented theyhad little

faith in the SECOffice since they sawmuchwrongdoing goingundetected and

theoffendersdidnotreceiveanypunishments.Threeparticipantssimilarlysaid

that the SEC Office overly protected investors and did not adequately protect

securities brokers frombeing taken advantage of by securities companies and

manipulative clients. In their view, whenever brokers were in dispute with

clients, the SEC rarely listened to brokers’ viewpoints and explanations. One

participantmentioned that the SECOffice seemed to do things very randomly

andwasnoteffectiveintargetingoffendingbrokersandcompanies.Thisbroker

alsostatedthatthelevelofsanctionsimposedwasnotsevereenough.Another

participantsuggestedthattheSECshouldhaveclearerinspectionguidelinesand

shouldmakesuchguidelineswidelyknowntosecuritiescompaniesandbrokers

sothattheyknowwhattodowheninspected.Lastly,oneparticipantquestioned

theSEC’s inconsistenttreatmentofdifferent firmsthatwereknowntoconduct

similarregulatoryviolations.

CFindingsfromtheSecondInterviewPhase:Regulators


Due to the shifting dynamics of the interviews in this phase, in which the

participating officers led the direction of the conversation, the interview

questionsongeneralpressure factors that securitiesbrokershad to copewith

during the courseofworkwerenot askedof the regulators.Nevertheless, two

themesrelatingtogeneralpressurefactorswerementionedbyregulatorsduring

their interviews. The first theme was income pressure, which wasmentioned

frequently throughout the interviewswithregulators. Itwasworthnoting that

incomepressurewasattributedasthemainpressurefactorcontributingtothe

commission of three from the four focus offences: the offence of failing to

properlyrecordtradingorders,theoffenceofmakingtradingdecisionsonbehalf

ofclients,andtheoffenceofunauthoriseduseofaclient’saccount.Thesecond

theme relating to the general pressure factors was client pressure. The client

291

pressure factor, however, was rarely mentioned by regulators and was only

mentioned in connection to the offence of failing to properly record trading

orders.

2SpecificFactorsContributingtotheCommissionofFocusOffences


Allofficerscommentedthatitwasimportantthattradinginstructionsandphone

conversations between brokers and clients were properly recorded. The

underlyingreasonswerethatvoicerecordswerethemaintypeofevidenceused

forsolvingdisputesbetweenbrokersandclients,aswellasbeingastartingpoint

for the SEC officers to detect and investigate more severe violations, such as

brokersmakingtradingdecisionsfortheirclients,theuseofnomineeaccounts,

market manipulation, and insider trading. As Duangporn Vibulsilp from the

LicensingDepartmentreflected:

‘It is avery important rule.Voice recordingsarehardevidenceweuse todetermineall

wrongdoing.When a large number of recordings aremissing, theremust be something

fishyandwestartour investigation fromthat.Weoftendiscovermoresevereviolations

such as illegal portfoliomanaging, illegal use of nominee accounts, insider trading, and

collusiontomanipulatepricesofshares,forinstance.(DuangpornVibulsilp,SeniorOfficer,

LicensingDepartment)

Sumeth Vichienchai from the Prosecuting Department further stated that

securitiesbrokersoftenfailedtoproperlyrecordvoiceordersandthatwasthe

most prevalent violation at the time of the interview. That regulator further

explainedthat thereweretwomaincircumstances inwhichtheSECOfficewill

typically discover the violation. The first is when there are disputes between

clientsandbrokersandtheclientsbringthematterstotheattentionoftheSEC

Office. The second circumstance is when the SEC Office conducts routine

inspectionsofsecuritiescompaniesanddiscoversthatanumberofvoicerecords

are missing. In relation to the inspection of securities companies, Oratai

NimthawornandSupathamChanveerathamfromtheBrokerageBusinessAudit

292

Departmentexplainedthat thedepartmentemploysarisk-basedapproachand

ranks securities companies based on their regulatory risk profiles. Companies

that pose a high level of risk are inspected and audited annually, whereas

companiesthatposelowriskareinspectedandauditedeverytwotothreeyears.

WhentheSECofficersconductanon-siteinspection,theyfirstcheckthelistsof

recordspreparedby thecompanies for theircompleteness, thensystematically

selectanumberofvoicerecords,basedonaninternalinspectionguideline,and

listenforanomalies.MrChanveerathemstatedthatsincetheinternalguidelineis

classified,hecouldnotdiscloseittotheresearcherforthepurposeofthisstudy.

Nevertheless,heexplainedthat the inspectingofficersareusually instructedto

focusonbrokerswhose clientshaveaveryhigh tradingvolume, aswell ason

transactions involving stocks whose prices rose and fell sharply over a short

periodoftime.

Basedontheearlier interviewswheremanybrokershadquestionedthescope

and exercise of the discretion of regulatory officers regarding the standard of

acceptablevoicerecords,theresearcheraskedtheparticipatingofficerstoclarify

thematter. All participating regulators stated firmly that proper voice records

mustbemadebefore tradingorders areput into the trading systemandmust

clearlycontainthename,theamount,andthepriceofsharesthatclientswould

liketobuyorsell.Theregulatorsexplainedfurtherthatvoicerecordsthatwere

made after the trade had beenmade, could be used as evidence where there

were disputes between brokers and their clients, but did not satisfy the

requirementsoftheSECregulation.

The regulators were then asked for their opinions on the pressure and/or

motivation factors causing securitiesbrokers to fail toproperly record trading

orders.Theintervieweesidentifiedtwomainfactors:incomepressureandclient

pressure.Theregulatorsagreedthatthemainreasonthemanybrokersdidnot

properly record trading orders was that they attempted to conceal other

violationsthattheycommittedwithanintentiontoincreasetheir income,such

as making trading decisions for clients, using nominee accounts to trade for

293

themselves, and insider trading. In relation to client pressure, the officers

commentedthattheywereawarethatnowadaysmanyclientspreferredtocall

or send texts to their brokers’ mobile phones to make trading orders.

Nevertheless, the regulators asserted that such client wishes to use more

convenient mobile and chat communications were not a valid ground for the

brokers to evade their responsibility in complyingwith the regulation. Ratana

NiensawangfromtheBrokerageBusinessAuditDepartmentstatedthatbrokers

hadlegaldutiestotelltheirclientstocallcompanies’landlinestomaketrading

ordersandiftheclientsinsistedoncallingbrokers’mobilephones,theyhadto

refusetotaketheorders.

TheregulatorswerefurtheraskedwhethertheSECOfficeintendedtoamendthe

regulation to accept other forms of record as evidence of valid trading

instructions, such as emails, text messages, and voice records from brokers’

mobile phones. Ms Vibulsilp replied that the SEC Office once told securities

companies that they were willing to consider additional forms of record of

tradingordersandwelcomedacommitmentbythecompaniesthattheywould

payforanyadditionalcostincurred.Theofficerstatedthatnocompanyhadyet

tomakeasuggestionatthetimeoftheinterview.

Intermsofopportunityfactors,theregulatorscommentedthattheviolationwas

easytocommitandhappenedfrequently.Theyalsoaddedthatthelikelihoodof

detectionwasmoderate to low since inspecting officers could only check and

listentosmallpercentagesofvoicerecords. Inrelationto identifyingthe likely

rationalisationsthattheofficersbelievedthatoffendingbrokersemployedwhen

they committed the violation, only one of them could be identified,which is a

denialof responsibilityor theshiftingofblame.Theregulatorsmentioned that

duringtheinvestigations,offendingbrokersoftencomplaintothemthattheydid

not intend to breach the regulation, but their clients refused to call the

companies’linesandkeptcallingtheirmobilephonestomakeorders.

294

Table32:FactorsLeadingtotheCommissionoftheOffenceof

FailingtoProperlyRecordTradingOrders(Regulators)


-Clientpressure


-Frequentlyhappens

-Moderatelydifficulttodetect

Rationalisation -Denialofresponsibility:shiftingblameto

clients


Fourregulatorsrepliedtotheresearcher’sinterviewquestionsontheoffenceof

making tradingdecisions onbehalf of clients. All officers commented that it is

one of the violations that happenmost frequently and thereweremany cases

that theSECOfficewas investigating.MsNimthawormandMrChanveeratham

stated that when themarket was good there would be few disputes between

clientsandbrokers.On theotherhand,when themarketwasbad,and trading

decisionsresultedinlosses,alargenumberofclientswouldbringthedisputesto

the attention of the SEC Office, claiming that they did not make the trading

decisionsthemselvessotheyshouldnotberesponsibleforthelosses,aswellas

asking the agency to punish the brokers for the violation. Kanchana Soralum

fromtheLicenceDepartmentcommentedthatitwasimportantthatclientsmade

theirowntradingdecisionsandthatsecuritiesbrokersrefrainfrominterfering

withtheirclients’assetsinanyway,evenwhentheclientsassignedthemtodo

so:

‘Ithinkit isaverygoodregulation.Brokersshallnotinterferewithclients’assetsinany

case and clients should alwaysmake their own decisions. It is wrongful for brokers to

make decisions for the clients, even when the clients ask them to do so. They should

explaintotheirclientsthattheyareforbiddenbytheSECregulationandthattheywillbe

punished if they violate the rule.’ (Kanchana Soralum, Senior Officer, Licensing

Department)

295

Theregulatorswerenextaskedhowtheydeterminedwhichordersweremade

by clients themselves andwhich ordersweremade by brokers for the clients.

The officers replied that they had to carefully listen to conversations between

brokersandclientstomakeadetermination.MsSolarumstatedthatwhenshe

listenedtotheconversations,ifclientstoldtheirbrokerstobuyortosellcertain

sharesatanyamountand/oratanypricethebrokerssawfit,shewoulddeem

such trading instructions incomplete. If the brokers further engaged in trade

based on such incomplete instructions, she would consider that the brokers

madetradingdecisionsinviolationoftheSECregulation.Shefurtheraddedthat

acompleteinstructionmustclearlyspecifythename,theamount,andtheprice

ofthesharethattheclientswouldliketobuyorsell.Theothercommonsituation

waswhenclientsgavevagueinstructions,suchasaskingtheirbrokerstobuyor

sellcertainshareswhentheirpriceswereincertainranges.Shewouldlistentoa

seriesofvoicerecordstoidentifythereasonsforsuchvagueinstructionsandthe

usual level of clients’ involvement in decision-making. If the clients often gave

vagueinstructionsandtheirinvolvementindecision-makingwaslow,shewould

considerthatthebrokershadmadetradingdecisionsfortheirclients.

Theofficerswerethenaskedfortheirviewsonthepressureand/ormotivation

factors leading securities brokers tomake unlawful trading decisions for their

clients. Four officers identified incomepressure as themainmotivating factor,

saying that itwaseasy forbrokers to increase their tradingvolumewhenthey

made trading decisions for their clients. Two officers further added that a

numberofbrokersclaimedthattheyhadmadesuchunlawfultradingdecisions

withgoodintentiontoobtainmoreprofitsforandtoprovidebetterservicesto

theirclients.Inrelationtorationalisation,anappealtohigherloyaltiescouldbe

derived from the interview data as the officers mentioned that a number of

brokershadclaimedtoviolatetheSECregulationforthebenefitoftheirclients.

296

Table33:FactorsLeadingtotheCommissionoftheOffenceof

MakingTradingDecisionsonBehalfofClients(Regulators)


-Goodwill


-Frequentlyhappens

Rationalisation -Appealtohigherloyalties:forthebenefitofclients


Three regulators provided their views on the offence of unauthoriseduse of a

client’saccount.Derivingfromtheearlierinterviewsofsecuritiesbrokersinthe

firstphase,twodifferentpractices(theuseofclients’accountswithandwithout

the account’ owners permission) were presented to the participating officers

during the interviews. In the case of the practice of using clients’ accounts

withoutpermission,onlyMsVibulsilpprovidedheropiniononthematter.The

officer commented that she had rarely heard of such cases and that it was

neither easy norworthwhile to do so since the offending brokers would only

obtainhighertradingvolumebutcouldnotgettheactualfundsoutofthetrading

accounts. The officer was then asked what were the reasons or motivating

factors that leadcertainbrokers touse their clients’ account in sucha fashion.

The officer replied that she was not certain but speculated that it could be

personalgreedandincomepressure.


Broker'sOwnBenefitwithouttheAccountOwner’sPermission(Regulators)


-Incomepressure


-Rarelyhappens


297

In relation to the practice of using clients’ accountswith the account owners’

permission, three participating regulatory officers similarly commented that

theywereawarethatmanybrokershadandusednomineeaccountstotradefor

themselves in order to circumvent the regulations. Nevertheless, the officers

statedthatitwasnoteasyfortheSECOfficetodetectandpunishthesebrokers

forusingthenomineeaccountssinceitwasnoteasytofindconcreteevidenceof

violation. Ms Niensawang expressed that when she conducted on-site

inspections she often came across accounts that she suspectedwere nominee

accounts,however shehadnoevidence toprovebeyonddoubt that theywere

nomineeaccounts.Theofficerfurtheraddedthatnoaccountownerwouldadmit

totheSECofficersthatheorshegavehisorheraccounttothebrokertouseif

that brokerwas a friend or relative. Onlywhere therewas a dispute between

themwould theaccountownerbring theevidence to theSECOfficeasking the

agencytopunishthebroker.

Ms Soralum commented thatwhen experiencedofficers conducted inspections

andlistenedtovoicerecordsofconversationsbetweenbrokersandclients,they

couldsometimesdetectthattheclientswereactuallyfriendsorrelativesofthe

brokersandthatthetradeswerenotmadeforthebenefitoftheclients.Insuch

cases,theofficerswouldconductfurtherinvestigationtoprovethatthebrokers

had wrongly employed the clients’ accounts to trade for themselves. The

researcher further asked Ms Soralum that if the offending brokers employed

theirclients’Internettradingaccountsinsteadoftraditionalaccountstoengage

intrade,woulditstillbepossiblefortheSECOfficetodetectthatsuchaccounts

were nominee accounts or that the trades were made for the benefit of the

brokers?Theofficeradmitted thatwhen the Internet accountswereemployed

thelikelihoodofdetectionwouldbelower.Nevertheless,iftherewasalead,the

SECOfficecouldlookuptheIPaddressofdevicesthatwereemployedtosendin

suspecting orders. If such devices belonged to securities companies, it could

partlysignalthatitwasthebrokerswhomadesuchorders.

The officers were next asked for their opinions on the pressure and/or

motivating factors that lead securities brokers to illegally employ their clients’

298

accounts to trade for themselves. The officers identified personal greed and

income pressure as the potential motivating factors. In relation to

rationalisation,aclaimtoentitlementcouldbeextractedfromtheconversation

with the officers.Mr Vibulsilp andMs Solarum similarly commented that they

could understand that securities brokers, similar to other personnel in the

capital market, would like to engage in trade and obtain profits from stock

trading.However,sincethebrokers’interestsoftenconflictedwiththeinterests

of their clients, the SEC Office had to limit the brokers’ right to trade for

themselves.


Broker'sOwnBenefitwiththeAccountOwner’sPermission(Regulators)


-Incomepressure


-Frequentlyhappens

-DifficulttodetectbytheSECOffice



Three participating regulatory officers provided their views on the offences of

fraudandmisappropriation.Thethreeofficersagreedthatthenumberofcases

had significantly decreased due to the introduction the Automatic Transfer

System(ATS)where fundswereelectronically transferredbetween theclients’

bank accounts and the trading accounts. Nevertheless, Ms Vibulsilp expressed

that, from time to time, there had been cases where brokers forged clients’

signatures and/or fabricated withdrawal documents to misappropriate funds

fromtheclients’tradingaccounts.MsSolarumfurtheraddedthattherehadbeen

afewnumberofcaseswherebrokersdeceivedtheirclientsthattheATSsystem

wasmalfunctioningor that they couldget IPOsharesatdiscountedpricesand

299

askedtheclientstodirectlytransferfundstothebroker’spersonalaccounts.The

brokersthengotawaywiththemoney,astheofficerexplained:

‘Yes,Ihaveseenquiteanumberofcasesinmytimehere.ButIwouldsayitisharderfor

brokerstomisappropriateclients’ fundsnowadayssincewehavetheATSsystem.Funds

intradingaccountsareautomaticallytransferredfromtheclients’bankaccounts.Brokers

no longer handle clients’ cash so they cannot just run awaywith themoney. However,

therearestillcaseswherebrokerstelltheirclientsthattheATSsystemismalfunctioning

or that theycanget IPOsharesatdiscountedprice,andaskclients to transfermoneyto

theirpersonalaccounts.Idon’tknowwhythoseclientsbelievesuchthingsbutthereare

manythatdo.’(KanchanaSoralum,SeniorOfficer,LicensingDepartment)

Inrelationtotheproceedingsandsanctions,MsVichienchaiexplainedthatwhen

theinjuredclientsbroughttheircasestotheSECOffice,theLicenceDepartment

wouldfirstgatherevidence.Ifitwasfoundthatthebrokershaddefraudedtheir

clientsormisappropriatedtheclients’funds,theSECOfficewouldimposesevere

administrativesanctions,usuallyarevocationof licence,upontheoffenders.At

the same time, the Prosecuting Department would investigate whether such

misappropriationand/orfraudulentactscouldbecommittedand/orconcealed

duetoaweaknessininternalcontroloralackofcoordinationbetweenthefront

and the back offices. If it was found that there was a weakness or a lack of

coordination, the companies would also be criminally fined for the failure to

establishandmaintaincredibleinternalcontrolmechanismsasrequiredbythe

regulations.704Nevertheless, if the injuredclientswould liketo initiatecriminal

proceedingsagainsttheoffendingbrokers,theclientswouldhavetofilecriminal

complaintstotheRoyalThaiPolicebythemselves.

The officers were then asked for their opinions on the pressure and/or

motivating factors that lead brokers to defraud their clients and/or to

misappropriate the clients’ funds. The three regulatory officers all identified

personal greed and income pressure as the motivating factors leading to the

commissionofthewrongdoing.Asforrationalisation,noverbalisationcouldbe

extractedfromtheinterview.

704SecuritiesandExchangeActB.E.2535(1992)ss113,282.

300

Table36:FactorsleadingtotheCommissionoftheOffencesof

DeceptionandMisappropriation(Regulators)


-IncomePressure


-Rarelyhappens



BrokerageCompanies

The researcher asked the regulators for their opinions on the differences

between the three typesof securities companies andwhether suchdifferences

leadtoanydifferencesinthetypeandrateofregulatoryviolations.Fiveofficers

providedanswerstothisquestion.Twoofficers,MsSolarumandMsNiensawang

commented that although the three types of companies had generally distinct

internal working cultures, they did not find that any type of companies

monitored the conductof theiremployees significantly stricter thananyof the

others,orthatbrokersfromanytypeofthecompaniesviolatedtheregulations

morefrequentlyormoreseverelythantheothers.

Nevertheless, three officers similarly commented that there were notable

differences in the regulatory compliance standardsbetween the three typesof

brokerage firms: foreign and commercial bank related securities companies

usuallyhadbetterstandardsthanlocalcompanies.MsVibulsilpcommentedthat

commercial bank related and foreign securities companies had higher internal

working standards than local companies and were much stricter with the

conductof their employees thanwere local companies.MsNimthaworn stated

that, under the risk assessment programme (prudential risk, operational/

managementrisk,andcustomerrelationshiprisk)conductedbyherdepartment,

commercialbankrelatedandforeignsecuritiescompaniesgenerallyhadbetter

301

scores and better risk management practices than did local companies.705Mr

Vichienchaicommentedthat,inhisopinion,commercialbankrelatedcompanies

had the highest compliance standard due to the inherited culture from their

parent banks. Foreign securities companies also kept good records sincemost

were subsidiaries of international leading companieswith established systems

and culture. Local securities companies, on the other hand, had the highest

numbersofcasesrelatingtoanyregulatoryviolation.Thisofficeralsoobserved

thatwhentheSECOfficeconductedinvestigations,thecommercialbankrelated

and the foreign securities companiesusuallyprovidedbetter cooperationwith

theauthorityaswellasmorepromptlyrectifiedtheissues.

‘As for compliance standards, I think the best ones are those bank-related companies

followedbyforeignones.Someforeigncompanieshaveveryveryhighworkingstandards

while others are average. Local companies generally had the lowest standards. My

assessmentis,fromthefrequencyofcases,thatthetypesofviolationinlocalfirms,their

levelofcooperationwithus,and theirpromptness in fixing the issuesare thingsweare

unhappywith.Ithinkbankrelatedandforeigncompanieshavebetterstandardsandare

more serious in complying with the law.’ (Sumeth Vichienchai, Senior Officer, the

ProsecutingDepartment)



Four regulators provided their opinions when asking about the impact of

liberalisation of brokerage fees on the commission of fraud and regulatory

violations. All four regulators similarly commented that they had not yet seen

significant changes in securities brokers’ conduct.MsNiensawang commented

that,aftertheliberalisation,securitiescompaniesnowcompetewitheachother

morebothintermsofthereductionofbrokeragefeesandthequalityofservices

but she could not yet see their impact on the brokers’ conduct. Ms Solarum

commentedthat,fromwhenshelastchecked,thefeesofferedtobrokersbyeach

company were not vastly different, and that the type and frequency of cases

705Risk assessment reports of securities brokerage companies can be found at: The Securitiesand Exchange Commission, Intermediary Search Results <http://capital.sec.or.th/webapp/ers/ers_show.php>.

302

involving securities brokermisconduct she dealt with nowwere not different

from prior to liberalisation. Ms Vichienchai also confirmed these statements

fromMs Solarum. Ms Vibulsilp, nevertheless, commented that it was possible

thattheremightbechangesinthenatureofbrokeragefraudbutitwastooearly

to establish the trend since it was only two years after the liberalisation had

occurred.706

5Regulators’AttitudeTowardsBrokers’KnowledgeofLawandEnforcement

Theparticipatingregulatorswereaskedfortheirviewsandopinionsonbrokers’

knowledgeof lawandenforcement.Three regulatorsprovidedanswers to this

question, in which they agreed, from their experience, that Thai brokers had

moderatelevelsofknowledge.MsNimthaworncommentedthatshefoundsome

brokershadverygoodlegalknowledgewhileothershadverypoorknowledgeto

the point that she could not understand how the latter passed the licence

examinations. She further added that some companies providedmore training

thanothersand that securitiesbrokersworking for those firms receivedmore

frequent traininggenerallyandhadbetterknowledge.MsSolarumcommented

thatsecuritiesbrokersshouldhaveadequateknowledgeofthelawsincetheSEC

Officehademployedanumberofchannelstocommunicatenewregulationsand

enforcementpoliciestosecuritiescompaniesandbrokers.Theofficerexplained

thatthemostimportantchannelwasatquarterlyandyearlyseminarsofferedto

complianceofficerswherenewregulations,enforcementpolicies,andkeycases

were covered in detail. The compliance officers were then expected to

communicate such information to brokers and other employees in their

organisations. Similar to Ms Solarum, Ms Vibulsilp also emphasised the

importance of the compliance officers’ seminars. She stated since there were

over50000registeredsecuritiesbrokersat thetimeof the interview(January

2014),itwasimpossiblefortheSECOfficetodirectlycommunicatetosecurities

brokers and compliance officers played a key role in enhancing the brokers’

knowledgeofthelawandtheSEC’senforcementactivities.

706TheinterviewwasconductedinJanuary2014.

303

6Regulators’AttitudeTowardsInternalMonitoringandSanctions

Threeparticipating regulatorsprovidedanswers to interviewquestionson the

effectiveness of the current internal control system to regulate conduct of

securities brokers. All three regulators similarly assessed that, on average, the

internal control administered by securities companies is moderately effective.

MsNiensawang commented that complianceofficershadmade good efforts to

regulate conduct of their companies’ employees.Nevertheless, sheoften found

during inspections that thecomplianceofficersdidnothaveenoughautonomy

and support from management. Ms Solarum commented that the compliance

departments had generally done a good job of monitoring their employees’

conduct, and had cooperated well with the SEC Office when misconduct was

detected. Similar to Ms Niensawang, Ms Solarum further expressed that the

compliancedepartmentsshouldbeabletodoabetterjobiftheyreceivedmore

supportfrommanagement,aswellasmorecooperationfromotherdepartments

within the company. Lastly, Mr Chanveeratham pointed out that somecompanies had really good internal control systems whereas others had

ineffective ones. The officer further stated that if the SEC Office conducted an

inspection and found that a company or certain branches of a company had

recurringviolationsofa specific regulation, itwouldnormallymean that there

wasaninternalcontrolissuethatneededtobeaddressed.TheSECOfficewould

thenhavetoraisetheissuewiththecompliancedepartmentsandgiveoutadvice

and/orsanctions,accordingly.

7Regulators’AttitudeTowardsAdministrativeSanctions

Two officers from the Licence Department provided answers to interview

questions on the administrative sanctions imposed by the SEC Office. It was

noted that participating regulators from other departments intentionally

deferred the questions to their colleagues from the Licence Department. Ms

Vibulsilpstatedthatadministrativesanctionshadbeenthemainsanctionsthat

theSECOfficeemployedtopunishsecuritiesbrokerswhofailedtocomplywith

the regulations.Theofficer further explained that, under theold system, there

304

were four sanctions that were, from least to most severe, a reprimand, a

probationaryorder, a suspensionof licence, anda revocationof licence.Under

thecurrentsystem,onlyasuspensionandarevocationoflicenceremained,asa

probationary order was abolished and a reprimand was reclassified as an

administrative action rather than as a sanction. The researcher asked Ms

Vibulsilp to clarify the difference between an administrative sanction and an

administrativeaction.Theofficerexplainedthat,asanadministrativeaction,the

SECOfficecouldissueareprimandtoanybrokeratanytimewithouthavingto

initiate formal proceedings. On the other hand, to impose administrative

sanctionsuponoffendingbrokers,formalproceedingshadtobeinitiated,aswell

astheremustbeclearevidenceofwrongdoing.Lastly,theresearcheraskedMs

Vibulsilp to assess the effectiveness of the current administrative sanctions in

deterring securities brokers from committing brokerage frauds and related

violations. The officer briefly replied that she thought the sanctions were

adequately severe, especially after the SEC Office had recently issued a new

guidelinetoincreasethelengthofsuspensioninmanyoffences.Intheinterview

withMrSolarum,theofficersimilarlypointedoutthat,underthenewsystem,a

reprimand was reclassified to make it easier for the SEC Office to issue a

reprimand to securities brokerswho commitminor violations or to employ in

cases where the evidence of wrongdoing was insufficient to warrant a more

severesanction.

In relation to a suspension of licence,Ms Solarum commented that itwas the

maintoolthattheSECcurrentlyemployedtopunishoffendingbrokersandthat

the length of the suspension determined the severity of the sanction, ranging

fromonemonthtotwoyears.Whenaskedhowthelengthofthesuspensionwas

determined, the officer replied that the lengthwas determined by the type of

offence, the severity of the wrongdoing, the damage cost, and the previous

record of offending brokers. In addition, Ms Solarummentioned that the SEC

Officealsohadaninternalsanctionguidelineprovidingthesuggestedlengthof

punishment in different cases. Nevertheless, the officer stated that such a

guidelinewas classified for internal use only and could not be revealed to the

researcherforthepurposeofthisstudy:

305

‘Thelengthofasuspensionwasusuallydeterminedbythetypeofoffence,theseverityof

wrongdoing,thedamagecost,andthepreviousrecordofoffendingbrokers.Well,Icantell

youthatwealsohaveasanctionguideline.It isalongtableshowingsuggestedlengthof

suspension indifferentcases.However, theguideline is for internaluseonly. Iamsorry

thatIcannotletyouseeitasitisclassified.’(KanchanaSoralum,SeniorOfficer,Licensing

Department)

Theofficerwasnextaskedwhetherasuspensionoflicencewasaneffectivetool

indeterringbrokeragefraudandrelatedviolations.Theofficerrepliedthatshe

wasof the view that the sanctionwasmoderately efficient sincemostbrokers

shehadtalkedtotoldherthattheyweremoreafraidofthesuspensionimposed

by theSECOffice.Deriving from theearlier interviewswith securitiesbrokers,

theofficerwasthenaskedwhethertheSECOfficewasawarethatthesuspended

brokerscouldpartlycircumvent thesuspensionby transferring theirclients to

their trusted colleagues and had their colleagues transferred the shares of

commissionfeesfromthoseclientsbacktothem.Theofficeransweredthatthe

agencydidknowofsuchpracticesyetitwasnoteasytostopthecircumvention.

Nevertheless,shecommentedthatshedidnotthinkthatitwasamajorproblem

sinceitwasunlikelythatsuchpracticescouldbeemployedifthesuspensionwas

forlongerthanacoupleofmonthsasitcausedalotofinconveniencetoclients

and that most companies she knew of would not retain brokers who were

suspended for a lengthy period of time. In addition, the officer was asked

whethertheSECOfficewasawarethatanumberofsecuritiescompanieshelped

their suspended brokers circumvented the sanction by transferring them to

workinotherdepartmentsthatdidnotrequirethebrokeragelicenceduringthe

suspendedperiod.MsSolarumrepliedthattheSECOfficewasalsoawareofsuch

aloopholebuttherewasnothingtheagencycoulddosincetheSECOfficedidnot

havepowertoprohibitthesuspendedbrokersfromperformingothertasksthat

did not require the licence for their employing companies. In relation to a

revocation of licence, the officer commented that it was the most severe

administrativesanctionthattheSECOfficecouldimposeupontheoffendersand

thelengthofaprohibitiononre-applicationwasfromtwototenyears.

306

8Regulators’AttitudeTowardsCivilSanctions

Only one regulatorprovided answers to interviewquestions on civil sanctions

and compensation.Ms Solarum commented that it was important that clients,

whosuffereddamagefrombrokers’misconduct,wererightfullycompensatedby

securities companies. Nevertheless, the officer stated that such civil matters

werebeyondthescopeoftheSECOffice’slegalfunction,astheSECOfficedidnot

have any statutory power or resources to seek compensation on behalf of

investors. The officer further commented that injured clients often

misunderstood this point and brought their cases to the SECOffice asking theagency to help them seek compensation from securities companies. The SEC

Office, thus, had to regularly inform the clients that the agency could only

identifythewrongdoingandimposeadministrativesanctionsupontheoffending

brokers, and that, in order to obtain compensation and further damages, they

hadtoopennegotiationswiththecompaniesorinitiatecivilclaimsincourtsby

themselves.

9Regulators’AttitudeTowardsCriminalSanctions

Threeofficersprovidedtheirviewsontheuseofcriminalsanctionsinrelationto

brokeragefraudsandrelatedviolations.Nevertheless,itwasnotedthat‘criminal

sanction’ that the participating officers referred to was dissimilar to ‘criminal

sanction’ that the participating brokers referred to in their interviews. The

criminal sanction that the officers focused onwas a criminal fine that the SEC

Office imposed on the securities companies for their failure to implement

internal control mechanism, 707 whereas the brokers focused on criminal

sanctions, which could result when individual clients sought fines from or a

periodofimprisonmentfortheclient.

Ms Niensawang commented that a corporate fine, together with an

administrative sanction, was the main sanction package that the SEC Office

employed to regulate the conduct of the securities companies and their707SecuritiesandExchangeActB.E.2535(1992)ss113,282.

307

employees.WhenevertheSECOfficereceivedcomplaintsfromclientsorcarried

outinspectionsandfoundthatthewrongdoingwastheresultofthecompanies’

failure to establish and maintain credible internal control mechanisms as

requiredby the regulations, theSECOfficewould initiate criminalproceedings

against the companies and impose a corporate fine. Ms Solarum and Mr

Vichienchai similarly stated that a corporate fine was an important tool to

regulatebrokers’conductaswellastoinducesecuritiescompaniestoinvestin

internal control systems todeter futuremisconducts.708Theofficerswere then

askedwhether they thoughta corporate finewasaneffective tool indeterring

brokers from committing wrongdoing. The three officers agreed that, in their

opinion, a corporate finewasmoderately effective, as a number of companies

had accordingly rectified and enhanced their internal control after they were

fined. Nevertheless, the officers commented that the amount of maximum

corporatefinewas,inmanycases,toolowandshouldbereviewed.709

The researchernext asked theofficers for their viewson theuseof individual

criminal sanctions to punish the brokers who committed fraud and/or

misappropriation against their clients. The officers commented that offending

brokersshouldbecriminallypunished for theirwrongdoing, inaddition to the

administrative punishments that the SEC Office imposed upon them.

Nevertheless,fortheoffencesoffraudandmisappropriation,theSECOfficedid

nothaveapolicytoinitiatecriminalproceedingsonbehalfoftheinjuredclients

sincetheagencyconsideredthattheywereprivatemattersbetweenthebrokers

and the clients. The injured client would have to initiate the proceeding

themselves. The SEC Office would only initiate criminal proceedings in the

offenceswherethegeneralpublicorthemarketwasaffectedasawhole,suchas

intheoffenceofinsidertradingandtheoffenceofmarketmanipulation.

708SeedetailsinChapter3.709Section 282 of the of the Securities and Exchange Act B.E.2535 (1992) prescribes that anysecuritiescompanywhichfailtocomplywithsection113isliabletoafinenotexceeding300000baht and a further fine not exceeding 10 000 baht for every day during which the violationcontinues.

308

DFindingsfromtheThirdInterviewPhase:Investors

1ClientsRelationshipwithSecuritiesBrokers

At thebeginningof the interviewsession, theparticipating investorswere first

asked to describe their relationship with their brokers. All three participants

similarlystatedthat theyhadseveral tradingaccountswithdifferentsecurities

companies, and had multiple brokers looking after their accounts. Their

relationship with each broker therefore varies and depends on many factors.

Oneparticipantexplainedthathewasclosertothebrokerwholookedafterhis

traditionalaccountsincehehadbeenwithherforalongtimeandtalkedtoher

moreoften.Healsomentionedthatheconsideredherasafriendandvaluedher

advice and recommendations. On the other hand, he said hewas not close to

brokerswhowere assigned to look after his Internet accounts sincehe barely

had interaction with them. Another participant pointed out that she had two

brokers that she trustedmore than others. One of themwas her actual friend

whoworkedasabroker.She told that itwasher friendwhopersuadedher to

open trading accounts and make investment in the stock market. The other

brokerwas randomly assigned to her, but they got alongwell and the broker

gave her good advice so she decided to stick with him. The last participant

mentioned that she used to have a very close and trustworthy broker looking

afterhertradingaccountsbutthebrokerdecidedtoquittheindustryafewyears

ago.Thesecuritiescompanyassignedheranewbrokerbutshedidnotfeelmuch

connection. The participant also added that nowadays she mostly engaged in

tradevia the Internet tradingsystemsothebroker-clientrelationshipwas less

importantthanitusedtobe.

Theparticipantswerethenaskedwhethertheirrelationshipwiththeirbrokers

hadanyeffectontheirtradingdecisions.Allthreeparticipantsreportedthatthe

level of relationship did affect their decisions to a certain extent. The first

participantbrieflycommentedthatsheusuallygavetradingorderstothebroker

whogaveher thebest service and she feltmost comfortablewith.The second

participantstatedthatthemorehetrustedthebroker,thehigherthevolumeof

309

transactionhewoulddaretoengage.Headdedthatittooktimeforclientsand

brokerstoreallyknoweachotherandtodeveloptrustamongthem.Lastly,the

third participant provided that, as she had several brokers looking after her

accounts, she usually gave most orders to the one she had the closest

relationshipwith.


The participating investors were next asked for their general opinions on

pressurefactorsthatsecuritiesbrokershadtoface inthecourseoftheirwork,

especiallythosethatmight leadtoregulatoryviolationsandthecommissionof

fraudulentpractices.Twoparticipantsidentifiedincomepressureandcompany

pressure as the two main sources, whereas the other participant identified

income pressure as the only source. In relation to the income pressure, the

participants commented that they knew that the higher the trading volume

securities brokers obtained from clients, the higher income thebrokerswould

receive. So if the brokers did not obtain adequate income, theymight have to

resort toothermeans togainmore income,which tocertainbrokers including

committingregulatoryviolationsand/orfraudulentacts.

3 Investors’ Views on Specific Factors Contributing to the Commission of Focus

Offences


The participating investors were asked for their views and opinions on the

offenceoffailingtoproperlyrecordtradingorders.Allthreeparticipantsagreed

with the rules and commented that all trading orders should be properly

recordedtoavoidfuturedisputesbetweenbrokersandclients.Theparticipants

were further asked for their opinions on the reasons or pressure factors that

leadtoviolation.Mostinterestingly,allparticipantsrepliedthatclientswerethe

mainfactor.Theparticipantsadmittedthatitwasmuchmoreconvenienttocall

the brokers’ mobile phones than securities companies’ landlines. The first

310

participantstatedthatshedidnotknowthatcallingherbroker’smobilephone

tomaketradingorderswasagainsttheSECregulationandthatherbrokerhad

nevertoldher.Theotherparticipantstatedthatduringtheearlytradinghours,

shefoundthatthecompany’slineswerealwaysbusy,sincemanyclientscalled

tomakeordersat the same time, so shewould rather callherbroker’smobile

phone or sending texts to give trading instructions. The third participant

mentioned that when he called the company’s lines he had to dial several

extensionsandwaitforalongtimebeforehegottomakeorders,whichwastoo

late when he wanted to buy or sell volatile stocks. The participant further

suggested that the SEC should allow securities brokers to record voice orders

using their mobile phones for the convenience of both the brokers and the

clients.

Theparticipantswerenextaskedtogivetheiropinionsonthedifficultyandthe

frequency that the offencewas committed. All participants commented that it

was easy to violate the rule and speculated that the violation happened very

frequently. In relation to rationalisation, it could be inferred from the

conversationwiththeparticipatinginvestorsthattheusualverbalisationwasa

denial of responsibility, which in this case was an admission of blame on the

clients’part.

Table37:FactorsLeadingtotheCommissionoftheOffenceofFailingtoProperlyRecordTrading

Orders(Investors)



-Frequentlyhappens

Rationalisation -Denialofresponsibility:admissionofblamebyclients


The participants were next asked for their views and opinions on the rule

prohibiting securities from making trading decisions for their clients. All

311

participants agreed that it was a good rule and clients should always make

decisions themselves. All participants asserted that they had never had their

brokersmakedecisionsforthem.Whenaskedwhysomeclientslettheirbrokers

makingsuchdecisions,theparticipantsansweredthatsomeclientsmightbetoo

lazy tostudythemarketor toobusy to followthe trend,orgenuinelybelieved

that theirbrokerscouldmakebetter tradingdecisions.Oneparticipant further

commented that those clientsmust really trust their brokers, which he found

nonsensical. The participants were further asked for their opinions on the

reasonsorpressurefactorsthatleadbrokerstomakedecisionsfortheirclients

eventhoughitwasagainsttherule.Theparticipantspointedouttwofactorsthat

were the client’s request and the broker’s goodwill. The other participant

commentedthattypicalinvestorsusuallyfocusedonasmallnumberofstocks.It

was not uncommon for brokers to know clients’ trading patterns and,

sometimes,withgoodwill,theyengagedintransactionsonbehalfofheirclients

accordingtosuchpatterns.

Theparticipantswere thenasked toprovide theiropinionson thedifficultyof

committing the offence and the frequency with which that the offence was

committed. Twoparticipants commented that itwas easy for brokers tomake

decisionsfortheirclients,whereastheothercommentedthatitwasnothardbut

nottooeasyforthebrokertodoso.Hepointedoutthatclientsmustreallytrust

theirbrokersandthebrokersmustbeconfidentsuchtransactionswouldresult

inprofit. Inrelationto the frequencyof theviolation, the first twoparticipants

believed that the violation happened frequently. On the other hand, the other

participantpointedoutthattheviolationshouldhappenlessandlesssincethe

newgenerationof investorshadmuchbetter technicalknowledgethantheold

ones.

In relation to rationalisation, it could be inferred from the conversation that

rationalisation that the participating investors believed that the offending

brokersusuallyemployedwereadenialofresponsibility(blameshifting)andan

appealtohigherloyalties(forthebenefitofclients).

312

Table38:FactorsLeadingtotheCommissionoftheOffenceofMakingTradingDecisionson

BehalfofClients(Investors)


-Goodwill


-Frequentlyhappens(2)/Intermittentlyhappens(1)

Rationalisation -Denialofresponsibility:admissionofblamebyclients



The participating investors were next asked for their views on the offence of

unauthoriseduseofaclient'saccount.Similarlytotheinterviewsinthefirstand

thesecondstages,twodifferentpracticeswerepresentedtotheparticipants:the

use of clients’ accounts with and without their permission. In relation to the

practice of using clients’ accountswithout the account owners’ permission, all

participantsagreedthatitwastotallywrongforsecuritiesbrokerstodosoand

that theoffenders shouldbe severelypunished.Nevertheless, twoparticipants

questionedwhyanysecuritiesbrokerwouldtakesuchrisksinceheorshewould

onlyobtainhighertradingvolumebutnottheactualprofitfromthetransactions

since only the account owners could take the funds out of the accounts. In

relation to pressure or motivating factors, the participants identified income

pressure as the potential factor. The participants further commented that, in

theiropinion,theoffencewasnoteasytocommitandrarelyhappened.Lastly,no

rationalisation or verbalisation could be extracted from the conversationwith

theparticipants.

313


Broker'sOwnBenefitwithouttheAccountOwner’sPermission(Investors)



-Rarelyhappens


Asfortheuseofclients’accountswiththeaccountowners’permissionortheuse

ofnomineeaccounts,allparticipantsstatedthattheyhadregularlyheardofsuch

practice. One participant commented that it was wrong and harmful for

securities brokers to use nominee accounts to trade for themselves as their

clients would be at a disadvantage since the brokers would likely focus on

tradingstocksforthemselvesthanprovidinggoodservicestoclients.Theother

twoparticipatinginvestors,ontheotherhand,arguedthattheSECOfficeshould

not limitbrokers’right to trade for themselvesas theydidnotbelieve that the

practicewasthatdamaging.Oneparticipantcommentedthatalthoughthetrade

wasdonethroughnomineeaccounts,thefundsactuallybelongedtothebrokers

andtheystoodtogainandloseprofitssimilartoordinaryinvestors.Shedidnot

seethepointinrestrictingthebrokers’righttotradeforthemselves.Theother

participantcommentedthatmostsecuritiesbrokers,bythenatureoftheirwork,

would also like to trade for themselves and there was no effective way to

prohibitthemfromdoingso

The participating investors were next asked for their opinions on potential

pressure or motivation factors that lead securities brokers to violate the

regulation. For this offence, the participants identified greed and income

pressure as the two main factors. In relation to opportunity factors, the

participants commented that it should be easy for brokers to set up and use

nomineeaccounts.Thealsocommentedthattheoffencesshouldhappenallthe

time and it was very hard for the authority to detect such wrongdoing. In

relation to rationalisation, it can be inferred from the conversation with the

314

participating investors that rationalisation that they believed the offending

brokersusuallyemployedwasaclaimtoentitlementandadenialofinjury.


Broker'sOwnBenefitwiththeAccountOwner’sPermission(Investors)


-Incomepressure


-Frequentlyhappens


-Denialofinjury


The participating investors were asked for their views on the offences of

deception and misappropriation. All participating investors agreed that the

offenceswereveryseriousanddamaging,andthattheoffendingbrokersshould

be both administratively and criminally punished. One participant commented

that if shewasdefraudedbyher trustedbroker, shewouldbe veryupset and

mightleavethesecuritiesmarketaltogether.Whenaskedhowsecuritiesbrokers

might commit fraud or misappropriate funds of their clients, all participants

agreed that it should not be easy for the brokers to do so since securities

companies had installed various security systems to protect their clients. Two

participantscommentedthat theyhadheardfraudulentcasesrelatingto initial

public offering (IPO). They explained that it was usual that large numbers of

investorswouldwanttoobtainthesenewsharesbutcouldnotdosoduetothe

limited numbers available. In such situations, unscrupulous brokersmight tell

theirclientsthattheycouldpersonallyacquiresuchsharesiftheclientsagreed

totransfersomedepositsorthewholepaymenttothebrokers’orthirdparties’

personal bank accounts. The brokers then fled with the money. The other

participant commented that the other possibility he could think ofwaswhere

315

there was collusion between brokers and officers from the back office in

fabricatingdocumentsandforgingclients’signatures:

‘OnecaseIcanthinkofiswherebrokersandbackofficeworktogethertocheatinvestors.

I have heard of several of such cases. The brokers forge signatures and fabricate

withdrawal documents and those admin people, instead of protecting us, help hiding

evidence.Itisreallysad.Ihopeitwouldneverhappentome.Thinkingofit,Ihavetobe

morecarefulIthink.(IR2,RepresentativeofInvestor,theThaiInvestorAssociation)

The participantswere next asked for potential pressure ormotivation factors

that lead brokers to commit fraud and/or misappropriation. The participants

identified greed as the only factors. In relation to opportunity factors, the

participantscommentedthat,duetoheightenedsecurityonthepartofboththe

stockexchangeandsecuritiescompanies,itmustbehardandrareforbrokersto

successfullycommitfraudand/ormisappropriationagainstclients.Inrelationto

rationalisation,similartotheinterviewofsecuritiesbrokersinthefirstphase,no

verbalisationcouldbeextractedfromtheinterview.

Table41:FactorsleadingtotheCommissionoftheOffencesofDeceptionandMisappropriation

(Investors)



-Rarelyhappens



BrokerageCompanies

Theparticipatinginvestorswerenextaskedfortheirviewsandopinionsonthe

differences between the three types of securities companies, especially in

relationtotheconductoftheiremployingbrokers.Allthreeparticipantsagreed

thattheyfoundnosignificantdifferencebetweentheconductofthebrokers.One

participantfurtheraddedthattheonlyrealdifferencesbetweenthecompanies

316

thatmattered tohimasan investorwere the reliabilityof the Internet trading

system and the quality of securities research the companies provided to their

clients.



The participants were asked whether they could notice any change in the

brokerageindustryandintheconductoftheirbrokersaftertheliberalisationof

brokerage fees had taken place. All three participants reported that the

liberalisation had little impact on them since their trading volumes were not

large enough to allow them to negotiate for a reduction of fees. Nevertheless,

theysuggestedthattheycouldfeelcertainminorchangesintheindustry,suchas

thehighercompetitionbetweensecuritiescompaniesfornewclientsandsmall

reductions of fees for existing clients. In relation to the conduct and services

providedbytheirbrokers,allthreeparticipantsreportedthattheycouldseeno

change.

6Investors’AttitudeTowardsAdministrativeSanctions

Theparticipatinginvestorswereaskedabouttheirviewsandopinionstowards

thecurrentadministrativesanctionsimposedbytheSECOfficeontheoffending

brokers.Allparticipantsagreedthat,tothem,reprimandwasanacceptablefirst

sanctionforminoroffences.Asforasuspensionoflicence,oneparticipantstated

that the sanctionwas adequately severe formost offences since the offending

brokerswouldnotbeabletoworkandearntheirincomeforaperiodoftime.On

theotherhand,twoparticipantscommentedthattheydidnotthinkthesanction

wasveryseveresincetheyknewofcaseswheretheoffendingbrokersresumed

workingafterthesuspensionandrecommittedtheoffenceagain.Theyproposed

that if it was clear that the offenders had malicious intention, their licences

should always be revoked and banned from the industry for life. All three

participants agreed that the revocation of licencewas a proper administrative

sanctionforseriousbrokerageoffences.

317

The participants were next asked whether clients would know if the SEC

administrativelysanctionedtheirbrokers.Allparticipantsansweredthatitwas

unlikelythattheclientswouldknowsinceveryfewwouldpayattentiontothe

legalnewsonbusinessnewspapersortheSEC’swebsiteandtheydidnotthink

that the companies and the brokerswould inform the clients. One participant

addedthatheoncereadanewspaperandfoundoutbychancethathis former

brokerhadbeenpunishedformisconduct:

‘Ihaveadirectexperiencewiththis.Aroundtwoyearsago,Irandomlypickedabusiness

newspaperupwhenIwaswaitingforsomething.TherewasnewsontheSEC’ssanction.I

read it and found that my former broker was punished for misconduct. I would never

know if I did not pick that newspaper up.’ (IR3, Representative of Investor, the Thai

InvestorAssociation)

7Investors’AttitudeTowardsCivilSanctions

Theparticipantswerenextaskedfortheirviewsandopinionsoncivilsanctions

andaclaimforcompensationincaseswheretheyincurreddamagesasaresult

of wrongdoing committed by their brokers. All three participating investors

agreed that they would seek compensation from the securities companies

throughnegotiation.Iftheycouldnotreachsettlementwiththecompanies,they

wouldpresent thedisputes to the SECOffice and the civil courts, respectively.

Nevertheless, all participantswere confident that they shouldbe able to settle

theircaseswiththecompaniessincethecompanieswouldfearlosingcredibility

andreputation.Oneparticipantcommentedthatshewouldnotseekfurtherlegal

measuresagainsttheoffender,butratherletthecompanydecidehowtopunish

itsemployee:

‘If that somehowhappens, Iwill first talk to the supervisor ofmybroker andnegotiate

withthecompanyforcompensation.Ifthebrokerisreallyinthewrong,theywillagreeto

settle.Nosecuritiescompanywouldliketobeindisputeswithitsclients.ItislikelythatI

wouldaskthecompanytosendmeanewbroker,abetterone,andletthemdealwiththe

badonethemselves.IwouldratherfocusontradingthatwastingtimetalkingtotheSEC

orgoingtocourt.’(IR1,RepresentativeofInvestor,theThaiInvestorAssociation)

318

8Investors’AttitudeTowardsCriminalSanctions

Inrelationtocriminalsanctionsandproceedings, it is interestingthatall three

participatinginvestorsstatedthattheywouldprefernottogotocriminalcourts,

sinceitwouldtakealotoftimeandresources.Oneparticipantcommentedthat,

eveniftheoffenceweresevere,hewouldrathernotseekcriminalsanctionand

wouldbesatisfiedwithamonetarysettlement.Theparticipantfurtherproposed

thatthereshouldbeagovernmentagencyprovidingassistancetoinjuredclients

inseekingcriminalsanctionagainstoffendingbrokersandsecuritiescompanies.

Withoutsuchagency,fewinvestorswouldbewillingtospendtimeandmoneyto

pursue criminal sanctions against offenders. The other two participants

commentedthattheywouldatleastfilecomplaintswiththepolicebutwhether

theywouldcontinuewiththecriminalproceedingsdependedonthevalueofthe

damagesandtheresultofthenegotiationwiththeirsecuritiescompanies,asone

oftheparticipantsreflected:

‘If the offence is very severe, likewhenmybrokermisappropriatesmymoney, Iwill at

leastfileacomplainttothepoliceandnegotiatewiththecompany.Butfrankly,Iamnot

surewhatIwoulddoafterthat.Itdependsonthedamagesandresultofthenegotiation.

As I said, if the company agrees to compensate me, I may not push on with criminal

proceedings. This thing [criminal trial or criminal matter negotiation] takes time and

money.Nobody likes going to court.Well, I still think theoffenderneeds tobe severely

punishedbutitwouldbetootroublesomeifIhavetodoitbymyself.’(IR1,Representative

ofInvestor,theThaiInvestorAssociation)

9Investors’AttitudetowardstheSECRegulatoryandEnforcementFunctions

The last topic investors were asked to comment on in interviews was the

participants’attitudetowardstheSEC’sEnforcementFunctions.Theparticipants

stated that they have little confidence in the SEC’s capability in regulating

conduct of securities brokers. One participant commented that the SEC Office

hadfewofficerswhilethereweremanysecuritiesbrokersandinvestors inthe

market. The other participant stated that she rarely heard of the SEC

enforcementactivities.SheproposedthattheSECOfficeshoulddomorepublic

319

relations to increase investors’ confidence.The lastparticipantmentioned that

the SEC Office should do better in detecting stock-price manipulation and

apprehendingboththeinvestorsandthebrokerswhoengagedinsuchunlawful

schemes.

ESummaryofFindingsinRelationtotheFocusOffences


Data fromthe interviewsshowedthat theoffenceof failingtoproperlyrecord

trading orders was a key issue in the Thai brokerage industry. Although all

participantsagreedthattheregulationrequiringsecuritiesbrokerstoproperly

record all trading orders was an essential rule to protect both brokers and

clients, they stated that it was one of the hardest regulations to fully comply

withforanumberofreasons.Thefirstreasongivenwasthatclientsnowadays

prefertocallthebrokers’mobilephonestomakeordersandrefusetocallthe

securities companies’ landlineswhere conversationswere recorded. Secondly,

manybrokersstatedthat theyfoundtheregulationtobeoutdatedandshould

be updated to reflect current technologies and business practices. They

suggestedthatvoiceordersrecordedfrommobiledevices,aswellasemailsand

textmessages,shouldberecognisedasadditionalformsofproperrecords.The

thirdand lastexplanation,which linked to theother three focusoffences,was

that in many cases, clients had never given actual trading instructions to

brokers. The order was actually made by the brokers who made trading

decisions for their clients, by the brokers who illegally employed clients’

accountstotradeforthemselves,orbythebrokerswhoputinorderstocommit

fraudand/ormisappropriationagainsttheirclients.

As for pressure/motivation factors leading brokers to commit the offence of

failingtoproperlyrecordtradingorders,thebrokersidentifiedfoursourcesof

pressure, from the highest to the lowest frequency: (1) client pressure, (2)

market pressure, (3) income pressure, and (4) ideology. Client pressure was

reportedby all brokers tobe themost importantpressure asmore andmore

320

clients insisted on calling brokers’ mobiles or sending text messages to give

tradinginstructions,andthreatenedtomovetheiraccountsiftheirbrokersdid

not agree to take suchorders.The interviewsof regulators provideddifferent

viewpoints on the issue. Two sources of pressure were identified: income

pressureandclientpressure.Unlikethebrokers,theSECOfficersgaveastrong

emphasisonincomepressure.Theystatedthatthemostimportantreasonwhy

many brokers did not properly record trading orders was to conceal other

violations that were committed to increasing their income. As for the client

pressure, the officers commented that although they were aware that many

clientspreferredtocallorsendtextstotheirbrokers’mobilephones,theydid

notthinkthatitwasavalidgroundforthebrokerstoevadetheirresponsibility

in complyingwith the regulation.Lastly, the interviewsof investors confirmed

the findings from thebroker interviews. The investors admitted that theydid

not like calling the companies’ landlines and would rather call the brokers’

mobilephonestomaketradingorders.

In terms of opportunity factors, all the participating brokers, regulators, and

investorsagreedthattheviolationcouldbeeasilycommittedandhappenedvery

frequently. As for rationalisation employed by the offenders to reduce their

cognitivedissonance,threegroupsofverbalisationcouldbeextractedfromthe

brokerinterviews,whichwere(1)aclaimthattheregulationwasobsolete,(2)a

denialofresponsibility,and(3)anappealtohigherloyalties:forthebenefitsof

clients.Basedontheconversationswiththeregulatorsandtheinvestors,onlya

denial of responsibility in the form of a shifting of blame to clients could be

inferredfrominterviewdata.

321

Table42:OpinionsaboutFactorsOperatedonSecuritiesBrokerswhoCommittedtheOffenceof

FailingtoProperlyRecordTradingOrders(SecuritiesBrokers,Regulators,andInvestors)

FactorIdentified Brokers Regulators Investors

Pressure/Motivation -Clientpressure

-Marketpressure

-Incomepressure

-Ideology

-Incomepressure

-Clientpressure

-Clientpressure

Opportunity -Technicallyeasyto

commit

-Frequently

happens

-Technicallyeasyto

commit

-Frequently

happens

-Technicallyeasyto

commit

-Frequentlyhappens

Rationalisation -Claimthatthe

regulationis

obsolete

-Denialof

responsibility

-Appealtohigher

loyalties

-Denialof

responsibility

-Denialof

responsibility


Based on the interview data, sixteen from eighteen brokers agreed with the

currentruleprohibitingbrokersfrommakingtradingdecisionsfortheirclients.

Thebrokers further explained that themain reason for theviolationwas that

their clients had asked them to make trading decisions and they were in a

difficultpositiontoeitheracceptorrejectsuchrequests.Iftheyagreedtomake

thedecisionsandthetradesresulted in losses,disputescouldeasilyoccur.On

theotherhand, thebrokers feared that, if they refused, their clientswouldbe

unhappyandwoulddecidetomovetheirtradingaccountstootherbrokerswho

agreedtoprovidesuchservice.Twoparticipatingbrokersdidnotagreewiththe

currentruleandcommentedthattheyshouldbeallowedtomakedecisionsfor

their clients if prior consent was given. The SEC Officers, in their interviews,

stronglyrejectedsuchanideaandemphasisedthatclientsshouldalwaysmake

theirowndecisionsandthatsecuritiesbrokersshouldrefrainfrominterfering

322

with the clients’ assets, even when the clients asked them to do so. It was

interesting thatall theparticipating investorsclaimed that theyhadneverhad

theirbrokersmakedecisions for themanddonotunderstandother investors

whohaddoneso.

Inrelation topressure/motivation factors leadingsecuritiesbrokers tocommit

the violation, the participating brokers identified income pressure, client

pressure, and goodwill as major factors. A small number of participants also

identifiedmarket pressure and companypressure asminor factors that could

leadtotheviolation incertaincircumstances.Thebrokersexplainedthat, first

andforemost,makingtradingdecisionsforclientswastheeasiestwaytoraise

theirtradingvolume,whichsubsequentlylessenedtheirincomepressure.Asfor

clientpressure, thebrokersstatedthat theirclientsoftenaskedthemtomake

trading decisions and they found that it was hard for them to reject such

requests.Brokers’goodwillwasidentifiedasthethirdmajorfactors.Anumber

ofbrokerscommentedthatitwascommonforthemtoknowtheirclients’usual

trading patterns and sometimes they decided to put in orders based on such

patterns without clients’ instructions. The SEC officers identified two

pressure/motivation factors, which were: income pressure and brokers’

goodwill. The participating investors, interestingly, did not identify income

pressurebutpointedouttoclientpressureandbrokers’goodwillasthemajor

factorsleadingtothecommissionoftheviolation.

Intermofopportunityfactors,allbrokersagreedthatitwastechnicallyeasyto

commit the violation and most stated that the violation happened very

frequentlyand throughout the industry. It shouldbenoted thatsevenbrokers

admittedtomakingtradingdecisionsfortheirclientsfromtimetotimeandthe

otherfiveadmittedtomakingsuchdecisionsonaregularbasisatthetimeofthe

interview.Boththeregulatorsandtheinvestorsalsoconfirmedthattheoffence

was not technically difficult to commit and that the violation happened

frequentlyintheThaisecuritymarket.

323

Rationalisations employed by offending brokers included four groups of

verbalisation,whichwere: (1) a claim that the regulationwas obsolete, (2) a

denialofresponsibilitywheretheblamewasshiftedtotheclients,(3)anappeal

tohigherloyaltieswherethebrokersclaimedthattheviolationwascommitted

forthebenefitoftheirclients,and(4)aclaimthateveryoneelseintheindustry

was committing the violation so they had to do the same. Only an appeal to

higher loyalties could be inferred from the conversation with the regulators,

whereasbothanappealtohigher loyaltiesandadenialofresponsibilitycould

beidentifiedintheinvestorinterviews.


MakingTradingDecisionsonBehalfofClients(SecuritiesBrokers,Regulators,andInvestors)

FactorsIdentified Brokers Regulators Investors

Pressure/Motivation -Incomepressure

-Clientpressure

-Goodwill

-Marketpressure

-Companypressure

-Incomepressure

-Goodwill

-Clientpressure

-Goodwill


commit

-Frequentlyhappens

-Technicallyeasy

tocommit

-Frequently

happens

-Technicallyeasy

tocommit

-Frequently

happens

Rationalisation -Claimthatthe

regulationisobsolete

-Denialofresponsibility

-Appealtohigher

loyalties

-Claimthateveryone

wascommittingthe

violation

-Appealtohigher

loyalties

-Appealtohigher

loyalties

-Denialof

responsibility

324


The third focusoffence is theoffenceofunauthoriseduseofaclient'saccount.

Thereweretwounlawfulpracticesthatfallunderthesameprohibition.Thefirst

was the use of clients’ accounts for brokers’ benefits with permission from

clients,whereas the secondwas the use of such accountswithout permission.

BothpracticeswereprohibitedbythecurrentSECregulation.710

(i)TheUseofaClients’AccountfortheBrokers’OwnBenefitswithPermission

The brokers explained that the main reason they need to use their clients’

accountswastocircumventtheregulationrequiringsecuritiesbrokerstofollow

specificrequirementsandobtainpriorapprovalfromtheSECOfficebeforethey

could trade stocks for themselves. It was, therefore, not convenient for the

brokers to use their own accounts and many brokers asked their clients for

permission to use the clients’ accounts to trade. The participating brokers

furtherexplainedthatthereweretwomethodsofdoingso.Thefirstwasprofit

sharingwherebrokersputfundsintotheclients’accountstotradeandsharethe

profitswith the clients. The second,whichwasmore common,was the use of

nominee accounts where securities brokers asked their friends or family

memberstoopentradingaccountsandhandedovertheaccountstothebrokers.

Fourteen brokers agreedwith the rule prohibiting brokers from using clients’

accountsforthemselveswhiletheotherfourbrokersarguedthattheyshouldbe

abletousesuchaccountsiftheaccountownersgavepermission.Theregulators,

in their interviews, commented that they were aware that many brokers had

usednomineeaccounts.Nevertheless,itwasnoteasyfortheagencytodetectthe

wrongdoing and punish these brokers since it was not easy to find concrete

evidence of violation. The regulators further explained that only in two

circumstances that the SECOfficewere likely todiscover thewrongdoing.The

firstwaswheretherewasadisputebetweenthebrokerandtheaccountowner

and the account owner brought the case to the attention of the officers. The710TheSECNotificationNo.KorLorTor/Kor/Wor.12/2011.

325

secondwaswhentheSECofficersconductedon-siteinspectionsandfoundthata

large number of records were missing. The participating investors provided a

different viewpoint on this issue. Although they agreed that securities brokers

should be prohibited from using their clients’ account for themselves, they

arguedthattheSECshouldnotlimitthebrokers’rightsinthefirstplace,asthey

didnotseeanydamagefromsuchpracticesaswellastherewasnoeffectiveway

toprohibitbrokersfromtradingforthemselves.

Inrelationtopressure/motivation factors leadingtobrokersusingtheirclients’

accounts to trade for themselves, the brokers identified three major factors,

which were greed and jealousy, income pressure, and ideology. Company

pressurewasalsomentionedbyonebroker.Amajorityofbrokerscommented

that greed and jealousy were the most important factors. They usually felt

jealouswhentheysawtheirclientsearning largeprofits fromtradingtheyhad

recommended, but theywere not able to obtain the same profits. The second

factor was income pressure, as brokers also obtained higher trading volume

whentheyconductedtransactionsforthemselves.Thethirdmajorfactorwasa

clashofideology.Severalbrokersassertedthattheydisagreedwiththecurrent

limitationsandbelievedthattheyshouldhavesimilarrightstotheirclients.The

regulators and the investors similarly identified personal greed and income

pressureasthemotivatingfactorsforsuchpractice.

Intermsofopportunity factors,allparticipatingbrokerscommentedthat itwas

technically easy for securities brokers to set up and use nominee accounts,

whereasitwasslightlymorecomplicatedtoengageinaprofitsharingscheme.

They also believed thatmost brokers had nominee accounts and the violation

happenedveryoften. Itwasnoted thatninebrokersadmitted tohaveanduse

nomineeaccountsatthetimeoftheinterview,whereasfourstatedthattheyhad

the accounts but no longer used them. The regulators and the investors also

agreed with the brokers’ view that it was easy for brokers to use nominee

accountsandthepracticesshouldhappenfrequently.

326

Three types of rationalisation used were evident from the broker interviews,

whichwere: (1)anentitlement thatbrokersshouldbeallowedto freely trade

for themselves, (2) a denial of injury that no one was damaged from such

practice, and (3) a claim that everyone was committing the violation. Only a

claimtoentitlementwasrecognisedbytheregulators,whereasbothaclaimto

entitlementanddenialofinjurywereinferredfromtheinvestorinterviews.


UsingaClient'sAccountfortheBroker'sOwnBenefitwiththeAccountOwner’sPermission(SecuritiesBrokers,Regulators,andInvestors)


Pressure/Motivation -PersonalGreed

-Incomepressure

-Ideology

-Companypressure

-PersonalGreed

-Incomepressure

-PersonalGreed

-Incomepressure


commit

-Frequentlyhappens

-Technicallyeasy

tocommit

-Frequently

happens

-Technicallyeasy

tocommit

-Frequently

happens


-Denialofinjury

-Claimthateveryone

wascommittingthe

violation

-Claimto

entitlement

-Claimto

entitlement

-Denialofinjury

(ii)TheUseofaClients’AccountfortheBrokers’OwnBenefitswithoutPermission

Allbrokersagreedthatitwaswrongfulconductthatnobrokersshouldcommit.

Theparticipatingbrokersexplainedthateverybrokercouldtechnicallyloginto

theirclients’accountstoengageintransactionswithouttheclients’knowledge.

Thepurposeofdoingsowastoobtainhighertradingvolumefromtheunlawful

trades.Itwasnotedthatmanybrokersdidnotthinkthatthispracticewasworth

therisksincetheoffenderswouldonlyobtainhighervolumefiguresbutnotthe

actual profit from the trade, whereas the likelihood that the account owners

327

woulddetectirregularitemsinmonthlystatementswashigh.Theparticipating

regulators and investors further confirmed this viewpoint in their respective

interviews.Theycommented that theyhadrarelyheardof suchcasesand that

theydidnotthinkitwasworthwhilefortheoffenderstotakesuchrisks.

Asforpressure/motivationfactorsleadingtothecommissionofthisoffence,the

brokersandtheinvestorsidentifiedincomepressureastheonlypotentialfactor,

whereas theregulator identifiedpersonalgreedand incomepressure. In terms

of opportunity factors, all three groups of participants agreed that it was

technically hard for the offence to be committed and that the violation rarely

occurred.Norationalisationorverbalisationforthecommissionofthisunlawful

practicewasofferedbyanyinterviewees.


UsingaClient'sAccountfortheBroker'sOwnBenefitwithouttheAccountOwner’sPermission(SecuritiesBrokers,Regulators,andInvestors)


Pressure/Motivation -Incomepressure

-PersonalGreed

-Incomepressure

-Incomepressure

Opportunity -Technicallyhard

tocommit

-Rarelyhappens

-Technicallyhardto

commit

-Rarelyhappens

-Technicallyhardto

commit

-Rarelyhappens

Rationalisation -Noneoffered -Noneoffered -Noneoffered


All participating brokers agreed that the offences were very serious and

damaging. The participating investors further confirmed that the thought of

being defrauded by brokers was very feared by every investor. One investor

strongly commented that if shewasdefraudedbyherbroker, shewould leave

thesecuritiesmarketaltogetherandwouldnotrecommendanyonesheknewto

investinthestockmarket.

328

Although no broker who participated in the research had admitted to

committingsuchoffences,theyagreedtosharethefraudulentmethodstheyhad

observedorknownaboutfromtheirworkingexperiences,colleagues,andfrom

cases published in the SEC Newsletters. The first method was fabrication of

documents and/or forging of clients’ signatures towithdrawor transfer funds

from the clients’ accounts. The secondwaswhere brokers deceived clients to

transfer funds to the third parties’ or to brokers’ personal accounts, and ran

awaywith the funds.The thirdwaswhereclientswereoverly trustingof their

brokers and signed blank withdrawal and/or share transfer forms for

convenience. The brokers further explained that in many cases, offending

brokers also forged clients’ signatures to change clients’ postal addresses and

fabricated monthly statements issued by securities companies in order to

concealthewrongdoing.

Theregulators,intheirinterviews,commentedthattheprevalenceofdeception

and appropriation caseshad significantlydecreaseddue to the introductionof

the Automatic Transfer System (ATS) where funds were electronically

transferredbetweenclients’bankaccountsandtradingaccounts.UndertheATS,

nocashishandledbybrokers,whichlessenstheopportunityforthebrokersto

appropriate the money. Nevertheless, there were still cases where brokers

forged clients’ signatures and/or fabricated withdrawal documents to

misappropriate funds from the clients’ accounts, and the caseswhere brokers

deceived their clients to directly transfer funds to the broker’s personal

accounts,claimingthattheATSwasmalfunctioningorthatthebrokerscouldget

the clients Initial Public Offering shares (IPO) at discounted prices. The latter

wasconfirmedasapracticebytheparticipatinginvestors.

In relation topressure/motivating factors that lead to the commissionof fraud

and misappropriation, the participating brokers, regulators, and investors

identified personal greed as the primary factor. Two regulators also identified

income pressure as the secondary factor. As for opportunity factors, all the

participantsagreedthattheoffenceshappenedveryrarelyandwereveryhard

to commit. The brokers explained that, nowadays, most securities companies

329

offeredgoodsecuritysystemstotheirclients,including:(1)aseparationoffront

and back offices, (2) regular account inspections and audits, (3) confirmation

calls to clients when fund withdrawal requests were made, and (4) monthly

statements itemizingeverytransaction.Sixbrokerscommentedthatduetothe

strongsecurity systems, theoffencescouldnotbecommittedopportunistically

or by impulse. The offenderswould need careful planning and preparation in

order to successfully commit the wrongdoing and to conceal them from the

clientsandthesecuritiescompanies.Threebrokers furtherstatedthatbrokers

whocouldcommitfraudand/ormisappropriationagainstownclientswerevery

different from ordinary brokers. They asserted that it would be extremely

difficult for any ordinary broker to commit fraud against or misappropriate

fundsofclientswhotheyknewsowellandhadbeenwiththemforalongtime.

No rationalisation or verbalisation was revealed in any interview since all

participants stated that the offences should not be committed at any case and

that no brokers had admitted to previously committed fraud or

misappropriationagainsttheirclients.


DeceptionandMisappropriation(SecuritiesBrokers,Regulators,andInvestors)


Pressure/Motivation -PersonalGreed -PersonalGreed

-IncomePressure

-PersonalGreed

Opportunity -Technicallyhard

tocommit

-Rarelyhappens

-Technicallyhardto

commit

-Rarelyhappens

-Technicallyhardto

commit

-Rarelyhappens

Rationalisation -Noneoffered -Noneoffered -Noneoffered

IVConclusion

Theempiricalpartofthisstudyemployssemi-structuredinterviewsasthemain

data-gathering tool. The interviews consist of three phases, which are the

interviews of eighteen securities brokers in Phase One, the interviews of six

330

officers of the SEC Office in Phase Two, and the interviews of three

representatives from the Thai Investors Association in Phase Three. The

interviewswereconductedfromNovember2013toSeptember2014andwere

transcribed and translated into English for the analytic purpose. The analysis

was done using a thematic data analysis method with assistance of NVivo

qualitativeanalysiscomputersoftware.

As the theoretical background of this study is the theory of Fraud Triangle,

components of a revised Fraud Triangle Model (pressure/motivating factors,

opportunity factors, rationalisation, and local societal factors) are employed to

formulate the research questions and the data analysis. The first part of the

qualitative data provided general information relating to the Thai brokerage

industry and practices, which allowed the researcher to gain better

understanding of the current situation and the general pressure/motivation

factorsthatcouldinfluencethebrokers’workingbehaviour.Thesecondpartof

the data revealed views and opinions of the brokers, the regulators, and the

investors on general opportunities factors that may facilitate or discourage

securities brokers in committing brokerage frauds and relating violations. The

third and the last part exposed and discussed specific factors leading to the

commissionofeachofthefourfocusedoffencesnamely:(1)theoffenceoffailing

toproperlyrecordtradingorders,(2)theoffenceofmakingtradingdecisionson

behalfofclients,(3)theoffenceofunauthoriseduseofaclient'saccount,and(4)

theoffencesofdeceptionandmisappropriation.

In relation to the general pressure factors, it was found that Thai securities

brokerssufferedmostfromincomepressureduetohigh-incomefluctuationand

clientpressureduetoclients’highnegotiatingpower,whichmadeithardforthe

brokers to refuse their clients’ requests. Securities companies imposed little

pressureontheiremployeesasmostonlyrequiredthebrokerstoearnenough

volume to cover their salaries.On the other hand, relationships between team

leaders and team members, together with the varying levels of team leader

pressure,werefoundtobecrucialfactorsdictatingbrokers’workingbehaviour

asThaibrokersusuallystucktogetherinateamforalongtimeandoftenmoved

331

together from one company to another. As a result, working and compliance

culture of each teamwasmore influential than company’s culture or policies.

TheotherpointthatshouldbenotedwasthatThaibrokersusuallyhadcloseand

personalrelationshipswiththeirclients,whichmorethanoftenledtoregulatory

violationsthatweredoneasaresultofculturalformsofgoodwill(‘nam-jai’)or

for theperceivedbenefits of the clients, such as taking tradingorderswithout

properrecordingandmakingtradingdecisionsforclients.

Inthemesrelatingtothegeneralopportunityfactors,thedatarevealedthatThai

securities brokers had moderate to good knowledge of the law and the SEC

Office’s enforcement activities. However, the participating brokers commented

thatalthoughtheyknewthatwhattheyweredoingwasriskyorunlawful,they

couldnoteasilychangetheirbehaviourduetotheneedtomaintaintheirtrading

volume (income pressure) and the need to retain their existing clients who

refused to comply with the regulations (client pressure). Regarding personal

screening,licensingexaminations,andongoingethicaltraining,itwasfoundthat

the effectiveness of these processes in inducing ethical conduct was limited,

mainlyduetothelackofattentionfromthebrokerswhogavemoreimportance

tothetechnicalpartofthetestsandthetraining.

Asforinternalmonitoringandsanctionmechanisms,Thaisecuritiescompanies

hadputinplacevarioussecuritysystemstoprotecttheirclients,yettherewere

stillapparentweaknessesinthemonitoringoftheconductoftheiremployees.At

the time of the interviews, no companies had provided a specificmanual or a

codeofconductthatsecuritiesbrokerscouldconsultwhentheywereindisputes

with clients or faced with ethical dilemma situations. As for the roles of

compliance officers, itwas found that although they had generallymade good

effortstoregulateconductofthecompanies’employees,theyoftendidnothave

enough autonomy and support from management. In addition, very few

companies imposed further internal punishments over the formal punishment

imposed by the SECOffice and some even helped their suspended brokers by

transferring the brokers to work in other departments during the suspended

period.

332

In the area of external monitoring and sanctions administered by the

government as well as by disputed clients. It was found that administrative

sanctions were the main forms of sanction that were used to deter the

wrongdoing; ranging from a reprimand for minor offences and first-time

offenders to a suspension and a revocation of licence for serious offences and

repeatedoffenders.Theparticipantsreportedthatthesesanctionswerefeared,

yet therewere loopholes that couldbe circumvented in certain circumstances.

Another point that should be noted was that although the SEC Office had

introducedanamingandshamingschemebypublishing theoffendingbrokers

andtheirsecuritiescompanies’nametoinformthepublicandgavewarningsto

investors,theschemehadfoundlittlesuccesssinceveryfewinvestorshadgiven

anattentiontotheinformation.

Nextwerecivilsanctionsintheformsofdamagesandremunerationthatbrokers

andsecuritiescompanieshadtopaytoclientswhenthereweredisputesrelating

tofraudandrelatingviolations.Thebrokersreportedthatthesecivilsanctions

were more frightening than administrative and criminal sanctions due to the

muchhigherchancethattheywouldbeindisputewiththeirclientsandthatthe

valueofthecompensationthattheyhadtopaycouldbeveryhigh.Nevertheless,

theimpositionofthesecivilsanctionsfullydependedonprivatenegotiationsand

individualcivilcourtcases.Theirimpactsonopportunityfactorsweretherefore

inconsistentanddifficulttodetermine.

The possibility of being subject to criminal sanctions was, from the outset,

expected to have great influence on securities brokers’ behaviour. Interview

data,ontheotherhand,showedthatcriminalsanctionshadverylimitedeffects

since most brokers believed that the sanctions only apply to very serious

offences that they would never commit. The participating investors also

confirmedthat,eveniftheyweresubjecttofraud,itwasunlikelythattheywould

engageincriminalproceedingsbeyondfilingcomplaintswiththepolice,asthey

would prefer to reach a monetary settlement than spending their time and

resourcestopursuecriminalsanctionsagainstoffendingbrokers.

333

Thefourfocusoffencesofthisstudywerethenanalysedusingtherevisedfraud

triangle model incorporating two local societal factors, a close and personal

relationship between Thai brokers and their clients and the brokers’

extraordinarygoodwillor‘nam-jai’.Thefouroffencescouldbedistinctlydivided

into twogroups.The firstgroupcomprises theoffences thatsecuritiesbrokers

didnotdirectlycommitagainsttheirclientsbutrathercommittotakeadvantage

of the securitymarket or of the current remuneration system. The offences in

this group were the offence of failing to properly record trading orders, the

offenceofmakingtradingdecisionsonbehalfofclients,andtheoffenceofusing

aclient'saccountforthebroker’sbenefitwiththeclient’spermission.Although

theseoffenceswereusuallynotcommittedwithan intentiontocause injuryto

clients’asset,theywerepotentiallyharmfulandcouldresultinseriousdisputes.

Thesecondgroupoftheoffencescomprisestheoffencesthatsecuritiesbrokers

committeddirectlyagainsttheclients’assets,whichweretheoffenceofusinga

client'saccountforthebroker’sbenefitwithouttheclient’spermissionandthe

offencesofdeceptionandmisappropriation.

Data from the three offences in the first group confirmed the relationships in

Fraud Triangle Theory, meaning that the offending brokers are accidental

fraudsters who succumbed to certain pressure or motivation factors. They

engaged in fraudulent or violating behaviour when opportunities were

presentedorwhenloopholesinthesystemallowedthemtofindwaystorelieve

such pressures. The offenders then employed certain rationalisation to reduce

theircognitivedissonancesothattheycouldstillseethemselvesastrustworthy

professionals. For these three offences, the main pressure/motivation factors

were incomepressure, client pressure, and goodwill. The data further showed

that opportunities factors were clearly presented, as these three offences

happened frequently, were technically easy to commit, and were difficult to

detectbytheregulators.Inaddition,sincethebrokerswereoftheviewthatthey

didnotcommittheoffencesdirectlyagainsttheirclients,itwaseasyforthemto

rationalisetheirbehaviour.

334

The interviewdata also revealed that the two local societal factorsplayedkey

rolesintheoccurrenceoftheoffencesinthisgroup.AsThaibrokersandclients

hadverycloserelationships,clientsfrequentlyputpressureonorcolludedwith

brokersformutualbenefits,thusfacilitatingtheculminationofpressurefactors,

opportunitiesfactors,andrationalisationrequiredforthefraudulentbehaviour.

Brokers’ goodwill further made it easier for the brokers’ to rationalise their

actions,astheyoftenclaimedthattheyviolatedtherulesforthebenefitsoftheir

clientsandnotforthemselves.


As the fraudulent factors of such three offences correspond nicely with the

revisedfraudtrianglemodelproposedinthisstudy.Deterrenceoftheseoffences

could, therefore, be enhanced using the underlying notion the Fraud Triangle

335

Theory, which is by removing or mitigating factors comprising the triangle.

Strategiesfordoingsoarediscussedindetailedinthefollowingchapter.

Owing to the close relationship betweenThai brokers and their clients,which

sometimesleadstoorfacilitatesthecommissionofthethreeoffencesdescribed

above,itisprudenttoconductafurtheranalysisofthissituationusingtheA-B-

CsModelofFraudproposedbyRamamoortiandhiscolleagues.711UndertheA-

B-CsModel,theunitsofanalysisarethreefold.Thefirstisfraudcommittedbyan

individualorbadapple.Thesecondisfraudcommittedcollusivelybetweentwo

ormoreemployeesinanorganisationorbadbushel.Thethirdfoldorbadcropis

where fraudulent culture permeates throughout an organsation or an

industry.712The current situation in theThai brokerage industry in relation to

thethreefocusoffencesinthisgroup–theoffenceoffailingtoproperlyrecord

trading orders, the offence of making trading decisions for clients, and the

offenceofusingaclient’saccount(withpermission)forthebroker’sownbenefit

–canbeconsideredlargelyasbothbadbushelandbadcrop.Theinterviewdata

provide strong evidence of collusion between brokers and clients to take

advantageof themarketand/or thegeneralpublic,aswellasof industry-wide

criminogenicbeliefthattheseoffencesaregeneralindustrypractices.Anumber

ofparticipantsassertedthatitwouldbehardtosurviveintheindustrywithout

violatingtheserulesinthecourseoftheirwork.

Underthebadbushelmodeofanalysis,pressure,opportunity,andrationalisation

factorsof thebrokersandof the clientsneed tobe considered separately.The

brokers’fraudfactorsarediscussedabove.Asforspecificfactorsthatleadsome

investors to colludewith their brokers, no conclusivedata canbedrawn from

the interviews in this study due to the limitation in the research design that

emphasisesmorethefraudfactorsperceivedbythebrokers.Furtherstudieson

investors’fraudfactorsshouldthereforebeconductedtocomplementthispiece

of research.Nevertheless, based on the existing interviewdata, the researcher

canpartlydeducethatclients’mainmotivationfactorsaregreedformoreprofits

711SeedetailsinChapter4.712Ramamoortietal,aboven482.

336

and the desire of convenience. In term of opportunity factors, itwould not be

difficult for ‘tricky’ clients to find brokers who agree to collude with them to

commit the three violations thanks to fierce competition between securities

companies; also, these violations are widely deemed to be general industry

practices. The following step is to determine the dynamic and relationship

between the two groups of perpetrators. The interview data show that Thai

brokers and their clients are close in both the physical sense due to their

frequentcommunicationandthepsychologicalsensebecauseofthepresenceof

brokers’ goodwill and casual relationships between them. Suchdynamic easily

leadstocollusionformutualbenefits.Basedonthebadbushelanalysis,inorder

toeffectivelydetersuchcollusivebehaviour,fraudexaminersand/orregulatory

agenciesneedtopreventonepartyfrominducingtheothertoengageinfraud,

which - in this particular situation - is essentially to discourage clients from

puttingpressure on their brokers to take orderswithout proper records or to

make tradingdecisionson theirbehalf, aswell as letting thebrokersuse their

accountstotrade.Regulatorystrategiesthattheagenciesmayemploytoachieve

such outcomes include, for example, the launch of information and education

initiatives to educate retail investors, and the introduction of sanctions on

colludingclients.DetailsofthesedeterrencestrategiescanbefoundinChapter6.

Last,underthebadcropmodeofanalysis,itcanbededucedthatthecurrentThai

brokerage industry is permeated with an unhealthy culture wherein the

violationofcertainSECRegulationsisregardedasanorm.Suchacriminogenic

culture makes it easy for the brokers to find opportunities to engage and

rationalise their fraudulent behaviour. Strategies to foster healthier industry

cultureincludeconsistencyinenforcementpracticeonthepartoftheregulatory

agencies, the use of information and education initiatives, and employment of

crediblecorporatesanctionssothatsecuritiescompanieswouldinvestmorein

their internal control mechanisms. Details of these strategies can be found in

Chapter6ofthisthesis.

Ontheotherhand,datafromthesecondgroupofoffences,theoffenceofusinga

client'saccountforthebroker’sbenefitwithouttheclient’spermissionandthe

337

offences of deception and misappropriation, provided very different pictures.

Personalgreedwastheonlymajorpressurefactoridentifiedbyallofthethree

groupsofparticipants.Theyalsocommentedthattheseoffenceswererareand

technically difficult to commit. A number of brokers stated that these offences

couldnotbecommittedopportunisticallyorbyimpulse,astheyrequiredcareful

planningandpreparationinordertocircumventpreventivesystemsputinplace

by securities companies. Lastly, no rationalisation or verbalisation for these

offences could be inferred from the interviews. Based on such data, it can be

concluded that these offences do not correspond well to the revised fraud

trianglemodelemployedinthisstudy,aswellastheunderlyingnotionthatthe

offendingbrokersareaccidentalfraudsters.Suchnonconformitiesareevenmore

pronounced when the two societal factors are taken into account. As Thai

brokers and clients often have very close and personal relationships, and the

brokers often have goodwill towards their clients, it is deemed anomalous for

the brokers to commit serious and direct offences against their clients. Three

participatingbrokersalsomadeasimilarsuggestionintheirinterviewsasthey

assertedthatsecuritiesbrokerswhocouldcommit fraudandmisappropriation

againsttheirownclientswereverydifferentfromordinarybrokers.

Duetosuchnonconformityof theoffences in thesecondgroupto themodel,a

secondarymodel of predatory fraudster should, therefore, be employed in an

attempttoanalysecausesandfactorsleadingtothecommissionofsuchserious

offencesbysomeThaisecuritiesbrokers.

338


According to the revisedpredatory fraudsterModel, thereare twosubtypesof

predatory fraudsters. 713 The first is individuals who have malicious intent

against the organisation and/or the public from the outset. The second is

individuals who started off as accidental fraudsters, but as their fraudulent

activitieshavenotbeendetectedtheykeepcommittingandgainingbenefitfrom

fraud, thus becoming more and more desensitised, evolving into predatory

fraudsters.714Under thepredatory fraudstermodel, theperpetratorsno longer

need the presence of pressure factors and the ability to rationalise their

behaviour, they only need opportunity and capability to commit the acts.715

Pressureormotivationfactorsarereplacedbyarrogance,whilerationalisationis

replacedbycriminalmindset.716Thesefactorsseemtobeespeciallymeaningful

in cases of predatory fraudsters possessingmalicious intent from the start. A713SeedetailsinChapter4.714Kranacheretal,aboven457.715Dormineyetal,aboven23.716Ibid.

339

number of executives committing large-scale corporate fraud are particularly

knownfortheirarroganceandoverconfidence,aswellastheirlackofempathy

for others.717Many alsodidnothave apparent financial difficulties topressure

themtocommitfraud.718Asaresult,thefraudperpetratorsinthiscategorycan

fitreadilyintothePredatoryFraudstermodel,whichmeansthattheycommitted

fraudnotbecauseofnecessitiesbuttosatisfytheirpsychologicalneeds.

Ontheotherhand, theanalysisofpredatory fraudsters in thesecondcategory,

thosethatstartoffasaccidentalfraudsterstorelievecertainpressuresorunder

certainmotivations but keep committing their fraudulent activities since their

wrongdoinghasnotbeendiscovered,mightnotbeasstraightforward.Although

itcanbelogicallyassumedthesepepertratorsnolongerneedtorationalisetheir

illegalactssincetheyhavecommittedtheactsmanytimesandgraduallybecome

desensitised, there is a lackof concrete evidencewhether these fraudsters are

also arrogant and/or possess a criminalmindset. They couldmerely continue

their illegal activities out of habit or for enjoyment of additional income. In

addition,itispossiblethattheperpetratorsmaystillfeelpressurefromdifferent

sourcesthatforcethemtocontinuecommittingfraudinthepredatorymanner.

Nevertheless, to date there is no fraudmodel that provides a clear distinction

and explanation between the causes of the two types of predatory fraudster:

thosewithmaliciousintentfromtheoutsetandthosewhostartofasaccidental

fraudsters then evolving to be the predatory ones. In relation to the offending

brokerswhocommitfraudand/ormisappropriationagainsttheirclientsinthis

study,basedontheinterviewdata,theyareclearlydistinctfromtheircolleagues

who commit lesser violations in the first group of focus offences. Yet, it is

inconclusivewhether all of them are predatory from the start, or evolve from

being offenders of lesser violations, or a hybrid of both groups. There is

inadequate data to reach such a conclusion. Such is an interesting avenue for

futureresearch,notablybysettingupin-depthinterviewswithformersecurities

brokerswhohavecommittedfraudagainsttheirclients,andareservingorhave

717Ramamoortietal,aboven470.718Ibid.

340

alreadyservedtheirsentences.Nevertheless,onecanforeseethatgettingaccess

tosuchparticipantswouldbedifficult,andthatensuringvalidityandreliability

ofthedatawouldbeasignificantissue.

Although it is inconclusivewhichsubcategoryofpredatory fraudsters theThai

brokerswhocommitdeceptionand/ormisappropriationaretobeplacedinto,to

enhancedeterrenceof theseseriousoffences–basedon therevisedpredatory

fraudster model – it is important that the regulators focus their efforts on

removing or mitigating opportunity factors and the offenders’ capability to

commitsuchoffences.Strategiesinenhancingdeterrenceoftheoffencesinthis

grouparealsodiscussedinthefollowingchapter.

341

Chapter6

RecommendationsandConclusions

Thischapterconsistsoftwomainparts.Thefirstpartisanexaminationofeight

hypothesesformulatedattheoutsetofthisresearch.Theexaminationdrawson

the analysis of the law and related regulations, cases, statistics, and interview

data of participating brokers, regulators, and representatives of investors. The

secondpartistheresearcher’srecommendationsonpotentialregulatoryreform

to enhance the current anti-brokerage fraud regime. The chapter ends with a

conclusion,whichisalsotheconclusionofthisthesis.

IExaminationofResearchHypotheses

AHypothesisI

Highworkpressureandunstable incomearethetwomain factors leadingtothe

commissionoffraudandregulatoryviolations.

Based on the interview data, it was found that there were fivemain types of

pressure borne by securities brokers in their normal course of work: income

pressure, self-pressure, colleague pressure, team leader pressure, corporate

pressure, and client pressure. The researcher initially expected that income

pressure and other pressures relating to the corporate environmentwould be

substantial.However,onlythestrongpresenceofincomepressure,duetohigh-

incomefluctuation,wasconfirmedbyallthreegroupsofparticipants.Colleague

pressure,teamleaderpressure,andcompanypressure,ontheotherhand,were

foundtobeminimalsincemostThaibrokersworkedstrictlyasindividualsand

that Thai securities companies rarely imposed additional working pressure

beyond requiring thebrokers to earn adequate fees to cover their own salary.

Self-pressurewasidentifiedbyafewparticipatingbrokers,yet,thepressurewas

said to provide positive reinforcement rather than negative. An unexpected

factorrevealedwasclientpressure,whichwasfrequentlymentionedbyallbut

342

oneoftheparticipatingbrokersand,toalesserdegree,bysomeregulators.Asa

result,itcanbeconcludedthatthetwomajorsourcesofpressurebornebyThai

securitiesbrokersareincomepressureandclientpressure.

As for these two pressures inducing brokerage fraud and related violations, it

wasfoundthatbothhadanegativeeffectontheworkingbehaviourofsecurities

brokers. Income pressure was the main reason brokers resorted to unlawful

brokeragepractices toobtainhigher tradingvolume.Regarding theoffencesof

deceptionandmisappropriation,incomepressurewasalsofoundtobethemain

inducingfactortogetherwithpersonalgreed.719Inthecaseofclientpressure,it

was foundthatcunningclientssometimesused theirhighbargainingpower to

takeadvantageoftheirbrokersaswellasputpressureonthebrokerstoviolate

certain regulations for theirbenefits.A largenumberofbrokers succumbed to

suchpressureduetotheirfearoflosingclients.

BHypothesisII

The liberalisation of the commission fee structure that the SEC introduced in

January2012hasanimpactonthesecuritiesbrokers'workingbehaviour.

Atthetimeoftheinterviewsin2014,itwasfoundthatonlyasmallnumberof

Thai securities brokers were significantly affected by the liberalisation of the

commission fees.Thoseaffectedwerea fewbrokerswhohadclientswithvery

largetradingvolumes,meaningthattheycouldnegotiateforafeereductionwith

securities companies. Another element that limited the impact of the

liberalisation of fees was an attempt by the Association of Thai Securities

Companies(ASCO)toresistthefeechangesbyaskingitsmemberstocollectively

continue using the sliding scale fee structure that was used between 2011-

2014.720

719SeedetailsinChapter5.720SeedetailsinChapter2.

343

Among the participating brokers who were affected by the liberalisation of

brokerage fees, they commented that they were upset and felt additional

pressurewhen theirmajorclientsasked fora reductionof fees,as theyhad to

workhardertoretaintheclientswhilegettinglessincomeduetothediscounts

given.Nevertheless, itwas inconclusivewhether thesechangeswouldresult in

higher rates of fraud and related violations. Some of the comments of

participating regulators suggested that itwas still toopremature todetermine

theeffectofsuchliberalisationontheindustry.

CHypothesisIII

Working conditions, remuneration structures, and work pressure are different

amongdifferenttypesofsecuritiescompanies(local,foreign,andcommercial-bank

related),andare thekey factorsdeterminingwhether fraudandotherviolations

willbecommitted.

The researcher initially hypothesised that remuneration structures, working

conditions,andworkpressurewoulddifferamongthethreetypesofsecurities

companies operating in Thailand: local, foreign, and commercial-bank related

securitiescompanies.Nevertheless,interviewdata,togetherwiththeanalysisof

thecurrent remunerationstructures, revealed that theworkingconditionsand

the remuneration structures were more or less identical throughout the

industry.Twokeydistinctions revealedbetween the three typesof companies,

however,were the recruitingmethods used to obtain new clients and general

complianceculture.

Inrelationtotherecruitingmethodsofnewclients,itwasfoundthatcommercial

bank-relatedsecuritiescompanieshadaccesstoclientdatabasesoftheirparent

commercial banks, whereas competing local and foreign securities companies

didnothave suchanoption to relyon.Brokersworking for commercialbank-

relatedcompanieswereoftenprovidedwithlistsofhighpotentialclientswhom

theycoulddirectlycontactandpersuadetoopennewtradingaccounts.Onthe

otherhand,brokersworkingforlocalandforeigncompaniescouldonlyfindnew

344

clients throughrecruitmentof individualswhoattended investment fairsoron

recommendation of existing clients. Based on such data, brokers working for

commercialbank-relatedcompaniesweregenerallyunder lesspressuretofind

and obtain trading volume fromnew clients than their colleagues in local and

foreignsecuritiescompanies.

In relation to the compliance culture of the different types of securities

companies, three regulators commented that foreign and commercial bank-

related securities companies generally had better compliance standards and

were much stricter with the conduct of their brokers than local companies.

Taking both distinctions into an account, it can be concluded that brokers

working for commercial bank-related securities companies are least likely to

commitfraudandrelatedviolationssincetheygenerallyfacetheleastpressure

and are subject to the highest compliance standards imposed by their

companies. On the other end of the spectrum, brokers working for local

securities companies are deemed to be most conducive to fraud and related

violations as they are under higher income pressure, while their companies

generally provide the weakest internal control mechanisms to monitor their

conduct.

DHypothesisIV

It is easier forabroker to rationalisehis orherwrongdoingwhen theoffence is

committedagainstthemarketorthepublicthanagainsthisorherownclients.

Rationalisations that securities brokers employed to reduce their cognitive

dissonancewereidentifiedfromtheparticipatingbrokers’answerstointerview

questions. In relation to the focus offences that were not committed directly

againstclientsbutagainstmarketregulationsorthepublic,suchastakingorders

without proper recordings, making trading decisions for clients, and using

nomineeaccountstotradeforthemselves,differentrationalisationswereoffered

bytheparticipatingbrokers,whohadcommittedorwouldcommitsuchoffences

in certain circumstances. Among the rationalisations offered were a denial of

345

responsibility, a denial of injury, an appeal to higher loyalties, a claim to

entitlement, a claim that regulationswere obsolete, and a claim that everyone

wascommittingtheviolation.Ontheotherhand,inthecaseofthefocusoffences

thatwerecommitteddirectlyagainstaparticularclient,whichweretheoffence

of using a client’s account without permission and the offences of fraud and

misappropriation,norationalisationwasofferedbytheparticipantsorcouldbe

inferred from their interviews. A number of participants, instead, commented

that the brokerswho could commit these severe offenceswere very different

fromordinarybrokersandweremore likely tohavemalicious intent from the

start.

ThepresenceoflocalfactorsincludingthepersonalrelationshipsbetweenThai

brokers and clients, and the brokers’ extraordinary goodwill (nam-jai) toward

theirclients,furthermadeitlesslikelytoforthebrokerstocommittheoffences

and made it more difficult for the brokers to rationalise any fraudulent

behaviourwheresuchbehaviourwouldresultinlossesordamagetotheclients

whomtheyhadcloserelationshipwith.Ontheotherhand,thebrokerswerenot

influencedbytheselocalfactors whentheviolationswerecommittedagainstthe

marketregulationsorthepublic.Asaresult,itcanbeconcludedthatitismore

difficult for Thai securities brokers to rationalise their fraudulent behaviour

when the offences are committed against individual clients, than when the

offencesarecommittedagainstthemarketorthepublicasawhole.

EHypothesisV

Securities brokers have inadequate knowledge and understanding of law and

regulationsduetothelackofethicstrainingandtheirindifferentattitude.

DatafrombrokerinterviewsrevealedthatThaisecuritiesbrokershadmoderate

to very good knowledge and understanding of the law. Data from regulator

interviews furtherconfirmedthatThaibrokershadmoderate togood levelsof

legal knowledge. As for brokers’ knowledge of enforcement, all Thai brokers

received enforcement information that the SEC Office sent to their securities

346

companies. Nevertheless, the attention given to, and the influence of

enforcement information, varied among individuals. Over half of the

participating brokers had attended to the information and, from time to time,

reviewedtheirpractices.Therestcommentedthat theyonlyskimmedthrough

thenewsandthattheinformationdidnotinfluencetheirworkingbehaviour.

To sum up, Thai brokers typically have adequate knowledge of the current

regulations and enforcement practices. However, such knowledge does not

always translate into compliance due to various pressure factors. Income

pressure induces the brokers to resort to illegal practices to increase their

trading volume in order tomaintain or increase their income. Client pressure,

together with the local factors of close personal relationships and extreme

goodwill (nam-jai), makes it difficult for Thai brokers to reject their clients’

requests and sometimes led to collusion between the two parties in taking

advantageofotherinvestorsorthepublic.

FHypothesisVI

Securities companies do not seriously enforce a code of conduct and fail to

maintaineffectiveinternalcontrol,givingbrokersopportunitiestocommitfrauds

andviolatesecuritiesregulations.

Itwas found that in recent yearsThai securities companieshadput inplace a

number of safeguards to prevent frauds and protect their clients, including

segregationofdutiesbetweenfrontandbackoffices,authorisationofimportant

transactionsby team leaders, fundwithdrawaland randomtradeconfirmation

callsbystaffof thebackoffice,and itemisedmonthlystatements.According to

the interview data, these safeguards effectively reduced opportunities for

brokerstocommit fraudandregulatoryviolationsagainsttheirclients,suchas

misappropriationofclients’funds,andunauthoriseduseofclients’accountsfor

the brokers’ benefits. Nevertheless, these safeguards were less effective in

relation to offences committed against market regulations and/or the public,

such as making trading decisions on behalf of clients and the brokers’ use of

347

nomineeaccounts to trade for themselves.This seemed tobedue to theusual

lackofindividualvictimswhowouldreportandcomeforwardwithinformation

and evidence of such wrongdoing. In order to enhance the deterrence of this

latter group of offences against the market and/or the public, credible and

effectiveinternalcontrolmechanismswere.Required.However,accordingtothe

interview data, most securities companies operating in Thailand failed to

establishandmaintainsuchmechanismsforseveralreasons.

Firstly,theinterviewdatarevealedthatalthoughoverahalfoftheparticipating

brokers were provided with manuals or codes of conduct, these manuals or

codes of conduct were all general ones given to all employees and were not

useful for brokers in difficult legal situations. Secondly, although the

performanceofcompliancedepartmentsinmonitoringandregulatingconductof

brokerswereratedfavourably,onaverage,byboththeparticipatingbrokersand

theregulators,thedepartmentswereoftensaidtolackmanpowerandsupport

fromthemanagement tocarryout their taskseffectively.Thirdly, itwas found

thatveryfewsecuritiescompaniesimposedfurtherinternalsanctionsupontheir

offendingemployeesinadditiontoadministrativesanctionsimposedbytheSEC

Office.Onthecontrary,manyfirmswerefoundtohelptheirsuspendedbrokers

by transferring them to work in other departments that did not require

brokeragelicences.

GHypothesisVII

Sanctions imposeduponoffendingbrokersarenotadequatelysevereandarenot

welltargetedtodeterthewrongdoings.

The current Thai anti-brokerage fraud regime employs a combination of

administrative sanctions, criminal sanctions, and civil sanctions to deter

wrongdoingscommittedbysecuritiesbrokers. Inrelationtotheadministrative

sanctions, the three levels of sanctions are well-structured with sufficient

severity, from reprimand for first-time offenders committingminor regulatory

violations to a suspension and a revocation of licence for brokers committing

348

serious offences and repeated offenders. Interview data revealed that brokers

feared a suspension and a revocationof licence, since such sanctions removed

thebrokers’abilitytoearnincomeduringtheperiodofthesanction.Inaddition,

few brokers would be able to retain existing clients after they had been

punished, which made it difficult for them to resume working as securities

brokers.Nevertheless, therewerecertain loopholesthatbrokersandsecurities

companies could exploit to lessen the impact of the administrative sanctions.

First, if the suspension was not longer than a couple of months, experienced

brokersmightbeabletoconcealtheirsuspensionsfromtheirclientsbymaking

upexcusesandtransferringtheclientstotheircolleaguesduringthesuspension

period.Secondly,somecompanieswere foundtohelptheirsuspendedbrokers

bytransferringthebrokerstoworkinotherdepartmentsandearntheirsalary

duringthesanctionperiod.Inordertoenhancetheseverityandtheeffectiveness

of these administrative sanctions, the aforementioned loopholes need to be

carefullyaddressed(seebelow).

In relation to the criminal sanctions, the current regime comprises both

individualandcorporatecriminalsanctions.Individualsanctions,intheformof

afineandimprisonment,arefoundinthePenalCodeaccompanyingtheoffence

ofdeception,721theoffenceofmisappropriation,722andtheoffenceoffabrication

of documents and forging of signatures.723Nevertheless, the severity of these

individualsanctionsisinadequatefordeterrencepurposes.Thehighestvalueof

fineprescribed in theseoffenceswasvery lowcomparedto thepotentialgains

that offending brokers could obtain from committing brokerage frauds. 724

Although these offences also carry significant imprisonment terms,725they are

unlikely tobe imposed inpracticeasmostoffendingbrokerswouldqualify for

721PenalCodes341.722PenalCodess352-354.723PenalCodes264.724Theprescribedamountsof finearenotexceeding6000bahtfortheoffenceofdeception(s341ofthePenalCode),notexceeding10000bahtfortheoffenceofmisappropriation(s354ofthePenalCode),andfrom20000to200000bahtfortheoffenceoffabricationofdocumentsandforgingofsignatures(s264ofthePenalCode).725The prescribed terms of imprisonment are not exceeding three years for the offence ofdeception(s341ofthePenalCode),notexceedingfiveyearsfortheoffenceofmisappropriation(s354ofthePenalCode),andfromonetotenyearsfortheoffenceoffabricationofdocumentsandforgingofsignatures(s264ofthePenalCode).

349

mitigatingcircumstancestoreducetheimprisonmentterms.726Ifthesentenced

terms were three years or less, the Court of Justice, more than often, would

suspend thepunishment and imposeaprobationorderon theoffenders.727To

make the matter worse, a majority of fraudulent cases did not get past the

complaint filing(withthepolice)stagesincemost injuredclients,asconfirmed

by the interviewdata, preferred to settle formonetary compensationwith the

offending brokers and their employing securities companies rather than

proceededwithcostlyandtime-consumingcriminalproceedings.728Asaresult,

individual criminal sanctions currently provide little deterrence to serious

brokeragefrauds.Inordertoenhancedeterrence,greaterfinescorrespondingto

the expected gains and the longer imprisonment terms, aswell as the greater

involvement of the SEC Office in pursuing criminal sanctions on behalf of the

injuredclients,isrequired.

The Securities andExchangeActB.E. 2535 (1992) provided corporate criminal

sanctions in the form of corporate fines upon securities companies whose

brokersviolatedsecuritieslawandrelatedregulations.Nevertheless,inrelation

to the brokerage frauds, the imposition of corporate fines under the Act was

limited to the cumulative failure of the securities companies in implementing

credibleinternalcontrolmechanismsresultinginrepeatedviolationsoftheSEC

regulations,notasapunishmentofsingle incidentsof fraud729Theobjectiveof

corporatesanctionwastoinducesecuritiescompaniestoestablishandmaintain

credible internal control so that the number of violations would be lessened.

However, it is noted that the current prescribed amount of fine,which cannot

exceed300000bahtplusafurtherfinenotexceeding10000bahtforeveryday

duringwhichtheviolationcontinues,730isalsolowcomparedtopotentialgains

that offending brokers and/or securities companies would obtain from

726Examples ofmitigating circumstances include the offenderbeing in seriousdistress, havingpreviousgoodconduct,beingremorsefulandtryingtominimisetheharmfuleffectoftheoffence,andgivingusefulinformationtothecourtforthebenefitofthetrial.See,PenalCodes78.727PenalCodes56.728 Under the Thai criminal law system, the offence of deception and the offence ofmisappropriationarecompoundableoffencewherethevictimmaywithdrawthecaseorreachsettlementwiththedefendantatanytime.SeedetailsinChapter2.729SecuritiesandExchangeActB.E.2535(1992)s113.730SecuritiesandExchangeActB.E.2535(1992)ss113,282.

350

violations. Therefore, it could be said that the current corporate criminal

sanctionsarenotadequately severeandarenotwell targeted todeter serious

brokeragefrauds.

In relation to civil sanctions, according to tort provisions in the Civil and

Commercial Code,offending brokers and their employing securities companies

are jointly liable toclientvictimsofbrokerage fraudsandrelatedviolations.731

Interestingly, the interview data revealed that, according to the participating

brokers,civilsanctionsweremorefrighteningthanadministrativeandcriminal

sanctions. The reason given was that there was a much higher chance for

offending brokers to be in direct dispute with injured clients during civil

sanctions than when being held subject to administrative and/or criminal

sanctions.Also,theremunerationtheyhadtopaytotheclientsasaresultofcivil

penaltiescouldbemuchhigherthancriminalfinesimposed,aswellasadditional

lossesfromhavingtheirlicencessuspendedorrevoked.Nevertheless,thesecivil

sanctions cannot be specifically targeted to deter the wrongdoing since their

impositiondependsonprivatenegotiationsbetweeninjuredclients,andbrokers

andsecuritiescompanies,aswellastheoutcomeofindividualcivilcasesdecided

bythecourts.

HHypothesisVIII

The current legal procedures (criminal, civil, and administrative) are overly

complicatedandtherearetoomanyagenciesinvolvedintheprocedures.

The initial review of laws and regulations relating to brokerage frauds in the

Thaisecuritiesmarketsuggestedthatthecurrentanti-brokeragefraudregimeis

highlycomplicatedsinceitinvolvesthreedifferentproceedings(administrative,

criminal,andcivil)underjudicialandenforcementauthoritiesofmultiplecourts,

government agencies, and appellate bodies.732In addition, related procedural

731CivilandCommercialCodess420,425.732The analysis is based on information gathered from thePenalCode, theCriminalProcedureCode,theCivilandCommercialCode,theCivilProcedureCode,theSecuritiesandExchangeActB.E.2535(1992),RegulationsoftheSEC,datafromthepilotinterviews,anddatafromtheinterviews

351

provisions are scattered across various codes, statutes, notifications, and

guidelines.

Under the current regime, themain legal proceedingswere the administrative

proceedingsadministeredbytheSECOffice.Theadministrativeproceedings,on

itsown,couldbeconsideredcomplicated,involvingmultiplebodieswithlayers

of appellate reviews. The proceedings commence when its officers uncover

violations through on-site inspections, or received notifications from other

agenciesorclients’ complaints. If theSECOffice’s investigation indicates thata

violation has occurred, responsible officers present the case to the Capital

MarketPersonnelDisciplinaryCommittee(CMPDC)whogiverecommendations

on the proper form and the magnitude of administrative sanction to the SEC

Officetobeimposedupontheoffendingbroker.Iftheoffendingbrokerdoesnot

agreewiththesanctionorder,heorsheisfirstrequiredtofileanappealtothe

SECOffice. If theSECOfficeagreeswith theappeal, itwill revokeoramend its

order.However,iftheSECOfficedoesnotagreewiththeappeal,thecasewould

besubmittedtotheBoardoftheSECforfurtherreview.AftertheBoardofthe

SECinformsthebrokerofitsconsideration,ifthebrokerstilldisagreeswiththe

order, he or she can further file an appeal against the SEC with the

AdministrativeCourtsofFirstInstanceandtheSupremeAdministrativeCourts,

respectively.

The secondary proceedings available within the current regime are criminal

proceedings that the SEC Office and/or the injured clients have discretion to

furtherinitiateiftheywishedtopursuecriminalsanctionsagainsttheoffending

brokers and/or securities companies. Under the current regime, the criminal

proceedingsinitiatedbytheSECOffice,canbesummarisedasarduousandtime-

consuming.Theprimaryreasonisduetotheagency’s lackof legalauthorityto

prosecutecasesbyitself.Foroffencesthatcouldnotbesettledfinanciallyunder

section317oftheSecuritiesandExchangeActB.E.2535(1992),theSECOfficeby

itsLitigationDepartmenthastofilecriminalcomplaintswiththeEICDortheDSI

of securities brokers, officers of the SEC Office, and representatives of the Thai InvestorsAssociationinthemaininterviewphases.

352

forfurtherinvestigation.Whentheinvestigationisconcluded,thecasefilesare

forwardedtotheOAGtodeterminewhetherthecasesshouldbeprosecutedat

theCourtofJustice.Duetotheseinherentcomplications,thelackofcontrolover

theoutcomes,andthe limitedresourcesof theSECOffice, theagencycurrently

adopts thepolicy thatcriminalproceedingswillbe initiatedonly in thecaseof

severewrongdoing inflicting substantial damage to the public, such as insider

trading and market manipulation. As a result, the four focus offences of this

study,whichweregenerallyconsideredaslow-leveloffences,arenotcriminally

pursued by the SECOffice andwere left for injured clients to initiate on their

own.

Although the Thai Criminal Procedure Code allows injured clients to directly

present their cases to the courts by employing criminal lawyers to gather

evidenceandprosecutecriminalcharges,733itwasfoundthatmostclientsprefer

to settle for monetary compensation rather than proceed with the costly and

time-consumingcriminalprosecutions.Duetothelackofcriminalprosecutions

byboth the regulatoryagencyand the injured clients, it couldbe said that the

role of criminal proceedings in the current anti-brokerage fraud regime is

minimal.Inordertoincreasetheratesofcriminalprosecutions,especiallybythe

SECOffice, thecurrentproceedings shouldbe reviewed to simplifyandreduce

unnecessaryprocedures.

The current role of civil proceedings in the anti-brokerage fraud regime was

limitedtoacompensatoryone. Iftheinjuredclientscouldnotreachsettlementwith the offending brokers and/or securities companies, they could instigate

civilproceedingsatthecivilcourtstosecurecompensationfordamagescaused

bythefraudulentpractices.Inaddition,ifthedamagesdonotexceedonemillion

baht, the injured clients had an option to apply to the SEC Office for an

arbitrationprocedureinordertosettletheirdisputeswithsecuritiescompanies.

733CriminalProcedureCodes28.

353

IIRecommendations

The secondpartof this chapteroffers recommendationsonhow topotentially

enhancedeterrenceofthecurrentThaianti-brokeragefraudregimebasedona

combinationofgovernment-basedandcorporate-basedstrategiessuggestedby

a regulatory pyramid approach. 734 General strategies are first discussed

following by specific strategies in response to each of the focus brokerage

offencesofthisstudy.

ABreakingtheFraudTrianglewiththeRegulatoryPyramidApproach

According to the theory of Fraud Triangle employed in this study, pressure,

opportunity,andrationalisationfactorsmustbesimultaneouslypresentinorder

for fraud to occur.735When any of the three factors is eliminated, the Fraud

Triangle is broken and fraud will be eliminated.736Breaking the triangle is

therefore thekey to frauddeterrence.Theproposition isparticularlysalient in

the cases of fraud committed by accidental fraudsters, who are usually

characterised as first-time offenders, well educated, and are in a position of

responsibility.737Thesepeoplecommitfraudstorelievethemselvesofpressures

theyarefacingusingopportunitiestheyperceivedofinthecourseoftheirwork,

and in doing so they employ certain rationalisation to reduce their cognitive

dissonance.Thus,ifeithertheirperceivedpressuresorperceivedopportunities

are removed, or their abilities to rationalise are limited, they are less likely to

commit fraud. In the area of corporate and occupational frauds, fraud-fighting

professionals,inpractice,focusprimarilyontheremovalofopportunityfactors,

rather thanonpressure factorsor rationalisation.The reasongiven is that the

removal of opportunity through the use of the system of internal controls is

generally the most actionable route, thus their efforts are directed towards

implementing such internal controls and ensuring that companies adhere to

734AyresandBraithwaite,aboven25.735Cressey,aboven11.736Albrechtetal,aboven12.737Ibid.

354

them.738Thisstudy,ontheotherhand,takesabroaderapproachbyconsidering

acombinationofdifferentstrategiesinremovingorreducingallthethreegroups

offactorsantecedenttofraud.

As for the types of fraud that are deemed to be committed by predatory

fraudsters,suchasdeceptionsandmisappropriationsbyThaibrokers found in

this study, thebreakingof the triangle canonlybedone through a removal of

opportunities, since the pressure factors and the ability to rationalise are no

longer predictive elements. The predatory fraudsters only need to perceive

loopholes in the control system and/or the lack of sanction to initiate the

wrongdoing. Since these individuals are actively looking for opportunities,

control systems or strategies employed to safeguard against this type of

fraudsters need to be more robust or impose greater deterrence than the

systemsorthestrategiesusedagainstaccidentalfraudsters.

Strategies tobreakthe fraudtriangleandtoenhancedeterrenceof thecurrent

anti-brokerage fraud regime suggested in this study are developed under the

responsiveregulationapproachsuggestedbyIanAyresandJohnBraithwaite.739

The recommendations start from education-based and persuasion-based

strategiesexternally implementedbygovernmentagencies to reducepressure,

remove opportunity, and limit rationalisation. The suggested strategies then

escalatetodeterrence-basedmeasuresofadministrativeandcriminalsanctions,

whenthereisalackofpositiveresponsefromthebrokersand/orthesecurities

companies to theagencies’ initiatives.Theuseof corporate-basedstrategiesof

fraudpreventionanddetectionthroughtheuseofinternalcontrolmechanisms

are thendiscussed in relation to the reductionof pressure and the removal of

opportunityfactors,respectively.

738HarryCendrowskietal,Thehandbookoffrauddeterrence(JohnWiley&Sons,2007).739AyresandBraithwaite,aboven25.

355

1ResponsiveRegulationApproachandTheEnforcementPyramid

In 1992, Ian Ayres and John Braithwaite developed an influential regulatory

theory of responsive regulation.740The basic idea of the theory is that that

effectiveregulationshouldnotbestatic,butberesponsivetotheconductofthe

regulatees and to the industry context.741The other key concept of responsive

regulation is that different individuals and organisations are motivated to

behaveindifferentwaysfordifferentreasons.742Multipleregulatoryapproaches

thatappealtodifferentmotivationsaresuggestedtobeincludedintheparadigm

toachievebroadcompliance.Thefocusofresponsiveregulation,therefore,goes

beyondclassicaldeterrence through legal intervention,butemphasises theuse

of cooperation, trust-building, and public/private networks as elements of a

mixedstrategy.743

Themostdistinctive featureof responsiveregulation is itsregulatorypyramid,

whichcomprisesamixtureofpersuasion-basedanddeterrence-basedstrategies.

ThepyramidisalsoAyresandBraithwaite’sattempttosolvethepuzzleofwhen

to persuade and when to punish.744The starting point of any enforcement

activity is at the broad base of the pyramid where persuasion and dialogue

betweentheregulatorsandtheregulateesareencouraged.Ifcooperationisnot

forthcomingandcompliance isnotachievedat such level, theregulatorhasan

option to escalate thematter up the regulatory pyramid and implementmore

and more interventionist and punitive approaches until compliance is

achieved.745The other crucial point of the regulatory model is its dynamic

character.Theresponseorstrategyineachlevelofthepyramidisnotfixedand

canbealteredtoaddressdifferencesintypesofregulation,regulatorygoals,the

characteroftheregulatees,industrialcontexts,etc.Suchadvantagescanbeseen

740Ibid.741Ibid.742 Melissa Rorie, 'Responsive Regulation' (2015) Oxford Handbooks Online <http://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780199935383.001.0001/oxfordhb-9780199935383-e-109>.743FionaHaines,CorporateRegulation:Beyond’punishOrPersuade’(ClarendonPress,1997).744John Braithwaite, 'Responsive regulation and developing economies' (2006) 34(5) WorldDevelopment884.745Ibid.

356

through variances in compliance pyramid models of different regulatory

agencies that employed responsive regulation approach in their enforcement

activities, such as the compliance model of the Australian Competition and

ConsumerCommission (ACCC), and themore complexmodel of theAustralian

Taxation Office (ATO).746Nevertheless, one of the shared features of every

successfulregulatorypyramidmodel747isthepresenceofaveryseveresanction

attheapexofpyramidtobeusedasthelastresource,commonlyknownbythe

termthe‘benignbiggun’.748Thepresenceofsuchultimatesanction,usuallythe

threat of an incarceration or a revocation of licence, although rarely invoked,

helps in facilitating negotiations towards cooperation and compliance at the

lowerstageofthepyramid,aswellasprovideacredibleresponsewhenallother

strategies fail. It should be noted that although original conceptions of

responsive regulation theory stated that the enforcement activities should

alwaysstartwithdialoguesatthebaseofthepyramid,subsequentstudiesargue

thatstrictlyadheringtosuchaprincipleandsuchanorderingisnotappropriate

inmanycircumstances,suchasinseriouscrimesorwhentheviolationissevere

andcausesubstantialdamage.749Asaresult, thepropositionthatallregulation

shouldbeginatthebaseoftheperiodhasbeenrelaxedandabetterapproachis

thoughttobetheuseofamoreresponsiveandinterventioniststrategyfromthe

outset.750

746Rorie,aboven742.747ThemostimportantqualitythatmakesAyresandBraithwaite’sregulatorypyramidsuccessfulis its flexibility.Regulatoryagencies,withadequate information,maydesign theirenforcementpyramid to fit with different social conditions, industry environment, and regulatoryrequirements. In the context of the Thai securities regulation, although the success of thisregulatoryapproachissofarnotcertain,theSEChasshownastrongwillingnesstoimprovetheefficiency of its regulatory regime and is open to suggestion by different bodies. See,The SECNewsRelease,No.99/2016,18October2016.748Martin Lodge and KaiWegrich,Managing regulation: regulatory analysis, politics and policy(PalgraveMacmillan,2012).749John Braithwaite, Restorative justice & responsive regulation (Oxford University Press onDemand,2002).750Braithwaite,aboven744.

357

Figure20:EnforcementPyramid751

In the context of this study, the researcher proposes the use of a responsive

regulation approach with its enforcement pyramid to develop coherent and

effectivestrategiestobreakthefraudtrianglewithintheThaisecuritiesmarkets.

Theemphasisisonthestrengthoftheregulatorypyramidincombiningdifferent

strategies tosecureregulatorycomplianceandtodeterThaisecuritiesbrokers

from committing brokerage fraud. In the following sections, such layers of

escalatingstrategy,developedinresponsetotheidentifiedfactorsantecedentto

fraudand thevaryingcharactersofoffendingbrokers,accidentalorpredatory,

arediscussedindetail.

2ReducingPressure

Thefirstsetofrecommendationsinvolvesstrategiesthatcouldpotentiallybreak

thefraudtrianglebyreducingpressurebornebyThaisecuritiesbrokers.Based

on the interviewdata, the twomain sourcesofperceivedpressureare income

pressure and client pressure, respectively. The proposed strategies are,

therefore,developedmainlyinresponsetothesetwopressurefactors.

751AyresandBraithwaite,aboven25.

358

(a)ReducingIncomePressure

The primary type of pressure borne by Thai securities brokers is income

pressure,astheirincomeisdirectlylinkedtothevolumeoftrademadebytheir

clients each month. Other than a small number of novice brokers, most Thai

brokers work under an incentive scheme where they have to first generate

adequate trading volume to cover their fixed-salaries then earn additional

income from the share of brokerage fees earned beyond the cost of their

salaries.752In practice, if the brokers cannot cover their salaries for several

consecutivemonths, their companieswould start putting pressure on them to

findways togeneratehighervolume. If theycannotdoso, thecompanywould

gradually reduce their salaries and, as the lastmeasure, ask them to leave the

company.Nevertheless,accordingtotheparticipatingbrokers, thekeyelement

of income pressure borne by Thai brokers was not the level of income, as a

majority of brokers stated that they were satisfied with their current level of

income based on their lifestyle and future plans, or the likelihood that they

wouldnotbeabletocovertheirsalariesforseveralconsecutivemonths,assuch

situationswereunlikelytohappenunlessthemarketwasinadownperiodfora

long time.Thebrokers, instead, commented that themainelementofpressure

wasthehighfluctuationofincome.Whenthemarketwasgood,theycouldeasily

earnmore than100000baht (approximately4000AUD) fromtheirsharesof

commission fees per month, whereas when the market was bad, they could

hardly earn 20 000 (approximately 670 AUD) baht to cover their monthly

expenses.Suchfluctuationof incomemade itdifficult for themtodo long-term

financial planning, such as buying houses or cars, or deal with emergency

expenses.When their incomewas lower thanexpectedand theycouldnotpay

usualmonthlyinstallmentsormettheemergencyexpenses,theyoftenneededto

findshort-termloans,whichimposedadditionalpressure,thusleadingmanyto

startcommittingviolationsthatcouldincreaseandstabilisetheirincomesuchas

makingtradingdecisionsforclientsorusingclients’accountstotradesecurities

forthemselves.


359

In response to such income fluctuation issue, it is worthwhile to consider

different strategies that could create greater income stability, so that income

pressurebornebyThaibrokersislessened,aswellasempoweringthebrokers

towithstandotherrelatedworkingpressure,suchasclientpressure.Themost

obvious strategy is for the SEC Office together with the ASCO to issue a

regulationeliminatingtheincentiveremunerationschemeandputallbrokersin

the fixed-salary scheme, so that their income is the same every month.

Nevertheless,suchastrategycouldbeconsideredheavy-handedanddisregards

thenatureofthesecuritiesbrokerageindustry,wheresecuritiescompaniesearn

mostoftheirincomefrombrokeragefeesthatclientspaybasedonthevolumeof

transactionsmade. If all brokerswereputunder the fixed salary scheme, they

wouldnothaveanyincentivetoencouragetheirclientstotrademorebyfinding

moreprofitabletransactionsorbetterinvestmentopportunitiesfortheirclients.

They would just work in a routine manner that would lead to the lack of

productivity.ThebetterstrategyisfortheSECandtheASCOtoreformulatethe

remuneration structure of the incentive scheme so that differences in the

brokers’ incomeatthetimewhenthemarketisgoodandatthetimewhenthe

market is bad would be smaller. One possible way is to raise the ceiling of

highest fixed-salaries that securities companies may currently give to the

intensive scheme brokers, which is at 15 000 baht permonth (approximately

500AUD),753andatthesametimeadjustthepercentagesofthebroker’sharesof

the brokerage fees from 27.50% for traditional transactions and 13.75 for

Internettransactions754tocorrespondingrates,asatradeoff.Theotherpossible

way is for the ASCO to designate all membered companies to provide extra

retentions to the brokers based on their tenures with the companies, as

suggestedbytwooftheparticipatingbrokers.Nevertheless,theproperamount

of salary increase, the rates of broker’s shares, and/or the amount of extra

retentions need to be carefully determined under a consultation with all the

stakeholders,sothatThaisecuritiesbrokershavebetterincomestabilityyetthe

753UnderthecurrentAssociationofThaiSecuritiesCompany’sguideline,thehighestsalarythatsecurities companies can give to the intensive scheme brokers is 15 000 baht per month(approximately 500 AUD). See, Association of Thai Securities Company’s guideline on theCompensation of Investment Consultants, Team Leaders, and Managers of Securities CompaniesNo.3.754Ibid.

360

growth of the capital market and the competitiveness of the securities

companiesarenothindered.

Apart from the income fluctuation stated above, the other element of income

pressure that the SEC together with the ASCO should pay attention to is the

impact of the liberalisation of brokerage industry, which took place on 1st

January2012, tomorale and job security of thebrokers.Although, at the time

that the interviews were conducted, it was found that the effect of the

liberalisationwaslimitedtoasmallnumberofbrokerswhoseclientshadtrading

accounts large enough to negotiate for the reduction of fees with securities

companies,allparticipatingbrokersexpresstheirworryabouttheirjobsecurity

and their future earnings amidst the growing competition between the

companiesinreducingthefeestoattractnewclientsandretainexistingclients.

The brokers commented that when the companies agreed to reduce the

brokerage fees for any client, their earnings from transactions made by such

clientswouldbelessandless,whiletheystillhavetoworkashardasbeforeto

find profitable trades. Several brokers further commented that this fully

negotiable fees arrangement was grossly unfair, as well as imposed great

pressureonthemtofind,legalandillegal,waystomaintaintheirearningslevel.

Duetothis,itwouldbeprudentfortheSECtoaddressthebrokers’concernsas

earlyaspossible,giving that trustworthyandmotivatedbrokersare important

contributorstothegrowthofthecapitalmarket.

Firstandforemost,theSECshouldcommunicateopenlytothebrokersthatthe

agencyconsidersthewelfareofthebrokersseriously,anddoesnotseethemas

workforce that can be easily replaced. It should be noted that when the SEC

announced a roadmap for the liberalisation of securities business in 2006, the

welfareofpersonnelinthesecuritiesmarketwasnotgivenasmuchimportance

as the benefits to the investors and the competitiveness of the Thai capital

marketintheregionalandinternationalcontext.Asaresult,manyparticipating

brokers mentioned during their interviews that they the SEC had unfairly

neglected their interestswhileoverprotected thebenefitsof the investors.The

second strategy that the SEC and theASCO should consider in order to lessen

361

incomepressurebornebythebrokersduetothegrowingcompetitionbetween

securities in giving fee discounts is to designated the minimum amounts or

percentages of brokerage fees that the brokers would receive from each

transaction, no matter how much discount the companies has given to the

clients. This measure would, at least, guarantee the brokers their baseline

earningsandhelpavoidsituationswhere thebrokershave towork fornext to

nothing.

(b)ReducingClientPressure

The secondmajor source of pressure, as extracted from the interview data, is

client pressure. It was found that Thai securities brokers often succumbed to

pressure imposed by their clients to violate certain regulations for the clients’

benefitsor convenience.Themainreasonswere thehighbargainingpoweron

the part of the clients together with growing competition between securities

companies.Astheclientscouldalwaysaskthecompaniestochangethebrokers

who to look after their accounts or open new account with other companies,

manybrokerswerereluctanttoreject theclients’unlawfulrequestsduetothe

fearof losingtheclients. Inaddition, thepresenceof two local factors foundin

this study, a closepersonal relationshipbetweenThai brokers and clients and

thebrokers’extraordinarygoodwilltowardtheirclients(‘nam-jai’),madeiteasy

for Thai brokers to forego their professional ethics and violate the law as

pressured.

Althoughitisnotpossibletototallyeliminateclientpressureduetothenatureof

the relationship between brokers and clients and the clients’ high bargaining

power, this study proposes three potential strategies that can be together

implementedtoreducethepressuresoastoenhancedeterrenceofthecurrent

anti-brokeragefraudregime.

362

(i)FinanciallyEmpowertheBrokers

The firstandmost importantstrategy is to financiallyempowerthebrokersso

that they can better resist the pressure and reject their clients’ unlawful

requests.Themanners inempoweringthebrokersaresimilar tothestrategies

employed in reducing income pressure suggested above, which are to reduce

their incomefluctuationandtoprovide themwithbetterworkingbenefitsand

welfares.

(ii)InformationandEducationInitiatives

Thesecondstrategyistocreateabettercomplianceculturethroughtheuseof

Information and education activities. Both the brokers and the clients do not

onlyneedtobeinformedonwhatthecurrentlawsandregulationsare,theyalso

need to be educated on the reasonsbehind eachprohibition and thepotential

damage that theviolationmaycause toeitherorbothof them.Forexample, a

surprisingly large number of brokers and clients do not understand the

reasoning behind the current SEC regulation prohibiting brokers frommaking

tradingdecisionsfortheclients.Theydonotunderstandrisksinvolvedandthe

potentialdamagefromsuchriskypractice.Thus,manyclientsoverlytrusttheir

brokersandaskthemtowrongfullymaketradingdecisions.

Communicatingandeducatingbrokersonethicalandlegalmattersarerathera

straightforward processes and are currently being done through multiple

channels.Individualswhowouldliketoobtainbrokeragelicenceshavetostudy

andpass licensingexaminationsofwhichonesectionconcernsethicsandlegal

knowledge.After thebrokershaveobtained the licences, theyhave toattenda

series of training every two years to renew their licences. Although, these

examinations and training are being provided to increase the brokers’ legal

knowledge, the interviewdata reveal that half of theparticipatingbrokers did

notthinkthatthetestwasrigorousenoughandallbutoneofthebrokersviewed

thattheusefulnessoftheethicalandlegalknowledgetheygainedfromthetests

was limited due to differences between the theories taught and the actual

363

working environments. As for the training, a majority of the participating

brokers commented that they did not find the training beneficial for a similar

reason:thatthetheoriestaughtandtheactualworkingenvironmentsaretotally

different.

What theSECOffice togetherwithASCOTraining Institution (ATI) coulddo to

improvetheimpactofthetestsandthetrainingonthebrokers’ethicaldecision-

making is to supplement the current didactic teachingmethod of pointing out

whatisrightorwrongintheorywithsomeinteractiveclassesandengagingcase

studies using a new curriculum based on research in behavioral ethics called

‘GivingVoicetoValues.’755Thecurriculum,developedbyMaryCGentile,focuses

on how one can bring his or her ethics and values to workplace and how to

resolvevalues conflictswith clients,peers,bosses, andorganisations.The core

techniques of the approach include (1) how an individual learns to recognise,

clarify, speakandactonhisorhervalueswhen the conflicts arise, (2)how to

raisestheissuesinaneffectivemannerandwhatheorsheneedstodoandsay

in order to be heard, (3) how to correct an existing course of action when

necessary,and(4)howtofindanalignmentbetweenhisorherindividualsense

ofpurposeandthatoftheorganisation.756

The other notablemethod of educating about values is the encouragement of

ethical leadership to influence ‘group ethical voice’ to change unhealthy

behaviour in an organisational setting.757Group ethical voice is defined as the

proposal of constructive suggestions, new ideas, and advice by a group of

employeeswhospeakuptoimproveorganisationalfunctioning.758Theseethical

voices involve individuals’ evaluations of risks associated with speaking up

755MaryCGentile, 'Values-driven leadershipdevelopment:Wherewehavebeenandwherewecould go' (2012) 9(3)OrganizationManagement Journal 188; Vivien Holmes, ‘Giving Voice toValues’: enhancing students’ capacity to cope with ethical challenges in legal practice' (2015)18(2)LegalEthics115.756Gentile,aboven755.757Lei Huang and Ted A Paterson, 'Group Ethical Voice Influence of Ethical Leadership andImpactonEthicalPerformance'(2014)JournalofManagement.758Ibid.

364

againsttheirmoralobligationwhenthereisanethicalissueintheworkplace.759

In order to encourage employees to speak up, one has to findways to reduce

potentialnegative impactson them.Thesenegative impacts include the fearof

being labelled negatively, the fear of damaging interpersonal relationship, and

the fear of being targeted for retaliation and punishment.760Speaking up as a

grouptochallengeethicalissuesismuchmorelikelytoprotectindividualsfrom

adverse consequences, as it prevents a single group member from being the

primary target, as well as providing a better leverage to negotiate with the

organisation that leads to changes.761Research shows that ethical leadership,

which is ‘the demonstration of normatively appropriate conduct through

personal actions and interpersonal relationship’,762could help to activate the

group ethical voice.763In this way, leadership is considered as a key factor

influencing teammembers’ evaluation of risk inherent in speaking up, and in

messagestheydesiretocommunicate.764Therefore,ethicaltrainingattheteam-

leaderlevelshouldreceiveaspecialattention,sinceanethicalteamleadercould

directly influencemembers’ behaviour,765provide better ethical guidance, and

encourage their team members to engage in group ethical voice to induce

changesofunhealthycultureintheiremployingsecuritiescompanies.However,

it isworthnotingthatat the timeof thisstudy, there isnotrainingsession for

team leaders administered by the SEC, the ATI, or any training provider.

Therefore, it is recommended that such special training sessions should be

implementedtoeducatetheteamleadershowtosupervisetheirteammembers,

howtodealwiththeregulatoryviolations,howtobegoodethical leaders,and

howtoencouragegroupethicalvoicesforchangesinorganizationalculture.

759Ethan R Burris, 'The risks and rewards of speaking up:Managerial responses to employeevoice'(2012)55(4)AcademyofManagementJournal851.760Frances J Milliken, Elizabeth W Morrison and Patricia F Hewlin, 'An exploratory study ofemployee silence: Issues that employees don’t communicate upward and why' (2003) 40(6)Journalofmanagementstudies1453.761Ibid.762MichaelEBrown,LindaKTreviñoandDavidAHarrison,'Ethicalleadership:Asociallearningperspective for construct development and testing' (2005) 97(2) Organizational behavior andhumandecisionprocesses117.763Brown, above n 762; Huang, above n 757; James RDetert and Ethan R Burris, 'Leadershipbehavior and employee voice: Is the door really open?' (2007) 50(4)AcademyofManagementJournal869.764DetertandBurris,aboven763.765SeedetailsinChapter5.

365

On the other hand, communicating with retail investors on legal matters is a

muchharderprocesssince theyareanamorphousgroupwith little interest in

anythingotherthanprofitabletransactionsandgoodservice.Suchisconfirmed

by the findings from the third interview phase of this study. Nevertheless,

educatingtheinvestorsontheirlegalmattersiscrucial,astheyhavetoknowthe

keyrestrictionsandthereasonsbehindthemsoasnottopushtheirbrokersto

violatesuchregulationsfortheirbenefits.JuliaBlackinherresearchfortheTask

Force to Modernize Securities Legislation in Canada noted three key effective

means of delivering financial information and education to retail investors,

which are: web-based initiatives, using the media, and curriculum

development.766

Web-basedinitiativesarethemostprevalentmeansthatfinancialregulatorsall

over theworldemployto informinvestorsonvarious issues, includinggeneric

informationaboutregulatoryagencies, investmentproducts,relevant laws,and

regulatoryactivities.Betterwebsitesarethosewhichareconstantlyredesigned

basedon thechangingcampaignsandmanyalsohave interactivesections that

includequizzes,financialcalculators,andadviceonhowtoworkwithbrokers.767

Nevertheless,theSEC’swebsitesmightnotbethebestplacetodeliverimportant

information to the general public, as only specific audiences, such as relevant

personnel and serious investors, would intentionally visit this website to find

certain information. It would therefore be useful for the agencies to ask for

cooperation from popular websites, such as news media websites, to share

important contentwith the public. The benefit of using suchpopularwebsites

insteadofonlyusingtheagency-specificwebsiteswaspartofanexperimentby

theUnitedKingdom’snow-defunct Financial ServicesAuthority (FSA) in2005.

Theagency launched itsweb-based ‘FinancialHealthcheck’ toolson itswebsite

and on the British Broadcasting Corporation(BBC) website simultaneously. It

wasfoundthatthehealthcheckontheBBCsitereceivedoverdoublethenumber

ofhits(450000)comparedtothatofitsownwebsite.768

766Black,aboven633.767Ibid.768BBC<www.bbc.co.uk>;FinancialServicesAuthority<www.fsa.gov.uk>.

366

Thesecondmeansbywhichfinancialregulatorstraditionallyemployistheuse

of the media. Unlike the web-based initiatives, contents that are published

through themedia often focus on enforcement actions of the agencies, rather

than the generic information.769Although themedia is an important resource,

research suggests that in order to effectively raise awareness of the general

public, financial agencies cannot simply rely on financial or specialist media

outlets. Important information needs to be repeatedly published in general

outlets to reach a wider audience. A baseline survey conducted in the United

Kingdom found that 41% of the participants followed financial news and

indicatorsbyreadinggeneralsectionsofthenewspapersandwatchinggeneral

programmesontelevision.Only19%monitoredfinancialnewsandindicatorsby

readingfinancialpagesandjust7%followedspecialistfinancialprogrammeson

television.770

The third and longer-term initiative should be curriculumdevelopmentwhere

informationandeducationaredeliveredtotargetaudiencesattherighttimeand

inthewaythatismostlikelytochangetheirbehaviour.771Examplesoffinancial

curriculum development are personal financial courses for high school and

college students, and investment information sessions inworkplaces. In doing

so, the important roles of the regulatory agencies are to develop a

comprehensive curriculum and provide training materials to teachers and

trainers.

In addition to the initiatives aiming to communicatewith and educate general

investorsasdiscussedabove,aspecificinitiativefocusingoncommunicatingand

educatingseniorinvestors,oversixtyyearsold,shouldreceivespecialattention.

Studies have found that senior investors are disproportionately victimized by

varioustypesofsecuritiesfraudrangingfromPonzischemes,high-pressurecold

calling, spam-email campaigns, toaccountchurningand fundmisappropriation

769Black,aboven633.770Financial Services Authority, 'Levels of Financial Capability in theUK: Results of a baselinesurvey'(March2006).771Black,aboven633.

367

by theirsecuritiesbrokers.772JayneBarnard inherarticle,Deception,Decisions,

and Investor Education, points out that studies in gerontology, psychology,

neurology, and marketing have increased our understanding on how older

individualsmakedecisions,andhowsuchprocessdiffer fromthoseofyounger

individuals.Barnardconcludesthatwhenmakingdecisionsolderindividualsare

more like to suffer from: (1) cognitive deficit, (2) impulsiveness in decision

making,(3)a‘truthbias’towardssomeonewhoappearstobeauthoritative,(4)

a longing for intimacy, and, (5) an irrational but powerful excitation at the

thought of ending up poor and being dependent on their children. 773

Additionally, marketing scholars note that these older individuals are

particularly challengedby tasks that (1) contain largeamountsof information,

(2) convey the information in formats that are difficult to decode, (3) fail to

includeinstructionstoguideprocessingandevaluation,and(4)requiredifficult

response formats. 774 Because of these deficiencies, communication and

educationinitiativesdesignedforgeneralaudiencesareunlikelytogothroughto

senior citizens who need the most protection from both accidental and

predatoryfraudsters.

To provide better financial and anti-fraud education programmes for older

investors,providersmusttakeaccountofthedeficienciesoutlined.Materialsto

beused shouldbe in a formof short and clearmessages, so as not to confuse

elderinvestors.Examplesoftypicalmessagesusedintheseprogrammesare:(1)

‘Ifaninvestmentopportunityseemstobetoogoodtobetrue,itusuallyis’;(2) ‘Do

notmakehastyinvestmentdecisions’; (3) ‘Alwayscheckthecredentialsofothers’;

(4)‘Bewarecold-callers’;and(5)‘Donotbetooembarrassedtocalltheauthorities

ifyoususpectanything.’775Othernotablesuggestionsinclude:(1)avoiding‘scare’

advertisingor any startle informationas itmay lead tohabituationannoyance

772Jayne W Barnard, 'Deception, Decisions, and Investor Education' (2009) 17 Elder LJ 201;Fanto,JamesA,'ComparativeInvestorEducation'(1998)64Brook.L.Rev.1083.773Barnard,aboven772.774GeorgePMoschis,'Marketingtoolderadults:anupdatedoverviewofpresentknowledgeandpractice'(2003)20(6)JournalofConsumerMarketing516.775 Larry R Abrahamson, Elder Fraud Prevention <http://www.co.larimer.co.us/da/elder_fraud.pdf>.

368

and an increased likelihood for older investors to tune out themessage,776(2)

using messages with emotionally meaningful content, since older adults are

morelikelytoretaininformationthatsatisfiestheiremotionalneeds,777and,(3)

avoidingtheuseofanymessagesthatremindolderadultsthattheyareold,asit

hasbeenfoundthattheyprefermessagesreinforcingtheirperceptionthatthey

are still the samepersonasbefore, and that apersonof anyagehas a similar

capability inmaking good decisions.778In sum, short and directmessages that

empower older investors aremore likely to be successful than other types of

messagesrelatingtofraudavoidance.

Apart from the use of well-designed educational and informational messages

mentioned, the other notable initiative to get through to older investors in

relationtofraudpreventionandavoidanceistoencourageinvolvementoffamily

members to provide oversight of finance and investment activities of their

elderly parents.779Families need to know more about their elders’ financial

status, as well as their cognitive deficiencies, psychological needs, and

environmentalcircumstancesthatcontributetounwisetradingdecisionssothat

they could provide advice to their old family members. Additionally, such an

informal financialeducationcouldalsobeused inanoppositemanner.That is,

educationon sound investmentsoptions andagainst financial fraud could also

beincludedinanyprotectiveguidancethatparentsgivetotheirchildren.780The

researcherisoftheopinionthatencouraginginvolvementfromfamilymembers

couldbe aparticularly appealing initiative against fraud in theThaibrokerage

industrydue to thecollectivistnatureof theThai societyand theusuallyclose

andpersonalrelationshipbetweenmembersoftheextendedfamily.

776Gerard Hastings and Lynn MacFadyen, 'The limitations of fear messages' (2002) 11(1)TobaccoControl73.777Helene H Fung and Laura L Carstensen, 'Sending memorable messages to the old: agedifferences inpreferencesandmemory foradvertisements' (2003)85(1) Journalofpersonalityandsocialpsychology163.778Moschis,aboven774.779Barnard,aboven772,236.780JamesAFanto,'We'reAllCapitalistsNow:TheImportance,Nature,ProvisionandRegulationofInvestorEducation'(1998)49CaseW.Res.L.Rev.110.

369

(iii)TheIntroductionofSanctionsAgainstClients

The third potential strategy in reducing client pressure is the introduction of

sanctionsand/orliabilitiesagainstclientswhentheregulatoryviolationisfound

tobecommittedunder thepressureorwith thecollusionof theclients.At the

moment, only the brokers are administratively sanctioned for the regulatory

violation.Thereisnopenaltyagainsttheclientswhoputpressureonorcollude

withtheoffendingbrokers.Theonlyexceptiontothisfailuretocriminalisethe

roleoftheclientistheuseofcriminalsanctionsinThailawagainstthecolluding

clientinthespecificoffencesofinsidertrading781andmarketmanipulation.782A

numberofparticipatingbrokerscommentedthatitwasgrosslyunfairthattheir

clients could conveniently put pressure on themand reapedbenefits from the

violations at no risk of being punished for their acts. As a result, it would be

prudentfortheSECOfficetofurtherexaminewhetheritwouldbefeasibleunder

the current capital market structure to impose any administrative measure

againsttheinvestors,suchasatemporarybanontradeoranadministrativefine,

inordertoholdthemmoreaccountableandtorelievetheunduepressureborne

bythesecuritiesbrokers.

3RemovingOpportunities

The second set of strategies to break the brokerage fraud triangle involves

focusingontheremovalofopportunityfactors,whichisdeemedthemostdirect

actionable route. This study proposes the use of a combination of external

measures–theuseofgovernment-basedinitiativesandsanctions–andinternal

measures–theuseofcorporate-basedfraudpreventionandinternalmonitoring

–toreduceperceivedopportunitiesoffraud.

781SecuritiesandExchangeActB.E.2535(1992)ss241,242.782SecuritiesandExchangeActB.E.2535(1992)ss243,244.

370

(a)ExternalMeasures

(i)InformationandEducationInitiatives

The first strategy at the base of the enforcement pyramid is the use of

information and education initiatives to informand educate securities brokers

andgeneral investors. Inrelation to the investors, theyneed tobe informedof

the characteristics of different types of brokerage fraud, the potential damage,

andhowtoavoidfraud.Thaiinvestorsshouldbewarnednottooverlytrusttheir

brokers since trust is themost significant factor leading to any type of fraud.

Whentheclientsaresufficientlyeducatedaboutfraud,itwouldbeharderforthe

unscrupulous brokers to take advantage of their clients, thus significantly

reducing opportunity factors. Nevertheless, effectively communicating with

generalinvestorsisnotaneasytaskasthey,morethanoften,paylittleattention

tomessagessentbytheregulatoryagency.WhattheSECOfficeshoulddoisto

developeye-catchingcontent,suchaseasy-to-readinfographicsandinteractive

financial tools, and disseminate them through key channels that can reach the

generalpublic,suchaspopularwebsitesandgeneralmediaoutlets.

On the part of the brokers, they should be regularly reminded of the relevant

lawsandregulationstheyhavetostrictlycomplywith.Thebrokersshouldalso

be educatedon the reasonsbehind eachprohibition and thepotential damage

thewrongdoingcancausetoboththeclientsandtothemselves,asdiscussedin

theprevioussection.Basedontheinterviewdata,thebestwayfortheSECOffice

to communicate with the brokers on ethical and legal matters is through the

securitiescompanies’complianceofficers.Thecomplianceofficersaretheones

responsible to forward legal informationandnewsofenforcementactivities to

the brokers. The compliance officers of certain securities companies also hold

legalbriefingsessionsandprovidelegaltrainingtothebrokers.Asaresult,the

compliance officers currently play a central role in the information and the

educationinitiatives,inadditiontotheirregularmonitoringroles.Nevertheless,

as there are more regulations to follow and the fraudulent practices are

becoming complex, the compliance officers are faced with difficult tasks in

371

effectively doing their communicative functions. The SEC Office should,

therefore, provide as much support to these compliance officers, such as

providing them with specialised training and support them with educational

resourcesinrelationtoregulatorycomplianceandprofessionalethics.

(ii)PersonalScreening,LicensingExamination,andEthicalTraining

Thesecondsetofexternalstrategiestobeemployedalongsidetheinformation

and the education initiatives is the enhancement of ethical standards of Thai

securities brokers through the improvement of the personnel screening

processes, the licensing examinations, and the ethical training. Beginningwith

the screening processes, the SEC Office currently does a thorough job in

examiningcharacteristicsandqualificationsofindividualswhoareapplyingfor

brokerage licences. The applicants have to have the required educational

background and work experience, as well as not having prohibitive

characteristics prescribed, such as having prior criminal records relating to

financialoffences.Whattheagencycouldaddtotheprocessistheexamination

oftheapplicants’creditrecordstomakecertainthattheydonothavepastcredit

problems,whichshowtheirinherentlackoffinancialdisciplineandmaysignal

futurewoes.Inrelationtotheexaminationsandtheethicstraining,whattheSEC

together with the ATI could do to enhance their quality are to give more

emphasis on the ethics section of the tests and the training, in relative to the

technical knowledge sections. In addition, new teaching techniques, such as

thosethatfocusonethicaldecisionmakingsandhowtoresolvevaluesconflicts

inworkplaces, shouldbe incorporated into the curriculum, asdiscussed in the

earliersectionofthischapter.

(iii)Sanctions

The thirdescalatedstrategy tobeemployedafter theeducation initiativesand

the enhancement of the brokers’ ethical standards have failed to produce

complianceistheuseofsanctiontopunishoffendingbrokersandtodeterothers

brokers who are contemplating whether to commit the offences. Imposing

372

credible and well-targetted sanctions is key to any deterrence programme. A

credible deterrence programme can modify securities brokers’ behaviour and

reduceviolations,whichinturnincreasesclientprotectionagainstsecuritiesand

brokeragefrauds.783Inessence,deterrencewouldoccurwhentheperceivedcost

of theexpectedsanction– the losses fromsanctionsbeing imposeddiscounted

by the probability of apprehension – exceeded the expected gain from the

offences. 784 Although the fundamental notion of the economic theory of

deterrencehasbeenchallengedinbymanyacademics invariousdisciplines,785

mainly due to its inherent assumptions that an individual is a rational utility

maximiserwho also possesses adequate information on his or her gains from

committingaharmfulact,onthemagnitudeofsanction,andontheprobabilityof

beingcaughtandsanctionedbyanauthority,786theseassumptionsaregenerally

validinrelationtobrokeragefraudsandrelatingviolations.Firstly,thebenefits

that brokers derive from committing brokerage offences are predominantly

monetary, a direct obtainment of funds and/or an increase of trading volume,

which are easily assessed in utility terms. Secondly, the work of securities

brokers,unlikemostotherprofessions,heavilyreliesonnewsand information

in the market, including news on regulatory amendments and enforcement

activities.TheinterviewdatafromthisstudyfurtherconfirmthatThaisecurities

brokers,onaverage,havegoodknowledgeofthelawandsufficientawarenessof

theenforcementactivities,renderingthemabletodeterminetheexpectedcost

ofsanctionwithreasonableaccuracy.

783 International Organization of Securities Commissions Credible, Deterrence In TheEnforcementOfSecuritiesRegulation,June2015.784Anthony I Ogus, Costs and Cautionary Tales: Economic insights for the law (BloomsburyPublishing,2006).785Oneoftheprominentchallengingtheoriesofthetheoryofdeterrenceisknownas ‘boundedrationality’, which suggests that human cognitive abilities are not infinite and human alwaysmakesavarietyoferrorswhenmakingdecisions.HerbertSimonsuggestedinhisfamousarticlethat, unlike artificial intelligences, human reach solutions of the problem in an unorganisedfashion by basing our decision on random relevant facts and information. In addition, humanoften satisfy with merely serviceable solutions, rather that solutions that provide maximisebenefits. Thus Simon terms human as ‘satisficers’, not maximisers. See, Herbert A Simon, 'Abehavioralmodelofrationalchoice'(1955)Thequarterlyjournalofeconomics99.786AMitchellPolinskyandStevenShavell, 'Theeconomic theoryofpublic enforcementof law'(Nationalbureauofeconomicresearch,1999).

373

As theperceivedcostof theexpectedsanctionhas toexceedtheexpectedgain

from the offences, the sanctions imposed have to be well-targeted and

adequately severe, as well as the probability of apprehension be sufficiently

certain.787Itisinterestingtonotethatrecentempiricalstudiessuggestthatthe

certaintyofapprehension ismore important todeterrence thantheseverityof

sanction,astheincreaseinpolicingandmonitoringbudgetsresultinsignificant

changesincrimerates,whiletheincreaseinthemagnitudeofsanctiondoesnot

materially effect deterrence.788 The first group of strategies in this section,

therefore,focusesonincreasingthecertaintyofapprehension,whilethesecond

groupattemptstoenhancethetargetingandtheseverityofsanctionsimposed.

(iii-a)IncreasingoftheCertaintyofApprehension

Startingwiththeincreaseofthecertaintyofapprehension,twomainregulatory

activities leadtotheapprehensionofoffenders:adetectionofwrongdoingand

animpositionofpunishmentonoffenders.TheSECOfficetogetherwiththeSET

currentlyemploystwostrategiestodetectthewrongdoing.Thefirstistheuseof

computerised surveillance and investigation systems administered by the SET.

When the abnormalities are detected, the SET will notify the SEC Office for

furtherinvestigation.789ThesecondstrategyadministeredbytheSECOfficeisan

inspectionprogrammebasedonfourstrategies,whichare(1)aroutineperiodic

inspection, (2) an inspection based on risk profiles of brokers and securities

companies,(3)aninspectionuponcomplaintsbyclients,brokers,andsecurities

companies, and (4) an inspection upon notifications from other government

agenciesandmediaoutlets. It canbesaid that theSECdetectingstrategiesare

787Paul H Robinson and John M Darley, 'Does criminal law deter? A behavioural scienceinvestigation'(2004)24(2)oxfordJournalofLegalstudies173.788Empiricalstudiessuggeststhatthecertaintyofapprehensionismoreimportanttodeterrencethantheseverityofsanction,astheincreaseinpolicingbudgetsresultinsignificantchangesincrime rates, while the increase in the magnitude of sanction does not materially effectdeterrence. See Robinson and Darley, above n 787; Philip Brickman and Donald T Campbell,'Hedonicrelativismandplanningthegoodsociety'(1971)Adaptation-leveltheory287;ShelleyETaylor, 'Adjustment to threatening events: A theory of cognitive adaptation' (1983) 38(11)Americanpsychologist1161.789 The Stock Exchange of Thailand, Market Surveillance <www.set.or.th/en/regulations/supervision/surveillance_p1.html>

374

comprehensive, however, based on the interview data, two potential

improvementscanbemade.

Firstly,itwasrevealedthattheSECOfficealwaysnotifiesthesecuritiescompany

inadvancebeforetheofficersaresentintoconducton-siteinspection.Notifying

of the inspection in advance would allow the brokers and/or the securities

companies the time to manipulate records and documents, thus conceal the

evidence of the violation. It is, therefore, suggested that the SECOffice should

conductunannouncedinspectionsfromtimetotime,basedontheriskprofilesof

the brokers and the securities companies. Secondly, a number of participating

brokers raised a concern that the SEC Office had never provided themwith a

clear inspection guideline, resulting in high level of discretion of individual

officers in determining whether the violations had been committed. Some

brokers further commented that they have little faith in the SEC Office’s

enforcementfunctionsduetotheagency’sinconsistentpractice.Theregulators,

in their interviews, commented that inspection guidelines were available but

theywereforinternaluseonly.Toenhancethetransparencyof inspectionand

toimprovethebrokers’faith,itwouldbeprudentfortheSECOfficetodevelopa

clearinspectionguidelineandtomakeitpubliclyavailable.

As for the imposition of punishments on the offenders, it is found that the

currentratesofpunishmentforbrokerageoffencesvariedgreatly:veryhighin

relationtoadministrativesanctions,unquantifiableinrelationtocivilsanctions,

and, very low in relation to criminal sanctions. The imposition rate of

administrative sanctions is inherently high since the SEC Office conducts the

investigations and imposes the sanction by itself. The rate of civil sanction is

unquantifiablesincethereisnodirectcivilsanctionthattheagencycanimpose

on the offending brokers and their securities companies, and a claim for

remuneration is a privatematter. As for the rate of the imposition of criminal

sanction, it is extremely lowdue to the complexity of the current proceedings

prescribed by the law. Although, the SEC Office may also, by itself, impose

criminalsanctions,theycanonlydosoinverylimitedcircumstancesandonlyin

the form of criminal fines. To be more specific, the agency can only settle

375

individualfineswiththeoffendingbrokersinthethreeoffencesrelatingtounfair

trading practices, 790 and impose corporate fine only in cases where the

companies’ cumulative failure in implementing internal control mechanism

result in repeated violations.791If the SECOfficewould like to pursue criminal

sanctionsagainsttheoffenders,theyhavetoengageinacomplicatedprocedure

byfilingcriminalcomplaintswiththeECIDforfurtherinvestigationandhaving

the public prosecutors prosecute the cases in criminal courts. Due to such

complication, the lackof controlover theoutcomes, and the limited resources,

theSECOfficecurrently implementsapolicythattheywouldnotseekcriminal

sanctions against the offending brokers in the offences of deception and

misappropriation, but rather letting the injured clients initiate the criminal

proceedingontheirown.Asaresult,veryfewbrokeragefraudcaseshavebeen

prosecuted, since most clients preferred to settle for monetary compensation

ratherthanproceedwithcostlyandtime-consumingcriminalproceedings.792

Toincreasetheratesofpunishment,especiallytherateofcriminalsanction,the

study suggests an expansion of the use of corporate fine against employing

securities companiesanda reformulationof the regulatorypyramid to include

individualcriminalsanctionsintherevisedenforcementstructure.Asmentioned

thattheSECOfficecurrentlylettheinjuredclientspursuecriminalproceedings

on their own, the criminal sanctions are, in term of deterrence, regarded as

locating in a separate domain. The suggested strategy is for the SEC Office to

amend its’ policy in relation to the initiationof criminalproceedings.Thenew

policy, inwhichtheSECOfficewould, jointlyoronbehalfoftheinjuredclients,

initiatescriminalproceedinginselectedimportantcases,wouldallowtheagency

to strategically employ criminal sanctions to supplement its current

administrativesanctionsandotherdeterrentinitiatives.Inthenewenforcement

structure, thecriminalsanctionswouldbepositionedasthe ‘benignbiggun’at

thetoplayerofthepyramidtopenaliseseriousandrepeatoffenders,aswellas

790The offence of misstatement, the offence of insider trading, and the offence of marketmanipulation.See,SecuritiesandExchangeActB.E.2535(1992)ss238-244.791SecuritiesandExchangeActB.E.2535(1992)s113.792 Under the Thai criminal law system, the offence of deception and the offence ofmisappropriationarecompoundableoffencewherethevictimmaywithdrawthecaseorreachsettlementwiththedefendantatanytime.SeedetailsinChapter2.

376

to facilitate cooperation from the brokers and the securities companies in the

education initiatives, theenhancementof thescreeningand trainingprocesses,

andtheenhancementofpreventivemeasuresfoundatthelowerlayers.Interm

of sanction, the current administrative sanctions, in the forms of reprimand, a

suspension of licence, and a revocation of licence, would still be the primary

tools. Criminal sanctions, as an escalated response, should only be pursued in

special circumstances, suchaswhen the severityof theoffence is extreme, the

quantum of damage is very high, the offence is committed by a repeated

offender, or when the SEC Office would like to send strong messages to the

public.

Figure21:TheRegulatoryPyramidofTheCurrentThaiAnti-BrokerageFraudRegime

377

Figure22:TheRegulatoryPyramidofTheRevisedThaiAnti-BrokerageFraudRegime

Inorder for theSECOffice to legally andeffectivelypursue criminal sanctions,

jointly with or on behalf of the injured clients, several statutory and

organisational changes have to be made. Firstly, relevant sections of the

Securities and Exchange Act B.E. 2535 (1992) need to be altered so that the

agency can initiate criminal proceedings for the offences of deception,

misappropriation, and fabrication of documents and forging of signatures.

Secondly,thecurrentproceduralrulesshouldbesimplifiedtoempowertheSEC

Office and to reduce unnecessary procedures. A proposition made by the

participating SEC Officers is to eliminate the ECID from the proceedings, thus

allowing the SEC Office’s legal officers to directly work with the OAG in

determiningwhichcasestobeprosecuted.Thirdandlastly,legaldepartmentsof

the SEC Office are required to be provided with more human and financial

resourcestopursuemorecriminalconvictions.

(III-b)EnhancingtheTargetingandtheSeverityofSanction

Havingdiscussedthestrategiestoenhancetheprobabilityofapprehension,the

next group of strategies attempts to enhance the targeting and the severity of

sanction to impose greater cost upon offending brokers and their employing

378

securities companies. The first strategy aims to alter a compliance culture

specifictotheThaibrokerageindustry,foundintheempiricalpartofthisstudy.

ItwasfoundthatThaibrokersnormallybeputtogetherinateamfromthestart

oftheircareerandusuallyworkwitheachotherforaverylongtime.Evenwhen

theymovedfromonecompanytoanother,theyusuallymovedasateamandnot

as an individual. Therefore, the team compliance culturewasmore important

thanthecorporatecomplianceculture.Teamleadersalwaysplayedakeyrolein

developing a working culture within their teams, as they were the one who

taughtteammembershowtoengageintrade,howtoanalysesecurities,howto

adviseclients,andmostimportantly,whatpracticescouldbedoneandcouldnot

bedone.Thedatafurtherrevealedthatambitiousandrisk-takingteamleaders,

more than often, influenced their teams to focus on short-term trades, and to

advise the clients to take more risks, which sometimes included unlawful

practices. Differences in the team leaders’ attitude towards regulations and

ethicswerealso foundtohavedirect influenceontheteammembers’conduct.

Oneparticipatingteamleaderstatedthatshewasveryseriousaboutcompliance

andwouldnotletherteammembersmakedecisionsforclients.Onthecontrary,

another team leader stated that he believed it was each broker’s own

responsibility todecidewhat todo.Basedonsuch findings, it canbeseen that

theteamleadershavesignificantinfluenceontheteammembers’conduct,yet,in

thecurrentregulatorystructure,theteamleadersdonothaveanyresponsibility

or liability in relation to their team members’ conduct. All regulatory and

monitoring duties are, instead, assigned to the companies’ compliance officers

who are usually few in numbers and work at arm’s length from the brokers,

resulting in less persuasive and legitimate influence as players in regulatory

activities.ThesuggestedstrategytoaddressthisteamcultureissueisfortheSEC

Officetoassignformalregulatoryandmonitoringdutiestotheteamleadersand

toholdthemadministrativelyaccountablewhentheirteammembersengagein

thewrongdoing.Forexample, ifa teammember is foundtoemployanominee

account to trade for herself, her team leader will also be administratively

punished for the lack of monitoring. Nevertheless, the proper forms and

magnitudeof sanctions tobe imposedon the team leaderneed tobe carefully

determined,soasnottoinduceexcessiveoversight.

379

Thesecondsetofstrategiesisarevisiononthetargetingandthemagnitudeof

current sanctions employed to punish offending brokers and their employing

securitiescompanies.Inrelationtotheadministrativesanctions,thethreelevels

of sanctions, from reprimand to a suspension and a revocation of licence, are

found to be well-structured with sufficient severity. Nevertheless, there are

certain loopholes that need to be addressed. First, as suspended brokers can

conceal their suspensions from their clients by making up excuses and by

transferring the clients to their colleagues during the suspension period, and

having their colleagues transfer their shares of brokerage fees back to them.

What the SECOffice cando is tomandate the securities companies to directly

inform the clients that their brokers had been suspended. Such mandatory

disclosureisaverypowerfultoolagainsttheoffendingbrokerssincewhatthey

fear most is a loss of trust and an inability to retain the clients. The second

loophole identified is that some companies help their suspended brokers by

transferring the brokers to work in other departments that do not need

brokeragelicencesduringthesuspensionperiod.WhattheSECOfficecoulddo

istoexpandthescopeofsuspensiontoincludeworkinginanycapacityforthe

companiesandrelatedorganisations.

In relation to the criminal sanctions, the current regime comprises both

individual and corporate criminal sanctions. The severity of these individual

sanctionsisinadequatefordeterrencepurposes,asdiscussedintheearlierpart

of this chapter.What the SECOffice togetherwith theRoyal Thai Police Force

coulddo is tosupportan increaseof theminimumamountof fineand termof

imprisonment, so that the costs imposed upon the offenderswould be higher.

Nevertheless, as suggested by recent studies on deterrence, the increase in

magnitudeof a sanctionmayhave lessof an impacton the levelofdeterrence

than the increase in theapprehensionrate,793it couldbemoreefficient for the

SECOffice to focus on the restructure of the enforcement pyramid so that the

agencycancriminallyprosecuteandpunishlargernumbersofoffenders.

793RobinsonandDarley,aboven787.

380

As for the corporate criminal sanctions, under the SecuritiesandExchangeAct

B.E.2535(1992),theSECOffice’spowertoimposecorporatesanctionislimited

to a corporate fine and only in the case of the cumulative failure of securities

companies in implementing credible internal control, resulting in repeated

violations.794Inaddition, theprescribedamountof fine,notexceeding300000

bahtplusa further finenotexceeding10000baht foreverydayduringwhich

the violation continues,795is very low comparing to potential gains from the

offending behaviour. It should be noted that the lack of effective corporate

sanction is a serious regulatory issue. When the corporate sanction does not

impose prohibitive cost upon securities companies, they would have little

incentive to establish and maintain credible internal control mechanisms to

regulatetheiremployees’conduct.WhattheSECOfficeshouldattempttodoto

increase the cost imposed upon securities companies is twofold. The first

approach would be to expand the use of corporate criminal fine so that the

agency can strategically punish the companies for serious individual offences.

The second is that themaximumamountof fine shouldbe significantly raised.

The latter strategy was supported by the participating SEC officers in their

interviews.

(iv)LegitimacyoftheRegulatoryAgency

Thelastexternalstrategytobeimplementedinreducingopportunityfactorsis

theenhancementoflegitimacyoftheSECOfficeintheeyesofsecuritiesbrokers

andsecuritiescompaniesinrelationtobrokeragefraudsandrelatingviolations.

Legitimacy is thebelief amongpeople ina society that thegovernmentand its

organs deserve tomake decisions influencing the lives of the people.796In the

case of legal authorities, studies have shown that regulation by a legitimate

authority can influence a range of the regulatees’ behaviour, 797 including

794SecuritiesandExchangeActB.E.2535(1992)s113.795SecuritiesandExchangeActB.E.2535(1992)ss113,282.796Herbert C Kelman and V Lee Hamilton, Crimes of obedience: Toward a social psychology ofauthorityandresponsibility(YaleUniversityPress,1989).797TomRTyler,PhillipAtibaGoffandRobertJMacCoun,'TheImpactofPsychologicalScienceonPolicing in the United States Procedural Justice, Legitimacy, and Effective Law Enforcement'(2015)16(3)Psychologicalscienceinthepublicinterest75.

381

deferenceduringpersonalencounters798, everydaycompliancewith the law,799

cooperationwiththeofficers,800andtheacceptanceoftheagency’sauthority.801

Inessence,whentheregulatoryagenciesandtheregulationstheyadministerare

seenasmorelegitimateandmoreprocedurallyfair,compliancewiththelawis

more likely and the cooperation of the regulatees will be more readily

secured.802.

Oneof thesurprising themes that surfacedduring the interviewswas theThai

securitiesbrokers’serious lackof faithtowardstheSECOffice’sregulatoryand

enforcement function.Fivemain issues identifiedbythebrokers were:(1)the

lackofclearandconsistentinterpretationoftheregulations,(2)thelackofclear

inspectionguidelinesresulting inhigh levelofdiscretionby individualofficers,

(3) the over protection of investors and its lack of protection of securities

personnel,(4)theagency’slackofattentiontothebrokers’needsandconcerns,

and (5) the agency’s inconsistent treatment of different securities firms that

wereknowntoconductsimilarviolations. Inorder toenhance theSECOffice’s

legitimacy, first and foremost, this study suggests that clear interpretationand

inspection guidelines have to be developed and made publicly available.

Although,suchreformsposeagreatdeviationfromtheexistingcultureofThai

regulatoryagencies,whereallenforcementguidelinesareclassified,theeffortto

publish the enforcement guidelines could bring a widespread change to the

country’s enforcement practice. It is also important that the officers adhere

strictlytosuchpublishedguidelinesandrefrainfromengaginginanypreference

practice.Secondly,theSECOfficeshouldprovidemoreforaandopportunitiesto

thebrokerstovoicetheirconcernsandengagethemindialoguesconcerningany

significant change in regulation. After these strategies are effectively798TomRTyler andYuenHuo,Trust inthe law:Encouragingpubliccooperationwiththepoliceandcourtsthrough(RussellSageFoundation,2002).799JonathanJacksonetal,'Whydopeoplecomplywiththelaw?Legitimacyandtheinfluenceoflegalinstitutions'(2012)Britishjournalofcriminology;TomRTyler,'Psychologicalperspectivesonlegitimacyandlegitimation'(2006)57Annu.Rev.Psychol.375.800TomRTylerand JeffreyFagan, 'Legitimacyandcooperation:Whydopeoplehelp thepolicefightcrimeintheircommunities'(2008)6OhioSt.J.Crim.L.231801JonathanJacksonetal,'Monopolizingforce?Policelegitimacyandpublicattitudestowardtheacceptabilityofviolence'(2013)19(4)Psychology,PublicPolicy,andLaw479;TomRTylerandJonathanJackson,'Popularlegitimacyandtheexerciseoflegalauthority:Motivatingcompliance,cooperation,andengagement'(2014)20(1)Psychology,PublicPolicy,andLaw78;802JohnBraithwaite,'EssenceofResponsiveRegulation,The'(2011)44UBCLRev.475.

382

implemented, it is likely that the brokers would have more faith in the SEC

Office’s regulatory and enforcement functions, resulting in better cooperation

andaweakeningofopportunityfactorsinthecommissionofbrokeragefrauds.

(b)InternalMeasures

Althoughtheeliminationofallopportunitiesmaybeimpossible,thereductionof

theopportunitiesforfraudoftenpaysbigdividendstoanyorganisation.803When

frauds are prevalent in any organisation, the organisation loses substantial

revenue,whichcouldbeashighas fivepercentaccording to theUnitedStates’

AssociationofCertifiedFraudExaminers(ACFE).804Inadditiontothedirectcost

offraud,indirectimpactsthattheorganisationsshouldbeawareofinclude:(1)

lowstaffmoraleastheyfeelbetrayedbycolleaguesand/ormanagement,(2)the

lack of ability to attract good employees, (3) the losses of reputation of the

business in theeyesof customers, competitors, employees, andotherbusiness

partners,and, (4) the lossofbusinessopportunitydue to the internal focuson

responsestofraud.805Inrelationtobrokeragefrauds,theadditionalimpactson

securities companies are: (1) losses from administrative sanction and/or fines

imposedbyregulatoryagency,(2)thelossofstaffduetothesuspensionandthe

revocationoflicences,(3)thelossofreputationandtrustofinvestorsresulting

in decreases in trading volume, and, (4) the losses from remuneration paid to

injured clients. Based on such impacts, it is therefore important for securities

companies to invest in establishing credible internal control mechanisms to

preventanddetectfraudulentpracticesengagedinbytheiremployees.

Four activities tomitigate the occurrence of fraud are normally conducted by

businessorganisations,whichare:(1)fraudprevention,(2)frauddetection,(3)

fraud investigation, and (4) follow-up legal action.806This study focuseson the

803Albrecht,aboven12.804Association of Certified Fraud Examiners, Report to theNations on Occupational Fraud andAbuse(2016)<http://www.acfe.com/rttn2016.aspx>.805CPAAustralia,'Employeefraud:Aguidetoreducingtheriskofemployeefraudandwhattodoafterafraudisdetected'(2011).806Albrecht,aboven12.

383

prevention and detection activities of securities companies in relation to the

controloflow-levelbrokeragefraudsandrelatingviolations.

(i)FraudPrevention

Fraud prevention is the most cost-effective way for the companies to reduce

losses of fraud as it is less expensive to stop fraud before it occurs than to

address it retrospectively with expensive and disruptive legal measures.807

Effective fraudpreventionprogrammes involve twokeyactivities: (1) creation

andmaintenanceofacultureofhonestyandhighethics,and,(2)anassessment

of the risk andan eliminationof theopportunitiesof fraud through theuseof

credibleinternalmonitoring.808

In creating and maintaining a culture of honesty and high ethics, five core

elementssuggestedbyW.SteveAlbrechtandhiscolleaguesare:(1)makingsure

thattopmanagementofficialsmodelappropriatebehaviour,(2)hiringtheright

employees, (3) communicating compliance expectations throughout the

organisation,(4)creatingapositiveenvironment,and(5)developinganeffective

policy for handling fraud when it occurs. Starting from the first element,

managersandofficersinhigherpositionsmustbegoodrolemodelstoworkers

in lower levels, ashonestyandcompliancearebest reinforced throughproper

examples that ethical behaviour is valued and unethical behaviourwill not be

tolerated.809In the context of this study, it is important that team leaders are

goodrolemodelstotheteammembersaswellasprovideethicalguidancetothe

membersduringthecourseofwork.

The second element which may create a compliance culture in securities

companies is hiring ethical employees. Interesting research conducted in the

UnitedStatesshowsthatthirtypercentofworkersaredishonest, fortypercent

ofworkersaresituationallydishonest(honestwhenitismorebeneficialtothem

807Joseph T Wells, Corporate fraud handbook: Prevention and detection (John Wiley & Sons,2011).808Albrecht,aboven12.809Schwartzetal,aboven529.

384

and vice versa), and thirty percent honest at all time. 810 Although the

percentages could be varied in different countries and contexts, what the

companiesshouldaimtodoistoscreenoutthefirstgroup,toprovidepositive

environment and to monitor the second group, and to always hire the third

group. On the part of the companies, what they should do is to establish a

positive hiring policy where compliance and ethical behaviour is a key

component. Securities companies should be mindful when hiring the brokers

withpastoffendingrecords,notably thosewhose licenceshadbeensuspended

for fraudulent practices, even though they may bring many clients and large

tradingvolumewiththem.

The third key element is the communication of expectations of honesty and

integrity. It is very important the ethical and compliance expectations are

effectively communicated throughout the organisations. What behaviour is

acceptable and what is unacceptable should be clearly communicated to all

employeesofthesecuritiescompanies.Itisalsoimportantthatthemessagesbe

consistent, as inconsistent communication often encourages rationalisations of

fraudulent practices.811Techniques of good communication include orientation

meetings, ethical awareness training, supervisory discussions, and codes of

conduct. In the context of this study, there is amajor deficiency in the use of

codesofconductinThaisecuritiescompanies.Eightparticipatingbrokersstated

that their companies did not provide them with codes of conduct, while ten

brokers commented that, although theywereprovidedwith codesormanuals,

they did not find them useful. The reasons given were that such codes were

general ones for all employees, which were not particularly useful in their

brokeragework,and thatmanyguidelinesprovidedwere impracticabledue to

variouspressuresandconstraintstheywerefacing.Suchdeficiencyisaserious

issue that the SEC Office should promptly address. The meaningful codes of

conduct need to be specifically developed to match the issues faced by the

brokers aswell asdeveloped in amanner that encourages thebrokers to take

810Richard C Hollinger,Dishonesty in theworkplace:Amanager's guide to preventing employeetheft(LondonHousePress,1989).811Albrecht,aboven12.

385

ownership of them.812In addition, it is found that requiring the employees to

confirminwritingthattheyunderstandtheorganisation’sethicsexpectationis

aneffectivetoolincreatingacultureofcompliance.813

The fourth element is the creation of a positive environment. Studies indicate

thatfraudoccurslessfrequentlywhenemployeeshavepositivefeelingstowards

organisations, than when they feel abused, threatened, and/or ignored.814For

example,apositiveenvironmentcanbecreatedthroughdynamicssuchasgood

relationships at work, open communications, equity within the organisation,

participatorymanagement, reasonable performance expectations, realistic pay,

training and promotion opportunities, as well as clear organisational

responsibilities.

Thefifthandlastelementisproperhandlingoffraudperpetrators.Whenfraud

occursandisdetected,itismostimportantthatorganisationshaveappropriate

policiesinplacetodealwithandtopunishtheperpetrators.Ifsuchindividuals

are not adequately punished, they suffer insignificant cost and often resume

fraudulent behaviour. 815 Such failure also sends wrong signals to other

employees in the organisation that the perpetrators do not suffer significant

consequences for their wrongdoing, thus increasing perceived opportunity

factors.SuchissueisthecurrentkeyweaknessofThaisecuritiescompanies.The

interviewdatarevealedthatThaisecuritiescompaniesrarelyimposeadditional

internalsanctionsuponoffendingbrokersontopofexternalsanctionsimposed

bytheregulatoryagency.Onthecontrary,somecompanieswerefoundtohelp

theirbrokers lessen the impactof thesanctions.Toaddress this issue, theSEC

Office togetherwith ASCO should communicatewith the securities companies

thattheyareexpectedtohaveappropriateminimuminternalsanctionpoliciesin

placeanddutifullyadheretothemwhentheiremployeeswerefoundtocommit

violationsoftheSECOffice’sregulations.

812 Muel Kaptein and Mark S Schwartz, 'The effectiveness of business codes: A criticalexamination of existing studies and the development of an integrated researchmodel' (2008)77(2)JournalofBusinessEthics111.813Albrecht,aboven12.814Ibid.815Ibid.

386

Thesecondkeyactivityoffraudpreventionisanassessmentoftheriskandan

elimination of the opportunities of fraud through the use of credible internal

monitoring.816In essence, companies can eliminate fraud opportunities by: (1)

identifyingsourcesandmeasuringrisksoffraud,(2)implementingappropriate

internalpreventiveanddetectivecontrols, (3) creatingwidespreadmonitoring

by employees, and (4) having internal and external auditors who provide

independentchecks.817UnderthecurrentstructureofThaisecuritiescompanies,

compliance officers play key roles in these activities, including being

intermediaries between the brokers and the regulators in regulatory matters.

Nevertheless,theinterviewdatarevealthatsecuritiescompaniesoftenhavetoo

few compliance officers andmanagement does not always provide themwith

adequate authority and support. To address this issue, the SEC Office should

designate a minimum ratio of compliance officers per employees and require

that the complianceunitsmusthaveadequateautonomy frommanagementas

wellassufficientresourcesbeprovidedtothem.Theothernotablestrategythat

thecompaniesshouldconsiderisanincreasinginvolvementofotheremployees

in the internal monitoring process by providing incentives and a protocol for

communication to whom they should report suspected fraud to and in what

manners.It is importantthatsuchprotocolsensureconfidentiallyandsafetyof

theinformersorthewhistleblowers.818

(ii)FraudDetection

Since it is impossible to prevent all, organisations should also have effective

detective controls in place. It is important that fraud is detected and stopped

early. If the fraud isnot caught, theperpetrator’s confidencealways increased,

and the quantumof fraudbecome larger and larger.819Threeprimaryways to

detect frauds are identified by researchers: (1) by chance, (2) by providing

channels for stakeholders to report suspicious of fraud, and (3) by examining

816Ibid.817Ibid.818AlexanderJonathanBrownetal,Internationalhandbookonwhistleblowingresearch(EdwardElgarPublishing,2014).819Albrecht,aboven12.

387

records and documents. In the context of brokerage fraud, the key detection

methods are the report by injured clients and the examination of transaction

recordsbythecomplianceofficers.Theinjuredclients,whendiscoverdamageor

loss from fraud and/or regulatory violations, often bring their disputes to the

attention of the securities companies. Based on the interview data, Thai

securities companies would conduct internal investigations and attempt to

promptlysettlewiththeinjuredclients,soastoavoidthelossofreputationand

formal sanctions from the SEC Office. Similarly, when the compliance officers

discovered evidence of fraud and/or violations, they often dealt with them

internally. Only certain companies were reported to dutifully inform the

regulatoryagencyofsuch incidents.Suchpracticesareagainst thespiritof the

law and should be discouraged. The SEC Office should emphasise to the

compliance officers that although they are employees of securities companies,

they have an important duty to the public. Without formal sanctions by the

agencyoffenders,itisunlikelythatadequatecostwouldbeimposedallowingthe

wrongdoingtobesufficientlydeterred.

4LimitingRationalisations

Thethirdandlastsetofgeneralrecommendationsaboutbreakingthebrokerage

fraud triangle involves strategies thatpotentiallymake itmoredifficult for the

Thaisecuritiesbrokerstorationalisetheirwrongfulacts.AccordingtotheFraud

Triangle theory, accidental fraudsters have to rationalise or verbalise their

wrongfulactstoreducetheircognitivedissonance.Theinterviewdatarevealed

thatwhenThaibrokerscommittedregulatoryviolationsand/orfraudulentacts,

they always resorted to rationalisation. The data further indicated that the

rationalisationsemployedbytheThaibrokerscouldbegenerallyclassifiedinto

sixgroups,whichwere:(1)adenialofresponsibility,(2)adenialofinjury,(3)an

appealtohigherloyalties,(4)aclaimtoentitlement,(5)aclaimthatregulations

wereobsolete,and(6)aclaimthateveryonewascommittingtheviolation.

388

Although rationalisation is said to be mostly an unconscious process,820the

presentresearchsuggeststhatitwouldbeworthwhileto,directlyandindirectly,

create situations where brokers’ abilities to rationalise their wrongdoings are

limited.Thefollowingstrategiesaresuggestedinresponsetodifferenttypesof

rationalisation found in the interview data. In relation to a denial of injury,

wheresecuritiesbrokersclaimthatnooneisinjuredfromthewrongdoing,anda

claimtoentitlement,wherethebrokersclaimsthat theyareentitledtocertain

rights or benefits prohibited by the law, a viable strategy is to provide more

informationandeducationtothebrokerssothattheybetterperceivetheinjury

causedbytheirwrongfulactsaswellasthereasonsbehindtheprohibitions.For

example,thebrokersshouldberemindedregularlythatthewrongfulpracticeof

using their clients’ accounts to trade for themselves can cause substantial

damagestotheaccounts’ownersandcaneasilyleadtodisputebetweenthem.In

responsetoadenialofresponsibility,wherethebrokersshifttheblameoftheir

violations to their clients, andanappeal tohigher loyalties,where thebrokers

claimthattheviolationsarecommittedforthebenefitoftheirclients,thevalid

strategiesaretoreducetheclientpressureasdiscussedintheearliersectionand

to remind them that they are licenced professionals duty-bound to uphold

professionalethics, regardlessof theirpersonal relationship to theirclients.As

foraclaimthattheregulationsareobsoleteandaclaimthateveryoneelseinthe

industry iscommittingtheviolations, it issuggestedthat theSECOfficeshould

attempttoupdateitsregulationsregularlyinresponsetochangesintheindustry

andthebusinesspractices,aswellastovigorouslyandconsistentlyenforcethe

currentregulationssoastoenhancecredibilityoftheagencyandtheregime.

BStrategiesinEnhancingDeterrenceofFocusOffences

CommittedbyAccidentalFraudsters

Intheprevioussection,generalstrategiestobreakthebrokeragefraudtriangle

andtoenhancethecurrentThaianti-brokeragefraudregimewerediscussed.In

this section, specific strategies to deter each of the three focus brokerage820Asokan Anandarajan and Gary Kleinman, 'The impact of cognitive biases on fraudulentbehaviour: the Leeson case' (2011) 2(1) International Journal of Behavioural Accounting andFinance40.

389

offencesdeemedtobecommittedbyaccidentalfraudstersarefurtherexamined

indetails.

1TheOffenceofFailingtoProperlyRecordTradingOrders

Atthetimethestudywasconducted, tradingordersarerecordedintwoways.

The first iswhere clients have traditional accountswith securities companies.

Whentheywouldliketobuyorsellshares,theyhavetocalltheirbrokerstogive

trading instructions. The SEC regulation requires that the calls be made to

securities companies’ landlines so that the conversations are recorded as

evidence. If the conversations are not properly recorded, the brokers will be

subject toadministrative sanctions ranging fromreprimand toa suspensionof

licence,dependingon thenumberof recordsmissing, thevolumeof trade,and

thebrokers’previousoffendingrecords.Thesecondrecordingmethodiswhere

theclientshaveInternettradingaccountsandtheyputintradingordersoverthe

Internettradingsystembythemselves.Inthiscase,allordersareautomatically

recorded unless there is a rare failure of the trading system. Although the

numbersofInternettradingaccountsarerapidlygrowing,manyThaiinvestors

stillprefertoconducttradeusingthetraditionalaccounts,astheyvaluetailored

informationandpersonalservicesgivenbytheirbrokers.Recentdatastillshow

thatalthoughoverhalfofthetradingaccountsintheThaisecuritiesmarketsare

Internettradingaccounts,amajorityoftradingvolumefromretailinvestorsstill

comes fromthe traditionalaccounts.821Asa result, it is still important that the

SECOfficefindviablestrategiestoinducethebrokerstoalwaysproperlyrecord

the voice orders of their clients. The other point of note is that although the

violation of this regulatory requirement is not a fraud on its own, having no

proper record of trading order is more than often a sign that more serious

offences arebeing engaged and concealed. In the example caseofVairojanakit

MakingDecisions forClientsandTakingOrders fromanUnauthorisedPerson,822

the lack of records led the officers to discover that Miss Vairojanakit had

committedthemoreseriousviolationofmakingtradingdecisionsforclients,and821The Stock Exchange of Thailand, Securities Companies Statistics <http://www.set.or.th/en/market/securities_company_statistics15.html>.822SeedetailsinChapter3.

390

in thecaseof ‘JansangaramUsingaClient’sAccountforHerFriend’sBenefits’823,

an investigation of the missing records exposed that Miss Jansangaram had

wrongfullyusedherclient’saccountforthethirdparty’sbenefits.

The interview data revealed that the causes of the failure to properly record

trading orders could be mainly attributed to changes in technology and the

clients’ growing preference to call the brokers’mobile phones rather than the

securities companies’ landline numbers as required by the regulation. The

secondary cause identified was the brokers’ and/or the clients’ intention to

conceal othermore serious offences, such asmaking trading decisions for the

clients, insider trading, andmarketmanipulation. The data also indicated that

the violation was technically easy to commit and happened very frequently.

Basedonsuch findings, thesuggestedstrategies to induceeffectivecompliance

comprise three escalating stages in the context of the enforcement pyramid

approach.

The SEC Office should give primary and early consideration to revising the

currentregulationrequiringclientstocallthesecuritiescompanies’landlinesto

givetradinginstructionsandtorecordvoiceorders.Duetotheadvancementof

technology and changing communication behaviour, Thai people nowadays

prefertocallmobilenumbersthanlandlinenumbers.Inaddition,sendingemails

andtextmessageshavebecomethepreferredcommunicationchannelsinmany

sectors. The interviews data further confirmed the investors’ displeasure of

strictly having to call the companies’ landline numbers. The investors

commented that they prefer to call or send text messages to their brokers’

mobilestogivetrading instructionsandquestionedwhytheSECOfficedidnot

alsorecognisevoicerecords frommobilephones,emails,and textmessagesas

validevidenceoftradinginstructions.Duetothis,itisimportanttheSECOffice

takessteptoupdateitsregulationtorecogniseothercommunicatingchannelsso

as to reflect the changes in the investors’ behaviour as well as to prevent

unnecessary violations due to such changes. Nevertheless, the participating

regulators,intheirinterviews,expressedavalidconcernthatvoicerecordsfrom823SeedetailsinChapter3.

391

the brokers’ mobile phones, emails, and text messages could be prone to

tampering and were generally not reliable. A potential way to increase the

reliabilityofsuchrecordsisfortheSECOfficetomandatesecuritiescompanies

to develop specialised voice recording and messaging applications for their

clients,ofwhichthehostingserversaremanagedbytheSECOfficeitself,orby

thesecuritiescompaniesunderthesupervisionoftheSECOffice.

Thesecondstrategy,whichisanescalationfromtheinitialstrategy,aimstodeal

withbrokerswhohaveintentiontofullycomplywiththeregulation,butfindit

almost impossible to do so due to the overwhelming presence of income and

client pressure. The strategy is, therefore, to reduce income pressure by

financiallyempoweringthebrokers,thoughthereductionofincomefluctuation

andtheincreaseofbrokers’welfare,aswellastoreduceclientpressurethrough

the investor education and the introduction of client administrative sanctions

and/orliabilitiesasoutlinedintheprevioussection.Undertheimplementation

of this strategy, the brokers would be under less pressure and be in a better

positiontorefusetakingtradingordersthataresentviaincorrectchannels.

Thethirdstrategy,atthetipofthepyramid,isdesignedtodealwithbrokerswho

haveno intention to complywith the requirementor intentionally fail tokeep

properrecordstoconcealmoreseriousoffences.Thesuggestionissimilartothe

measures currently implemented by the SEC Office, which is to suspend the

offending brokers and to impose corporate fine on the employing securities

companies for their failure in monitoring and regulating their employees

conduct.Nevertheless, theexisting loopholesof thesanctionofasuspensionof

licenceneedtobeaddressedaswellastheamountofthecorporatefineneedto

beraised,asdiscussedearlierinthischapter.

392

Figure23:TheProposedRegulatoryPyramidintheOffenceofFailingtoProperlyRecordTrading

Orders

2TheOffenceofMakingTradingDecisionsonBehalfofClients

The SEC regulation currentlyprohibits securitiesbrokers frommaking trading

decisions for theirclients,evenwhentheclients instruct themtodoso,on the

grounds that thebrokersmust refrain from interferingwithclients’assetsand

that such practice can easily lead to conflicts of interest as well as disputes

between theclientsand thebrokers.Nevertheless, the interviewdata revealed

thatthisoffenceiscommittedoftenbothintentionallyandunintentionally.Many

brokersvoluntarilymadetradingdecisionsfortheirclientsandofferedthemas

a normal part of their services. The main reason for these brokers to risk

committing the violation was that when they made trading decisions for the

clients, they could easily generate more trading volume, thus obtaining more

income. On the other hand, a large number of brokers were found to

involuntarilymaketradingdecisionsfortheirclients.Manyparticipatingbrokers

commentedthattheydidnotliketomaketradingdecisionsfortheirclientssince

disputes could easilyoccur.However, theywerenot in aposition to reject the

393

clients’requests,duetothefearthattheclientswouldbeunhappyanddecided

tomovetheirtradingaccountstootherbrokerswhoofferedsuchservice.

Based on such findings, the suggested strategies to enhancedeterrence of this

regulatoryoffence come in three stages.The first stage, similar to the strategy

employedtodetertheoffenceoffailingtoproperlyrecordtradingorders,isfor

theSECOfficetoreviewthesuitabilityofthecurrentregulationprohibitingthe

brokers from making trading decisions for their clients. The interview data

revealedinterestinglythatmanyThaiinvestorswouldliketohavetheirbrokers

makingtradingdecisionsforthem,fordifferentreasons,inthesamefashionas

licenced fund managers managing investment portfolios for mutual funds or

private equity funds. At the same time,manybrokerswould like to offer such

servicestotheirclientsastheyfelttheyhadadequateknowledgeandexpertise

tomakesuchdecisionsfortheirclients.

Althoughallowingthebrokerstoactinsuchcapacitycouldposesignificantrisks

totheinvestors,itwouldbeprudentfortheSECOfficetoexaminewhetherthe

benefitstoindividualclients,thegrowthofthecapitalmarketfromtheincrease

intrade,andtheeliminationofunnecessaryregulatoryburdenwouldoutweigh

the risks. One potential way to limit such risks, as suggested by several

participating brokers, is for the SEC Office to introduce a higher class of

brokerage licence, allowing the holders of this new licence, who pass the

rigorous examination and are under close scrutiny, to manage investment

portfolio and make trading decisions for individual investors in designated

circumstances.Ontheotherside,investorswhowouldbeallowedtousesucha

service must meet certain requirements, such as having sufficient investing

experienceandhavingnetworthabovecertainthresholds,824aswellas giving

824InAustralia, there is a special classof retail investors called ‘sophisticated investor’.Theseinvestors are eligible to buy into certain investment opportunities that are not available togeneralinvestors.Inorderforanindividualtoqualifyandobtainacertificateasasophisticatedinvestor,heorshemusthaveeitheranetworthof$2.5millionorhaveearnedmorethan$250000 in the past two years. See, Australian Securities & Investments Commission, Certificatesissued by a qualified accountant <http://asic.gov.au/regulatory-resources/financial-services/financial-product-disclosure/certificates-issued-by-a-qualified-accountant/>.

394

clear and unequivocal consent to the brokers and the securities companies to

managetheirinvestmentportfolios.

Thesecondstrategy,tobeimplementedaftertherevisionoftheregulation,aims

todealwiththebrokerswhointendtocomplywiththeregulation,butcannotdo

soduetotheirlackofresistancetoincomeand/orclientpressure.Thestrategy

is therefore to relieve the income pressure by financially empowering the

brokers and to relieve the client pressure through the investor education

programmes.It is importantthattheclientsarecommunicatedindetailsabout

therisks involvedwhenthey lettheirbrokersmaketradingdecisionsforthem

and the reasons behind the prohibition. In addition, the ASCO Training

Institution(ATI)shouldgiveastrongemphasisonthisthebrokers’dutytofully

complywith theSEC regulationsand toupholdprofessional ethics, evenwhen

theyareunderincomeand/orclientpressure.

The thirdand themost interventioniststrategy is theuseofsanctions todeter

thebrokerswho intentionallyviolate the regulationbyoffering to their clients

theportfoliosmanagementserviceswhichincludemakingtradingdecisionsfor

theclients.Itisimportantthattheoffendingbrokersbesuspendedforalengthy

periodsincetheymaliciouslycommittheviolationtogeneratemoreincomefor

themselvesattheexpenseoftheircolleagueswhodutifullycomplywiththelaw,

yethave tobearpressure fromtheclientsaskingwhy theycannotprovide the

services similar to the offending brokers. The offenders’ securities companies

should also be heavily fined for their lack of effective internal monitoring

mechanismtoregulate theiremployees’ conduct.Thecrediblesanctionagainst

securitiescompaniesisveryimportantinthiscasesincewhenthebrokersmake

tradingdecisions for their clients togeneratemore income for themselves, the

securitiescompaniesaretheoneswhogainmostbenefits.Duetothat,although

thecompaniesmaynotconspiretoordirectlyencouragethepractice,theyhave

areasonnottoseriouslydetertheviolation.

395

Figure24:TheProposedRegulatoryPyramidintheOffenceofMakingTradingDecisionson

BehalfofClients

3 The Offence of Using a Client's Account for the Broker's Own Benefit (With

Permission)

Thethirdfocusbrokerageoffencethatisdeemedtobecommittedbyaccidental

fraudsters is the offence of unauthorised use of a client's account with

permission from the account owner. The SEC regulation prohibits securities

brokersfromusingtheirclients’accountsfortheirownorthirdparty’sbenefits,

with andwithout consent of the account owners, so as toprevent thebrokers

from taking advantage of their clients, to reduce conflicts of interest, and to

increase business transparency.825The reason that Thai brokerswould like to

use their clients’ accounts to trade,with consent, is to circumvent the current

ruleslimitingthebrokers’abilityintradingsecuritiesforthemselves.Underthe

NotificationoftheAssociationofThaiSecuritiesCompaniesRe:RulesonSecurities

TradingofEmployeesandDirectorsofSecuritiesCompanies, thebrokershave to

825TheSECNotificationNo.KorLorTor/Kor/Wor.12/2011,Group1.2.2UsingaClient'sAccountfortheBroker'sOwnBenefit.

396

meetanumberofrequirementsandfollowrigorousproceduresbeforetheycan

use their own accounts to engage in trade. As a result, a number of brokers

colludewith their clients to circumvent such restrictions by using the clients’

accounts insteadoftheirown.Therearetwowell-knownmethodsofcollusion.

Thefirst isajointinvestmentbetweenthebrokersandtheclients.Thesecond,

which is the use of ‘nominee accounts’where the brokers ask their friends or

relatives to open new trading accounts and turn such accounts over to the

brokersfortheiruses.

The empirical data further revealed that the illegal use of nominee accounts

among Thai securities brokers was very common. Nine from eighteen

participating brokers in the study admitted that they had and used nominee

accountstotradeforthemselvesatthetimeoftheinterview,whilefourclaimed

thattheyhadsuchaccountsbutnolongerusedthemforvariousreasons.Three

main reasonswhy thebrokerswould like to trade stocks for themselveswere

identified in the interviews, whichwere greed and jealousy, income pressure,

and ideology. Personal greed and jealousywere interestingly identified as the

mostimportantfactorsasanumberofbrokersstatedthattheyfeltjealouswhen

theysawtheirclientsearnlargeprofitsfromthetrade,whiletheywerenotable

toengageinsuchtransactionsforthemselvesduetothelimitationsimposedby

theregulation.Thesecondfactorwasincomepressure.Whenthebrokerswere

infinancialdifficulties,makingprofitsfromthetradewasthemostdirectwayto

relieve such pressure. In addition, as the brokers conducted the trade for

themselves, they also obtained trading volume that provided them with

additional income. The last factor was a clash of ideology as several brokers

stronglyassertedthattheydisagreedwiththelimitationsandbelievedthatthey

shouldhavesimilartradingrightstotheirclients.

Devisingeffectivestrategiestodeterthisoffence,especiallytheuseofnominee

accounts,isnotaneasytasksincediscouragingindividualsfromincreasingtheir

wealth, when they are able to, is against human nature. In addition, the

participating regulators further commented that theoffence isoneof themost

difficult to detect since it was not easy to find concrete evidence of violation,

397

unless there was a dispute between the broker and the account owner.

Nevertheless, three layers of potential strategies are suggested in this study.

Similar to the previous two offences, the first strategy is for the SEC Office

togetherwith theASCOtoreviewthecurrent regulation limiting thesecurities

brokers’righttotradestocksforthemselves,soastocounterthepersonalgreed

and jealousy factor. At themoment, before the brokers can conduct the trade

usingtheirownaccounts,theyhavetosendtradingrequeststothecompliance

department foranapproval.826Theparticipatingbrokerscommented that such

procedureusually tookseveraldays,whichwashighly inconvenientandkilled

off theirability to tradevolatile stockswhosepricemovequickly.Thebrokers

tentativelysuggestedthat theapprovalprocedureshouldbesimplifiedandthe

decisionsshouldbemadewithinonebusinessday,sothattheywouldbeableto

conveniently use their own accounts to trade, without having to wrongfully

resorttotheclients’accounts.Although,suchproposalseemstomakepractical

sense,itshouldbenotedthatallowingthebrokerstoconvenientlytradestocks

for themselves also carries significant risks. The brokers who diligently trade

theirownstocksarelikelytopaylessattentiontotheirclientsthustheirquality

ofservicewouldbepoor.Inaddition,theriskthatunscrupulousbrokerswould

engageinafrontrunningpracticeagainsttheirownclientswouldbehigher.827

Asa result, theSECOfficehasadifficult task inweighing thegainsagainst the

risksinvolvedinallowingthebrokerstotrademorefreely,againstlimitingtheir

tradingrights,asofnow,whichleadmanytocircumventtheregulationbyusing

theirclients’accountstotradeforthemselves.

The second strategy is the use of communication and education initiatives to

inform both the brokers and the clients regarding the reasons behind the

limitationof thebrokers’ right to tradeand the risks involvedwhenclients let

their brokers use their accounts. The interviewdata, surprisingly, reveals that

there was a widespread misunderstanding of the current regulation. Many

826Notificationof theAssociationofThaiSecuritiesCompaniesRe:RulesonSecuritiesTradingofEmployeesandDirectorsofSecuritiesCompaniesr3.7.827Front running practice is an illegal trading practice where a security broker has advancedknowledge of a pending order of his or her own client, anddecides to take advantage of suchknowledge by buying or selling those particular stocks from his or her own accounts beforeexecutingtheclient’sorder.

398

brokersstated,intheirinterviews,thatThaibrokersweretotallyforbiddenfrom

having their own trading accounts and could not trade stocks for themselves,

whichwasthereasontheyusedtheirclients’accountstoavoidtheprohibition.It

is therefore important fortheSECOfficetocorrectsuchmisunderstandingand

communicate to the broker community that securities brokers can have their

owntradingaccountsandcanusesuchaccountstotradeforthemselves,given

that they meet the requirements and follow the designated procedures. In

addition,generalinvestorsshouldbeeducatedoftheriskanddamageinvolved,

iftheyletthebrokerswrongfullyusetheirtradingaccountsand/orhelpsetting

upnomineeaccounts.

Thethirdstrategytobeimplementedinvolvesareliefofincomepressureborne

by the brokers. As one of the main factors leading brokers to trade stocks

themselves, inviolationof theSECandtheASCOregulations, is torelievetheir

incomepressure,especiallywhentheycannotgenerateadequatetradingvolume

fromtheirclients.Thestrategyis,therefore,tofinanciallyempowerthebrokers

throughthereductionofincomefluctuationandtheincreaseofbrokers’welfare

asdiscussedinprevioussections.

The fourth strategy at, the top of the sanction pyramid, is the use of credible

sanctions to deter the violation. The offending brokers should be heavily

punishedwithasuspensionorarevocationoflicencedependingonthelengthof

the violation, the benefits gained, and the quantumof damage. The employing

securitiescompaniesshouldalsobeheavilyfinedfortheirfailureinmonitoring

theconductoftheirbrokers.Itshouldbenotedthatsincethisoffenceisoneof

the hardest to detect by the regulator, the emphasis should be placed on the

roles of the compliance officers and the back office staff in detecting and

reporting the violation to the SEC Office. When new clients open trading

accounts with the companies, the officers should pay close attention to the

relationshipbetweenthebrokersandthenewclients.Theyshouldalsokeepan

eye of the transactionsmade by the new clients and report to the authority if

thereareirregularitiesintheclients’tradingpatterns.

399

Figure25:TheProposedRegulatoryPyramidinTheOffenceofUnauthorisedUseofaClient's

Account(WithPermission)

CStrategiesinEnhancingDeterrenceofFocusOffences

CommittedbyPredatoryFraudsters

In this last section, the specific strategies to deter the two focus brokerage

offencesthataredeemedtobecommittedbypredatoryfraudstersareexamined

indetails.

1TheOffence ofUsing a Client's Account for theBroker'sOwnBenefit (Without

Permission)

Unlike in the previous offence of unauthorised use of clients’ accounts with

permission, inthismoreseriousoffence,thebrokersusetheirclients’accounts

fortheirownbenefitwithouttheclients’knowledge.Allparticipatingbrokers,in

their interviews, commented that using clients’ accounts for their own benefit

withoutconsentwasseriouslywrongfulconductthatnobrokersshouldengage

inanycircumstance.Severalbrokersfurtherstatedthatthebrokerswhocould

400

commit this offence against their clients were very different from ordinary

brokers,whomore thanoftenhavepersonalandcloserelationshipswith their

clients,andwouldtrytheirbesttoprotectthebenefitoftheirclients.Inaddition,

norationalisationcouldbeidentifiedfromtheinterviews.Basedonthesedata,it

can be deduced that the brokers who commit this violation are predatory

fraudsters, actively seeking to gain undue profits from fraudulent acts, rather

than accidental fraudsters who succumb to situational pressure. The specific

strategies todeter thisoffence, therefore, focusoneliminating theopportunity

factors,sincepressurefactorsandrationalisationdonotmotivatethefraud.

The participating brokers, however, noted that the benefits gained from this

particular offencewereunlikely tobeworth the risk since theoffenderwould

onlyobtainhighervolumefiguresbutwouldnotobtaintheactualprofitfromthe

trade, whereas the likelihood that the account owners would detect irregular

itemsinmonthlystatementswashigh.Theonlycircumstancetheycouldthinkof

inwhichviolationcouldbesuccessfullycommittedandconcealedwaswhenthe

accountownersweredeceasedorhadabandonedtheiraccounts,resultinginno

trading activity for a long period of time. The unscrupulous brokers could,

therefore, use such inactive accounts to buy and sell shares to increase their

tradingvolumewithoutanyonenoticing.Thefirststrategysuggested,therefore,

isfortheSECOfficetomandatesecuritiescompaniestopayspecialattentionto

dormant or inactive accounts, and to transfer these accounts to a specialised

department,sothatthebrokerscouldnolongerlogintoandengageinunlawful

trade. In addition, the companies should also be required tomake reasonable

efforttocontactaccountownersortheirdescendantswithaviewtoascertaining

thewishesoftheaccountownersorthedescendantsinrelationtotheaccounts.

The third strategy is theuseof administrative sanctions todeter thewrongful

practice.Sincethesebrokersaredeemedpredatory,themagnitudeofsanctionto

beimposeduponthemneedstobeseveresoastodeterthemfromcommitting

theviolation.Underthecurrentregulation,theoffendingbrokersaresubjectto

anadministrativesanctionofasuspensionoflicencefor6monthsatminimum,

which is a considerable degree of penalty. To promote compliance and ethical

401

culture, the SECOffice should further remind the companies of their legal and

ethical duties in hiring trustworthy personnel and in providing bona fide

servicestoallclients,evenintheirabsence.Asforthesecuritiescompanies,they

should be heavily fined for their failure in regulating the conduct of their

employeesandforthefailureinsecurelyprotectingtheirclients’accounts.

Figure26:TheProposedRegulatoryPyramidinTheOffenceofUnauthorisedUseofaClient's

Account(WithoutPermission)

2TheOffencesofDeceptionandMisappropriation

The last brokerage offences of this study are the offence of deception, where

securities brokers deceive their clients to transfer themmoney or shares, and

the offence ofmisappropriationwhere the brokersmisappropriate the clients’

assetsfromtheirtradingaccounts.Similartotheoffenceofunauthoriseduseof

clients’accountswithoutpermissionpreviouslydiscussed,theoffencesoffraud

and misappropriation are deemed to be committed by predatory fraudsters,

rather than accidental fraudsters. This is especially true giving that the SET

402

together with membered securities companies have put in place many

mechanismstopreventfraudandmisappropriation,suchastheintroductionof

theATSthateliminatetheuseofcashintradeandthedisseminationofitemised

monthly statements to all clients. The offences, therefore, can no longer be

committed opportunistically or by impulse, as careful planning to execute and

concealthewrongdoingisrequired.Inaddition,duetothepresenceofthetwo

localfactorsofcloseandpersonalrelationshipbetweenbrokersandclients,and

the brokers’ extraordinary goodwill (nam-jai), it can be concluded that the

brokers who can commit fraud andmisappropriation against their clients are

verydifferent,culturally,fromordinarybrokersintheThaisecuritiesmarket.

Although various preventive systems are currently put in place, the empirical

data revealed that securities brokers might yet commit fraud and

misappropriation in severalways. The first andmost prevalentwas forging of

clients’signaturesand/orfabricationofassetswithdrawaldocuments. Inmany

cases, the brokers also forged the clients’ signatures in the change of postal

address form, then fabricatedmonthlystatements tobesent tosuchclients, in

ordertoconcealthewrongdoing.Secondly,somebrokerswerefoundtodeceive

theirclientstodirectlytransferfundstotheirownortothirdparties’accounts,

and ran away with the funds. The common circumstances were where the

brokers toldtheclients that theATSwasmalfunctioningor that theycouldget

the clients’ Initial Public Offering shares (IPO) at discounted prices. Thirdly,

someclients,usuallyelderones,mightoverlytrusttheirbrokersandmayhave

signedblankwithdrawaland/orsharetransferformsforconvenience.

The primary cause of the offenceswas personal greed as identified by all the

participants.Theothercrucialelementsof theoffenceare trustandarrogance.

Withouttrustonthepartoftheclients,itwouldbeveryhardforthebrokersto

commitfraud.828Asforthearrogance,sincetheseindividualsarepredatory,they

areactivelyseekingloopholesandarewillingtotakeriskagainstthesanctions.

Deterrencestrategies,therefore,needtoreflecttheoffenders’charactersaswell

asthecircumstancesfacilitatingthecommissionoftheoffences.828Albrecht,aboven12.

403

The first primary recommended strategy to be pursued at the earliest

convenience is the use of communication and education initiatives to educate

andwarngeneralinvestorsofthepotentialfraudanddeception.Theinformation

should be communicated via multiple channels, such as the agencies’ and

popularwebsites,generalandspecialistmediaoutlets,andthroughcurriculum

development ineducation institutions, soas to reachgeneralaudiences.829The

mostimportantmessagesarethattheclientsshouldalwaysbemindfulandnot

overlytrusttheirbrokers,nomatterhowclosetheyare.Theclientsshouldalso

be repeatedly warned not to put their signatures in blank forms, or transfer

fundsdirectlytothebrokers’orthirdparties’accountsinanycase.Inaddition,

the SEC Office should provide direct channels so that the investors may

conveniently and independently contact the agency on the matter or file

complaintsagainsttheirbrokersand/orsecuritiescompanies.

The second set of strategies is the enhancement of the ethical standards of

securitiesbrokers.Asalreadydiscussedinthegeneralsectionofthischapter,the

SECOffice can enhance the quality of personnel screening processes, licensing

examinations, and mandatory ethical training in multiple ways, as discussed

earlier. On the part of the companies, what they should do is to establish a

positive hiring policy where compliance and ethical behaviour is a key

component,aswhendishonestpeoplearehired,eventhebestcontrolwillnotbe

abletopreventfraud.830

Thethirdsetofstrategies,tobeimplementedbysecuritiescompaniesunderthe

guidanceof the SECoffice, is the enhancementofpreventivemeasures against

deception and misappropriation. After the ATS was implemented, which

eliminatedthepresenceofcashintransactions,deceptionandmisappropriation

becomemore andmore complicated, as brokers can no longer run awaywith

cash. They now have to find elaborate ways to withdraw clients’ assets from

tradingaccountsandtoconcealtheirwrongdoing.Therecommendedstrategies,

therefore,revolvearoundthepreventionandthedetectionofsuchmisconduct

829Black,aboven633.830Albrecht,aboven12.

404

by back office staff and compliance officers. Firstly, since the primary form of

fraud and misappropriation involve forging of signatures and fabrication of

documents,thebackofficestaffshouldpayregularattentiontotheauthenticity

of signatures and documents. It would also be useful for the companies to

employ forms that have unique design elements such as watermarks and

holograms that are hard to fabricate. Most importantly, whenever important

documentsaresubmitted,suchasarequesttowithdrawalargeamountoffunds

ora request to increasecredit limits, thestaff shouldalwayscall theclients to

confirmtheauthenticityand thecorrectnessof suchrequests. Itwouldalsobe

prudentforthestafftorandomlycalltheclientstodiscussthequalityofservices

they are receiving and to update the clients’ basic information, such as

residentialaddressesandcontactnumbers,fromtimetotime.Inrelationtothe

preventionofthebrokers’ploysinluringtheclientstodirectlytransferfundsto

their personal bank accounts, what the back office staff and the compliance

officers could do is to repeatedly emphasise to the clients that they shall not

transfer fundstoanyaccount that isnot thecompanyaccount,andthat if they

haveanysuspicionsorquestionsregardingtheinvestmentproductsand/orthe

brokers’behaviour,theyshouldimmediatelycontactthecompliancedepartment

forclarification.

The fourth strategy, to be implemented by the SEC Office when education

initiatives, the screening and the training processes, and the preventive

measures all fail to deter the brokers from committing fraud and/or

misappropriation, is the imposition of administrative sanctions against

individual offenders and the imposition of corporate fines upon the securities

companies that fail to regulate their employees’ conduct. Under the current

regulation,theoffendingbrokersaresubjecttoaseveresanctionofarevocation

ofbrokeragelicenceandaprohibitionoflicencere-applicationsforaminimum

of5yearsaswellaspublicationoftheirnamesandthenamesoftheiremploying

companies.831Suchrevocationoflicenceisconsideredaseverepenalty,sincethe

offenderswouldnotbeabletoworkasbrokersforanysecuritiescompaniesfor

thedesignatedperiodsof time.Evenafter therevocationperiodhasexpired, it831TheSECNotificationNo.KorWor.12/2011(Group1.1Dishonesty).

405

would be very difficult for such individuals to reapply for the licences and

resumeworkingassecuritiesbrokersduetobadrecordsandthelossofclients

duringtherevocationperiod.

The fifthstrategy,at thetipof theenforcementpyramid,couldbethestrategic

application of individual criminal sanctions to induce compliance and to deter

deception and misappropriation, respectively. Nevertheless, the effective

application of the sanctions is not a simple matter and several major

amendments need to bemade. First and foremost, as discussed earlier in thischapter,thecurrentmagnitudeofsanctionimposedisinadequatefordeterrence

purposes. The value of fine prescribed is very low compared to the potential

gains from fraud and/or misappropriation and although the offences carry

significant imprisonment terms, the offending brokers are likely to be granted

probation.Themagnitudeofsanctionaccompanyingtheoffencesofdeception,832

theoffenceofmisappropriation,833and theoffenceof fabricationofdocuments

andforgingofsignatures834,therefore,neededtobesignificantlyraised.Second

andmostimportantly,theenforcementpyramidneedstobestructuredsoasto

increase the rate of individual criminal sanction as discussed in the earlier

sectionofthischapter.

832PenalCodes341.833PenalCodess352-354.834PenalCodes264.

406

Figure27:TheProposedRegulatoryPyramidintheOffencesofDeceptionandMisappropriation

IIIConclusion

This study starts with the researcher’s attempt to find effective strategies to

enhancethecurrentanti-brokeragefraudregimeinThailand.Thefirststageof

theresearchwasdocumentaryarchivalresearchconductedtogain insight into

thecurrentregimeandtogatherallstatutoryprovisionsandregulationsrelating

tobrokeragefraudcommittedbyThaisecurities.Thecurrentregimewasfound

to be highly complicated and lacking coherent structure. There are multiple

typesofproceedings administeredbymultiple government agencieswhohave

differentobjectivesandpolicies. Inaddition, theratesofapprehensionandthe

magnitudeofadministrativeandcriminalsanctionsthatmaybeimposedonthe

offending brokers and their employing securities companies was found to be

insufficientforthepurposeofdeterrence,especiallywhencomparedtopotential

gainsfromwrongdoing.

DonaldR.Cressey’sFraudTriangleTheorywasselectedasthemaintheoretical

approach used to identify contributing factors – pressure, opportunity,

407

rationalisation – in relation to the commission of four low-level brokerage

frauds.835AnotablefeatureoftherevisedFraudTrianglemodelemployedinthis

study is an incorporation of local societal factors and business context that

affects the commission of offences as suggested by Joshua K Cieslewicz.836An

empirical qualitative research project, using semi-structured interviews, was

conducted in Thailand between November 2013 and August 2014. The

researcher interviewed eighteen securities brokers, six regulators, and three

representatives of investors (from an investors’ organisation) asking for their

views and opinions of the current regime and factors ofpressure,opportunity,

and rationalisation that could lead to the commission of the focus offences. A

thematicanalysiswasthenconductedtoidentifyrecurrentthemesandpatterns

intheinterviewdata.

In essence, the data revealed that the brokerage offences studied could be

classified into two groups. The first group, comprised the offence of failing to

properly record trading orders, the offence of making trading decisions for

clients,andtheoffenceofunauthoriseduseofaclient’saccountwithpermission.

Itwasfoundthattheseoffencesareusuallycommittedby‘accidentalfraudsters’

and their motivations corresponded neatly with predictions from the Fraud

Triangle model. The main pressure factors found were income pressure and

client pressure. At the same time, opportunity factorswere evidently present,

together with the brokers’ apparent ability to rationalise their wrongful

behaviour. On the other hand, the offence of unauthorised use of a client’s

accountwithoutpermissionandtheoffencesofdeceptionandmisappropriation

did not fit as well with the model. Personal greed was identified as the only

motivation factor, whereas the opportunity factors were scarce, and

rationalisationwas non-existent. These offences, instead,matchedwell with a

revised Predatory Fraudster Model; the secondmodel employed in the study.

According to this model, the offending brokers were regarded as predatory

fraudsters, who no longer required situational pressure factors and

rationalisation tomotivateoffendingas theywouldactively seekopportunities

835Cressey,aboven11.836Cieslewicz,aboven24.

408

tooffendandonlyneedsmallloopholestoperpetratefraud.Thepresenceoftwo

local societal factors was identified as influencing choicesmade by accidental

fraudsters – close andpersonal relationships betweenbrokers and clients and

brokers’extraordinarygoodwillor‘nam-jai’towardsclients–andthepresences

ofthesefactorsfurtherdifferentiateThaibrokerswhoare‘accidentalfraudsters’

fromtheirpredatorycolleagues.

Basedonsuch findings, recommendations toenhance thecurrent regimewere

shaped by the responsive regulation approach,837where effective regulatory

strategiesrespondtotheconductoftheregulateesandtothespecificindustrial

context.Fortheoffencescommittedbyaccidentalfraudsters,therecommended

strategies are to startwith a revisionof regulations togetherwith information

and education initiatives and a reductionof pressure factors.However, if such

persuasion-based measures fail to deliver compliance, the well-targeted

administrative and criminal sanctions should be invoked. As for the offences

committed by predatory brokers, the recommended strategies were for the

relevantagencies toput their effort to increase investorawareness in the first

place then focus on enhancement of preventivemeasures administered by the

agenciesandsecuritiescompanies.Ifdeceptionandmisappropriationstilloccur,

the agencies should then escalate regulatory response up the enforcement

pyramidandpunishtheoffendersandtheircompaniesseverely,throughtheuse

of revocation of licence, corporate fine, and individual criminal sanctions,

respectively.

Threenotablemethodologicallimitationswerepresentinthisstudy.Thefirstis

thetimeconstraint.WithouttimelimitationsandpoliticalunrestinThailandthe

number of the interviewees could have been greater and the length of the

conversations had during interviews with each interviewee could have been

longer, thus increasing depth, and strengthening validity and reliability of the

research. Nonetheless, the selection of interviewees is suggested to be a

representativesample.Secondly,sincethereisnopriorresearchemployingthe

theoryoftheFraudTriangletoexaminelow-levelbrokeragefraud,aswellasthe837AyresandBraithwaite,aboven25.

409

factthattherearefewstudiesonfraudfactorsinThaiorganisations,thisstudyis

pioneeringinnature.Asaresult,pressure,opportunityandrationalisationfactors

identified and the correlation between them are unlikely to be conclusive.

Beyond this initial study, further research is welcome to further identify

additional factorsand to test for their influence.The final limitation lies in the

selectionoftheparticipants.Sincetheresearcherwishedtoobtainawiderange

of qualitative data, securities brokers in different positions (novice brokers,

experienced brokers, and team leaders) and remuneration schemes (fixed and

incentive)werechosenastheparticipants.Furtherstudiesfocusingonbrokers

inaspecificposition,and/orinaparticularremunerationscheme,couldprovide

morein-depthdataandmayidentifymorespecificfraudfactorsassociatedwith

thespecificgroupsofbrokers.Anyof thesuggested lawreformswouldbenefit

from evaluative studies if and when implemented following further

consultationswiththeSEC,lawmakers,andotherrelevantexperts.

410

Appendix1

RelevantStatutoryProvisions

ThePenalCode

Section18:Punishmentsforinflictingupontheoffendersareasfollows:

1.Death;

2.Imprisonment;

3.Confinement;

4.Fine;

5.Forfeitureofproperty.

Thecapitalpunishmentandlifeimprisonmentshallbenotenforcedtooffender

lessthaneighteenyearsofage.

Incaseofoffenderlessthaneighteenyearsofagehascommittedtheoffenceto

bepunishedwithdeathorimprisonedforlife,thepunishment,asaforesaid.shall

bedeemedascommutedasimprisonedforfiftyyears.

Section59:Apersonshallbecriminallyliableonlywhensuchpersoncommits

anactintentionally,exceptincaseofthelawprovidesthatsuchpersonmustbe

liablewhensuchpersoncommitsanactbynegligence,orexcept incaseof the

law clearlyprovides that suchpersonmust be liable even though suchperson

commitsanactunintentionally.

Tocommitanactintentionallyistodoanactconsciouslyandatthesametime

thedoerdesiredorcouldhaveforeseentheeffectofsuchdoing.

If thedoerdoesnot know the facts constituting the elementsof theoffence, it

cannotbedeemedthatthedoerdesiredorcouldhaveforeseentheeffectofsuch

doing.

411

To commit an act by negligence is to commit an offence unintentionally but

without exercising such care asmight be expected from a person under such

conditionandcircumstances,andthedoercouldexercisesuchcarebutdidnot

dososufficiently.

Anactshallalsoincludeanyconsequencebroughtaboutbytheomissiontodo

anactwhichmustbedoneinordertopreventsuchconsequence.

Section78:Wheneveritappearsthatthereexistsanextenuatingcircumstance,

whetherornottherebeanincreaseorreductionofthepunishmentaccordingto

the provisions of this Code or the other law, the Court may, if it is suitable,

reducethepunishmenttobeinflictedontheoffenderbynotmorethanone-half.

Extenuating circumstances may include lack of intelligence, serious distress,

previousgoodconduct, therepentanceandtheeffortsmadebytheoffenderto

minimize the injurious consequence of the offence, voluntary surrender to an

official,theinformationgivenortheCourtforthebenefitofthetrial,ortheother

circumstancewhichtheCourtconsiderstobeofsimilarnature.

Section264:Whoever, inamannerlikelytocauseinjurytoanotherpersonor

thepublic, fabricatesa falsedocumentorpartofadocument,oraddsto, takes

fromorotherwisealtersagenuinedocumentbyanymeanswhatever,orputsa

false seal or signature to a document, if it is committed in order tomake any

persontobelievethatitisagenuinedocument,issaidtoforgeadocument,and

shall be punished with imprisonment not exceeding three years or fined not

exceedingsixthousandBaht,orboth.

Whoever,fillsinthecontentsonasheetofpaperoranyothermaterialbearing

thesignatureofanotherpersonwithouttheconsentorbyviolatingtheorderof

suchperson, if ithascommitted inorderto takesuchdocument foruse inany

activitieswhichmaycauseinjurytoanypersonorthepublic,shallbedeemedto

forgeadocument,andshallbepunishedlikewise.

412

Section265:Whoever,forgesadocumentofrightorofficialdocument,shallbe

punished with imprisonment of six months to five years and fined of one

thousandtotenthousandBaht.

Section266:Whoeverforgesanyofthefollowingdocuments:

1. Adocumentofright,whichisanofficialdocument;

2. Awill;

3. Asharecertificateordebenture,orsharewarrantordebenturewarrant;

4. Abill;or

5. Anegotiablecertificateofdepositshallbepunishedwithimprisonmentof

onetotenyearsandfinedoftwentythousandtotwohundredthousand

Baht.

Section 341:Whoever, dishonestly deceives a personwith the assertion of a

falsehoodortheconcealmentofthefactswhichshouldberevealed,and,bysuch

deception,obtainsapropertyfromthepersonsodeceivedorathirdperson,or

causesthepersonsodeceivedorathirdpersontoexecute,revokeordestroya

documentofright,issaidtocommittheoffenceofcheatingandfraud,andshall

be punished with imprisonment not exceeding three years or fined not

exceedingsixthousandBaht,orboth.

Section352:Whoever,beinginpossessionofapropertybelongingtotheother

person,orofwhich theotherperson isaco-owner,dishonestlyconverts such

property tohimselfor a thirdperson, is said to commitmisappropriation, and

shall be punished with imprisonment not exceeding three years or fined not

exceeding six thousand Baht, or both. If such property comes under the

possession of the offender on account of being delivered to him by the other

person bymistake by anymeanswhatever, or being a lost property found by

him,theoffendershallbeliabletoone-halfofthepunishment.

Section353:Whoever,tobeentrustedtomanagetheotherperson'spropertyor

propertywhich theotherperson tobe theco-owner,dishonestly todoanyact

contrarytooneselfdutybyanymeanswhatever,uptocausethedangertothe

413

benefit on account of being the property of such other person, shall be

imprisonednotoutofthreeyearsorfinednotoutofsixthousandBaht,orboth.

Section354: If theoffenceunderSection352orSection353becommittedby

theoffenderinthestatusofbeinganexecutororadministratoroftheproperty

oftheotherpersonundertheorderoftheCourtorunderawill,orinthestatus

ofbeingapersonhavinganoccupationorbusinessofpublictrust,theoffender

shall be punished with imprisonment not exceeding five years or fined not

exceedingtenthousandBaht,orboth.

TheCivilandCommercialCode

Section 420:Apersonwho,willfullyornegligently,unlawfully injures the life,

body,health,liberty,propertyoranyrightofanotherperson,issaidtocommita

wrongfulactandisboundtomakecompensationtherefore.

Section 425: An employer is jointly liable with his employee for the

consequencesofawrongfulactcommittedbysuchanemployeeinthecourseof

hisemployment.

Section812:Theagent is liableforanyinjuryresultingfromhisnegligenceor

non-executionofagency,orfromanactdonewithoutorinexcessofauthority.

Section814:Thesubagentisdirectlyliabletotheprincipalandviceversa.

SecuritiesandExchangeActB.E.2535(1992)

Section 113: In operating the business of securities brokerage, a securities

companyshallcomplywiththerules,conditionsandproceduresasspecifiedin

thenotificationoftheCapitalMarketSupervisoryBoard.

414

Section238:Nosecuritiescompanyoranypersonresponsiblefortheoperation

ofasecuritiescompanyorcompanywhichissuessecuritiesoranypersonhaving

an interest in the securities shall impart any false statement or any other

statementwiththeintentiontomisleadanypersonconcerningthefactsrelating

to the financial condition, the business operation or the trading prices of

securities of a company or juristic person whose securities are listed in the

SecuritiesExchangeoraretradedinanover-the-countercenter.

Section239:Nosecuritiescompanyoranypersonresponsiblefortheoperation

ofasecuritiescompanyorcompanywhichissuessecuritiesoranypersonhaving

aninterestinanysecuritiesshalldisseminatenewsconcerninganyinformation

whichmaycauseanyotherpersontounderstandthatthepricesofanysecurities

will increase or decrease, except where the dissemination of information has

alreadybeenreportedtotheSecuritiesExchange.

Section240:Nopersonshalldisseminateanyfalsenewstoberemouredwhich

maycauseanyotherperson tounderstand that thepriceofanysecuritieswill

increaseordecrease.

Section 282: Any securities company which violates or fails to comply with

Section92, Section94, Section96, Section97, Section98, Section100, Section

101,Section102,Section103,Section104,Section105,Section106,Section108,

Section 109, Section 110, Section 112, Section 113, Section 114, Section 115,

Section 116, Section 117, Section 122, Section 123, Section 124, Section 125,

Section126,Section129,Section130,thefirstparagraphofSection134,Section

135, Section 136, Section 139 (1), (2), (3) or (4), the first paragraph, second

paragraphorthirdparagraphofSection140,Section151orthefirstparagraph

of Section 195 or violates or fails to comply with the rules, conditions or

proceduresorordersissuedinaccordancewiththefourthparagraphofSection

90,Section91,Section92,Section98(7)or(10),thesecondparagraphofSection

100,Section117,Section135,Section139(4), thesecondparagraphofSection

140,Section141,Section142,Section143,Section144,orSection150shallbe

415

liabletoafinenotexceedingthreehundredthousandbahtandafurtherfinenot

exceedingtenthousandbahtforeverydayduringwhichtheviolationcontinues.

Section 296: Any person who contravenes Section 238, Section 239, Section

240,Section241orSection243shallbe liable to imprisonment fora termnot

exceeding two years or a finenot exceeding two times the benefit receivedor

which should have been received by such person as a result of such

contraventionbutsuchfineshallbenotlessthanfivehundredthousandbaht,or

both.

Anti-MoneyLaunderingActB.E.2542(1999)

Section5:Anypersonwho:

(1) transfers,acceptsatransferoforconvertstheassetconnectedwiththe

commissionofanoffence for thepurposeofcoveringorconcealing the

originof thatassetor,whetherbeforeorafter thecommission thereof,

forthepurposeofassistingotherpersonstoevadecriminalliabilityorto

beliabletolesserpenaltyinrespectofapredicateoffence;or

(2) acts in any manner whatsoever for the purpose of concealing or

disguising the true nature, acquisition, source, location, distribution or

transferoftheassetconnectedwiththecommissionofanoffenceorthe

acquisitionofrightstherein,shallbesaidtocommitanoffenceofmoney

laundering.

Section 7:Inanoffenceofmoney laundering,anypersonwhocommitsanyof

the following acts shall be liable to the same penalty as that to which the

principalcommittingsuchoffenceshallbeliable:

(1) aiding and abetting the commission of the offence or assisting the

offenderbeforeoratthetimeofthecommissionoftheoffence,

(2) providing or giving money or asset, a vehicle, place or any article or

committinganyactforthepurposeofassistingtheoffendertoescapeor

416

toevadepunishmentorforthepurposeofobtaininganybenefitfromthe

commissionoftheoffence.

In the case where any person provides or gives money or asset, a shelter or

hidingplaceinordertoenablehisorherfather,mother,child,husbandorwife

to escape from being arrested, the Court may inflict on such person no

punishment or lesser punishment to any extent than that provided by law for

suchoffence.

Section61:Anyjuristicpersonwhocommitsoffencesundersection5,section7,

section8orsection9shallbe liabletoa fineoftwohundredthousandBahtto

onemillionBaht.

417

Appendix2

TheOfficeofSecuritiesandExchangeCommission(SECOffice)

30June2011

DearDirector,

Everysecuritiescompany

Ref:theSECOfficeNotificationNo.KorLorTor.Khor.Wor12/2011re

theprinciplesandguidelinesonthesanctionsofsecuritiesbrokers

The SEC office has been receiving more and more complaints about

securities brokers failing tomeetprofessional standards, even if the office has

hadimposedsanctionsonthosesecuritiesbrokers.Inaddition,theSECofficehas

a policy to raise professional standards of securities brokers and had already

amended the Notification on the Prohibitive Characteristics of Personnel in

SecuritiesBusinesstoreflectsuchapolicy.

In thisconnection, theCapitalMarketPersonnelDisciplinaryCommittee

(CMPDC) has issued the Notification on the principles and guidelines on the

sanctionsofsecuritiesbrokers,targetinginparticularrepeatedmisconductsby

securitiesbrokers.TheNotification,whichwouldbeeffectivefrom1July2011,

dividesthelevelsofsanctions,asfollows:

Group1:Securitiesbrokerswhoseconductscouldleadtodishonesty

- In the case ofmisconduct, theminimum sanction is a revocation of

licensefor5years.

- In the case of taking advantages of investors or acting for the

securities brokers’ own benefit, the minimum sanction is a

suspensionoflicensefor6months.

418

- Formerly,theminimumsanctionoftheabovecaseswasasuspension

oflicensefor6months.

Group2:Securitiesbrokerswhoseconductsareabreachofthelaw,SET

regulations, the regulations of relevant associations, or relevant

professionalstandards

- Inthecaseofbreachingthesecuritieslawsorotherlawssuchasthe

law onmoney laundering, theminimum sanction is a revocation of

licensefor2year.

- Formerly, the minimum sanction of this case was a suspension of

licensefor1year.

- In case of breaching the SET regulations and the regulations of the

relevant associations, the minimum sanction is a suspension of

licensefor1month.

- Formerly, the minimum sanction of this case was probation for 1

year.

Group3:Securitiesbrokerswhoseconductsdonotmeettheprofessional

standards

- In the case of failing to meet significant standards such as making

tradingdecisionsforclients,theminimumsanctionisasuspensionof

licensefor3months.

- Inthecaseofactingwithoutadequatecare,theminimumsanctionis

asuspensionoflicensefor1month.

- Formerly,theminimumsanctionoftheabovecaseswasprobationfor

1year.

In addition, the SEC office will disclose the names of the offending

securities brokers in all cases to the public. In cases of a suspension or a

revocationoflicense,theSECofficewillalsodisclosethenamesoftheemploying

securitiescompaniesatthetimetheoffenceswerecommitted.

419

For your information and please inform all your securities brokers

accordingly.

Yourssincerely,

(Mr.PravethAongargsittikul)

SeniorAssociatedSecretary-General

Enclosed:Thelistofconductsthatdonotmeettheprofessionalstandards

SecuritiesLicenseDepartment

Tel:0-2695-9579

Fax:0-2695-9785

420

ThelistofConductThatDoNotMeettheProfessionalStandards

Group1:Conductsthatcouldleadtodishonesty

1.1Fraudulentconducts

1.1.1Thecommissionortheassociationofdeceptionormisappropriation

ofinvestorassets

1.1.2 The concealment of information or the submission of false

informationinthelicenceapplicationprocess,orthesubmissionof

false information to securities companies to assist clients, such as

concealmentofimportantdataordecoratingaccounttobegranted

additionaltradinglimits.

1.2 Breach of fiduciary duty by taking advantage of investors or seeking

improperbenefits

1.2.1Frontrunningpractice

1.2.2Unauthorizeduseofclients’accountsforthebenefitofoneselforfor

thebenefitofthirdparties

1.2.3Churningpractice

Group2:Conductsthatareabreachofthelaw,SETregulations,theregulations

ofrelevantassociations,orrelevantprofessionalstandards

2.1 The commission or the assistance in the commission of unfair trading

practicesundertheSecuritiesandExchangeActB.E.2535(1992)

2.1.1Committinganoffenceasaprincipalinunfairtradingpractices

2.2.2Committinganoffenceasanaccessoryinunfairtradingpractices

2.2.3 Putting in improper trading orders, which are not in accordance

withtheSETregulations

2.2The commissionor theassistance in the commissionofother laws suchas

moneylaunderinglaw

421

2.3ThecontraventionoftheSETregulationsonimpropertradingordersthatdo

not warrant a sanction by the SET, but are considered as very improper

practice

2.4ThecontraventionoftheSECregulationsandprofessionalethics

2.4.1Failingtoproperlyrecordtradingorders

2.4.2Providingincompleteorimproperadvicetoclients

Group3:Conductsthatdonotmeettheprofessionalstandards

3.1Failuretomeetprofessionalstandards

3.1.1Tradingwithoutclient instructionsormaking tradingdecisionson

behalfofclients

3.1.2Actinginsupportorcooperatingwithclientsinconductingfinancial

transactionsthatarenotsuitabletotheclients’financialconditions

3.1.3Askingfortradingfeesthatclientsarenotrequiredtopay

3.1.4 Trading securities while an analysis is being prepared or within

threeworkingdaysaftertheanalysishasbeendisseminated

3.1.5 Helping clients to secure off-market loans for the purpose of

securitiestrading

3.2Actingwithoutadequatecare,suchas

3.2.1Takingtradinginstructionsfromthirdparties

3.2.2Actingbeyonddutiesassignedbyemployingsecuritiescompanies

3.2.3Givingassurancetoclientsonfutureprofitsfromtrading

3.3.4Interferingwithclients’assets

3.2.5 Disclosing personal and/or trading information of clients to third

parties

3.2.6Failingtoexecutetradingordersinchronologicalordersunlessthe

investors had given instructions otherwise such as providing a

specifictimetoexecuteorders

-----------------------

422

Appendix3

AdministrativeCasesRelatingtoBrokerageFraudandRelatedViolations:

OfficeoftheSecuritiesandExchangeCommission,2001-2013

Years NamesofOffender Typesof

Service ReleaseNo. Offences Sanctions Duration(Months)

2001 PrasertWeerawatpaisal Consultant

WeeklyInformation

01/10/2001to05/10/2001

GivingImproperAdvice,AssistingClientstoFalsifyDocuments Suspension 9

2001 PimpaWongwean Consultant

WeeklyInformation

15/10/2001to19/10/2001

Fraud,Misappropriation Revocation 36

2001 ThanaphonWongwichai Consultant

WeeklyInformation

26/11/2001to30/11/2001

Fraud,UnauthorisedTrading Revocation 36

2001 NattakanTaweepkul Consultant

WeeklyInformation

24/12/2001to28/12/2001

UnauthorisedUseofClients'AccountstoAvoidCreditLimitsofOtherClients Probation 12

2002 PattamaWatcharapathon Consultant

WeeklyInformation

18/02/2002to22/02/2002

UnauthorisedUseofClients'AccountstoAvoidCreditLimitofOtherClients Probation 12

2002 RoonglawanTimmanee Consultant

WeeklyInformation

18/03/2002to22/03/2002


2002 UnchisaKrisnaprapan Consultant

WeeklyInformation

18/03/2002to22/03/2002

UnauthorisedTrading,FalsifyingDocuments,InterferingwithClients'

AssetsRevocation 36

2002 JariyaBoonsuya Consultant

WeeklyInformation

18/03/2002to22/03/2002


2002 SupornTharangkoon Consultant

WeeklyInformation

25/02/2002to01/03/2002


2002 JaryaAmatawat Consultant

WeeklyInformation

25/02/2002to01/03/2002


2002 PornchaiChinapariwatarporn Consultant

WeeklyInformation

28/05/2002to31/05/2002

UnauthorisedUseofClients'AccountsforOwnBenefit Revocation 36

2002 HanchaiEakprapai Consultant

WeeklyInformation

15/07/2002to19/07/2002

UnauthorisedTrading,FalsifyingDocuments,DisobeyingClients'Orders Revocation 36

2002 TintrakarnPhitithaksung Consultant

WeeklyInformation

29/07/2002to02/08/2002


2002 WatchararastChariyadamrongsakul Consultant

WeeklyInformation

29/07/2002to02/08/2002


423

Years NamesofOffender TypesofService ReleaseNo. Offences Sanctions Duration

(Months)

2002 SiripornPrasannam Consultant

WeeklyInformation

16/09/2002to20/09/2002

UnauthorisedTrading,FalsifyingDocuments,InterferingwithClients'

AssetsRevocation 36

2002 ArupongPantowatkul Consultant

WeeklyInformation

16/09/2002to20/09/2002

UnauthorisedTrading Revocation 36

2002 ThiwapornEiamsa-ard Consultant

WeeklyInformation

14/10/2002to18/10/2002

TradingonBehalfofClientsonaRegularBasis Probation 12

2002 ThitiRattanakan Consultant

WeeklyInformation

21/10/2002to25/10/2002


2002 VacharaYurungruangsak Consultant

WeeklyInformation

21/10/2002to25/10/2002


2002 PongsakornLamsam Consultant

WeeklyInformation

21/10/2002to25/10/2002


2002 MarisaPhawkwamdee Consultant

WeeklyInformation

11/11/2002to15/11/2002

ChargingUnauthorisedFees Probation 12

2002 ThanonSakulanunt Consultant

WeeklyInformation

11/11/2002to15/11/2002


2002 WatcharakaiChaithiang Consultant

WeeklyInformation

11/11/2002to15/11/2002


2002 AdcharaVijakseranee Consultant

WeeklyInformation

11/11/2002to15/11/2002

ChargingUnauthorisedFees Suspension 53Days

2002 JareeSiengjaew Consultant

WeeklyInformation

11/11/2002to15/11/2002


2002 MontakarnKamolornart Consultant

WeeklyInformation

11/11/2002to15/11/2002


2002 PichamonchBoontid Consultant

WeeklyInformation

11/11/2002to15/11/2002


2002 WaruneeNhusorn Consultant

WeeklyInformation

11/11/2002to15/11/2002


2003 PorntipThongchaicharoensiri Consultant N/A

UnauthorisedUseofClients'AccountsforOwnBenefit,Interferingwith

Clients'AssetsRevocation 60

2003 WeenaCabavanichkij Consultant

WeeklyInformation

24/02/2003to28/02/2003


2003 TanuDuangsri Consultant

WeeklyInformation

03/03/2003to07/03/2003


424


(Months)

2003 NopdolLertchaisirisakul Consultant

WeeklyInformation

31/03/2003to04/04/2003

ChargingUnauthorisedFees Suspension 2

2003 TheerapolSinchai Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 AroonKaweevechsart Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 ChaiyosWinyawanich Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 ChookiatPitakpongsanit Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 JintanaSirisompornkong Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 PassakornPaeraveesup Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 PorhthepWatthanageesoontorn Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 SasithornArmapart Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 SomchaiEuasatiean Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 SompongKittipatputi Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 SuparuakSuarchavarat Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 ThanathornKuakoolsri Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 WasonArnurakwongsri Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 YaowadeeSae-Lao Consultant

WeeklyInformation

31/03/2003to04/04/2003


2003 NidthaSaengtes Consultant

WeeklyInformation

08/04/2003to11/04/2003


2003 ChotikaSrithongkhong Consultant

WeeklyInformation

26/05/2003to30/05/2003


425


(Months)

2003 KhomsunPrasongtichol Consultant

WeeklyInformation

26/05/2003to30/05/2003


2003 PapatsapuckPujiraphasukan Consultant

WeeklyInformation

26/05/2003to30/05/2003


2003 Pol.Lt.ChayutSuasakul Consultant

WeeklyInformation

07/07/2003to11/07/2003

FollowingOrdersofNon-AccountOwners Revocation 36

2003 KittipongSupradithNaAyudhya Consultant

WeeklyInformation

28/07/2003to01/08/2003


2003 KullayaChimpanrai Consultant

WeeklyInformation

28/07/2003to01/08/2003


2003 PornthipKwaekruawan Consultant

WeeklyInformation

28/07/2003to01/08/2003


2003 JirutWongprateepwilai Consultant

WeeklyInformation

15/09/2003to19/09/2003


2003 ThakornAdisornmongkol Consultant

WeeklyInformation

15/09/2003to19/09/2003


2003 TharinSrirangsan Consultant

WeeklyInformation

06/10/2003to10/10/2003

UnauthorisedTrading Probation 12

2003 TanisaSrivichupong Consultant

WeeklyInformation

17/11/2003to21/11/2003


2004 NaphatpornSodsangsuk Consultant

WeeklyInformation

08/03/2004to12/03/2004

UnauthorisedUseofClients'AccountsforThirdParty'sBenefit Probation 12

2004 ApsornsriMathaworn Consultant

WeeklyInformation

08/03/2004to12/03/2004

UnauthorisedUseofClients'AccountsforThirdParty'sBenefit Probation 12

2004 KanwaraTongkrajai Consultant

WeeklyInformation

08/03/2004to12/03/2004

Fraud,Misappropriation,FalsifyingDocuments,ForgingSignatures Revocation 36

2004 PrayochSamridsakornsin Consultant

WeeklyInformation

05/04/2004to09/04/2004

Fraud,Misappropriation Revocation 36

2004 NapharutPapano Consultant

WeeklyInformation

05/04/2004to09/04/2004


2004 SangpenCharoensuk Consultant

WeeklyInformation

17/05/2004to21/05/2004

DisclosingClients'TradingInformationtoOthers Probation 12

2004 PuttiphongKusalaphirom Consultant

WeeklyInformation

24/05/2004to28/05/2004


426


(Months)

2004 ThanaSeentanaphatr Consultant

WeeklyInformation

31/05/2004to04/06/2004

DisseminationofFalseNews Probation 12

2004 AmaraPoolthongkam Consultant

WeeklyInformation

07/06/2004to11/06/2004


2004 SirichaiPrommin Consultant

WeeklyInformation

07/06/2004to11/06/2004


2004 PeerapholVinkomain Consultant

WeeklyInformation

14/06/2004to18/06/2004

PerformingDutyinWaysNotBenefittingClients Suspension 9

2004 ThanapornThipsamridkul Consultant

WeeklyInformation

14/06/2004to18/06/2004

TradingonBehalfofClientsonaRegularBasis Suspension 4

2004 ApirakManovilaipong Consultant

WeeklyInformation

14/06/2004to18/06/2004

TradingonBehalfofClientsonaRegularBasis Suspension 3

2004 JareeSiengjaew Consultant

WeeklyInformation

21/06/2004to25/06/2004

FollowingOrdersofNon-Account

Owners,UnauthorisedUseofClients'AccountforOwnBenefit

Probation 12

2004 KhemJirawiroj Consultant

WeeklyInformation

05/07/2004to09/07/2004


2004 ChakritRattapana Consultant

WeeklyInformation

26/07/2004to30/07/2004

UnauthorisedTrading Suspension 6

2004 SunanWiruchvarakul Consultant 60/2004 UnauthorisedTrading Probation 122004 KampolMarthong Consultant 75/2004 ProvidingRebatestoClients Suspension 22004 YuvadeeKulvanichpisit Consultant 75/2004 ProvidingRebatestoClients Suspension 7Weeks

2004 NasaiSaneykun Consultant 75/2004 TradingonBehalfofClientsonaRegularBasis Suspension 6

2004 BoonjedUppatham Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 ChaiyachatrVanichpak Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 JakapanChoompupong Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 JampeeJaikleang Consultant 79/2004 PlacingImproperTradingOrders Probation 11

2004 JatturasornPramojNaAudhya Consultant 79/2004 PlacingImproperTradingOrders Probation 12

2004 JongkolpornLertchaipattanakul Consultant 79/2004 PlacingImproperTradingOrders Probation 12

2004 KesineeTangvorvanich Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 MatineeNitiphan Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 NoppadonTuphitakphol Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 PimjaiPongpunlux Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 SathapornChansuwan Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 SitthipongSirimahakul Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 SombatJaingamdee Consultant 79/2004 PlacingImproperTradingOrders Probation 12

2004 SupaChantavatcharakorn Consultant 79/2004 PlacingImproperTradingOrders Probation 12

2004 SupattraLeetrivittayagull Consultant 79/2004 PlacingImproperTradingOrders Probation 12

2004 TanakarnUklidjongkol Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 WiratPrommasa Consultant 79/2004 PlacingImproperTradingOrders Probation 122004 WithchuSripornkaew Consultant 79/2004 PlacingImproperTradingOrders Probation 12

2004 DarinKaewsing Consultant 79/2004 TradingonBehalfofClientsonaRegularBasis Suspension 18

2004 ThiwapornEiamsa-ard Consultant 80/2004 TradingonBehalfofClientsonaRegularBasis Suspension 12

2004 JirapaTitachotinimit Consultant 83/2004 ProvidingRebatestoClients Suspension 12

427


(Months)

2004 ThitiyapornSumatarat Consultant 83/2004 TradingonBehalfofClientsonaRegularBasis Suspension 6

2004 PisnuPirungkapourah Consultant 85/2004 FollowingOrdersofNon-AccountOwners Suspension 12

2004 SirinTrakoolwong Consultant 86/2004 PerformingDutyOutsideClients'Instruction Suspension 18

2004 ThanathornChuchatpong Consultant 91/2004 FollowingOrdersofNon-Account

Owners Suspension 9

2004 SakdaSangkul Consultant 91/2004 TradingonBehalfofClientsonaRegularBasis,UnauthorisedTrading Suspension 18

2004 NarongwetWeerakeatkumjorn Consultant 93/2004 UnauthorisedTrading Suspension 9

2004 SompornKhunrang Consultant 93/2004 UnauthorisedTrading Suspension 12

2004 ArthitThamchetporn Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 PhattrarapolWasuphiruk Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months

19Days

2004 SiripojSirikulpibun Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 PeeraphonPhannachit Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 TanasinGleeplumjeak Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 TarawutLeelayutho Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 TechinSeharajnives Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 ThitikornJiravichai Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 WarisaraSrichaipunha Consultant 95/2004 PlacingImproperTradingOrders Probation 10Months19Days

2004 WiwatChiamvitayanukul Consultant 100/2004

SupportingorCooperatingwithClientsinTradingSecuritiesinaMannerInappropriateforClients'Financial

Conditions

Suspension 12

2004 SomchartMahakijkosol Consultant 103/2004 ProvidingRebatestoClients Suspension 2

2005 PornpimolLaochariyakul Consultant 01/2005 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 6

2005 PrasitSrisuwan Consultant 22/2005TransferringClients'LossesintotheCompany'sAccounts

CompanySuspension 2

2005 KittipopLaohakul Consultant 26/2005 TradingonBehalfofClientsonaRegularBasis Probation 12

2005 JesdaphanSrikhampar Consultant 30/2005 TradingonBehalfofClientsonaRegularBasis Suspension 9

2005 NarongwetWeerakeatkumjorn Consultant 32/2005

TradingonBehalfofClientsonaRegularBasis,UnauthorisedTrading,

FalsifyingDocumentsRevocation 60

2005 DuangjaiTanticharatchai Consultant 34/2005 MarketManipulation Suspension 22005 PanthavitWatthanasiri Consultant 34/2005 MarketManipulation Suspension 22005 TaninRatanapraisorn Consultant 34/2005 MarketManipulation Suspension 2

2005 JaturapornNimanussonkul Consultant 39/2005

UnauthorisedTrading,Churning,ConcealmentofSecuritiesTrading

TransactionsRevocation 36

2005 PunthavitWatanasiri Consultant 43/2005 MarketManipulation Suspension 2

2005 ThummasakKittithanyaluck Consultant 44/2005

Fraud,UnauthorisedUseofClients'AccountsforOwnBenefit,Interfering

withClients'AssetsSuspension 6

2005 LadapornChuenpongpan Consultant 44/2005 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 6

2005 KitthamateLeepraward Consultant 48/2005 TradingonBehalfofClientsonaRegularBasis Probation 12

2005 SaowalakWattanasopasiri Consultant 48/2005 TradingonBehalfofClientsona

RegularBasis Probation 12

428


(Months)

2005 VararaEiam-O-Pas Consultant 50/2005

SupportingorCooperatingwithClientsinTradingSecuritiesinaMannerInappropriateforClients'FinancialConditions,ActingBeyondScopeofDutyAssignedbytheSecurities

Company

Suspension 1

2005 SombatChuengpattanawadee Consultant 61/2005 UnauthorisedTrading,Concealing

Evidence Revocation 36

2005 ChaleeKeuyen Analyst 62/2005 TradingDuringBlackoutPeriod Probation 12

2005 PanomThongdee Consultant 81/2005 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 1

2005 AnupapHomchan Consultant 96/2005 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 2

2005 RatchaneewanSaengsawang Consultant 106/2005 TradingonBehalfofClientsona

RegularBasis Suspension 15

2005 VichianSittichoklouthong Consultant 110/2005 UnauthorisedUseofClients'Accounts

forOwnBenefit Suspension 12

2005 ThapepayapongSilpanone Consultant 114/2005 TradingonBehalfofClientsona


2005 SamittiTraipobbhumi Consultant 115/2005 TradingonBehalfofClientsonaRegularBasis Probation 12

2005 YodkwanChochakornohan Consultant 120/2005

TradingonBehalfofClientsonaRegularBasis,FollowingOrdersofNon-AccountOwners,DisclosingClients'TradingInformationtoOthers

Probation 12

2005 YongyuthOnthammarat Consultant 121/2005 TradingonBehalfofClientsonaRegularBasis Probation 12

2005 SirichaiArunthamasakul Consultant 125/2005Misappropriation,ForgingSignatures,UnauthorisedUseofClients'Accounts

forOwnBenefitRevocation 36

2006 SanguanThiravetyan Consultant 07/2006 TakingAdvantageofClientInformationforPersonalGain Revocation 36

2006 NatthaRungwong Analyst 09/2006 MakingAnalysesBasedonUnconfirmedNews Probation 12

2006 SasikarnThorntanakul Consultant 29/2006 UnauthorisedTrading,InterferingwithClients'Assets Suspension 3

2006 TidaTangsongsuwan Consultant 39/2006

Misappropriation,ForgingSignatures,UnauthorisedUseofClients'AccountsforOwnBenefit,TradingonBehalfof

ClientsonaRegularBasis

Revocation 36

2006 WatchararastChariyadamrongsakul Consultant 40/2006

Fraud,FalsifyingDocuments,UnauthorisedTrading,BorrowingClients'MoneytoSettleTradingof

OtherClients

Revocation 36

2006 AdisakSupanurak Consultant,Executive 41/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 KriengsakJitkraisorn Consultant 41/2006 DisclosingTraderIDstoOtherPersons Probation 122006 ManeekonKwantalay Consultant 41/2006 DisclosingTraderIDstoOtherPersons Probation 122006 OrathaiPholprasertsin Consultant 41/2006 DisclosingTraderIDstoOtherPersons Probation 122006 PulawitSampakdee Consultant 41/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 KanokwanThippayatherdtana Consultant 47/2006 PlacingImproperTradingOrders(False

Market) Suspension 7

2006 ArveekornUeajaratphan Consultant 53/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 ChoochartThongjuerpong Consultant 53/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 MarisaPhawkwamdee Consultant 53/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 PraneeChaichitchareonrung Consultant 53/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 PrapatsornPhakhawaphotun Consultant 53/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 SuratUdomrungrueng Consultant 53/2006 DisclosingTraderIDstoOtherPersons Probation 122006 WanidaSroythong Consultant 53/2006 DisclosingTraderIDstoOtherPersons Probation 12

2006 AmornratLuengwilai Consultant 54/2006Fraud,UnauthorisedUseofClients'AccountsforOwnBenefit,Interfering

withClients'AssetsSuspension 6

2006 KusolSithiwong Consultant 74/2006 UnauthorisedTrading Suspension 182006 TawatchaiRossanakarn Consultant 79/2006 FacilitatingUnauthorisedMarketLoans Suspension 24

429


(Months)

2006 ArtitSeasew Consultant 79/2006


Conditions

Probation 12

2006 NeeranuchTiyavirot Consultant 79/2006


Conditions

Probation 12

2006 PiyadaCharlmingporn Consultant 79/2006


Conditions

Probation 12

2006 RatchadakornBoonsook Consultant 79/2006


Conditions

Probation 12

2006 SomchaiChaipattanakran Consultant 79/2006


Conditions

Probation 12

2006 WisitRiang-Akkhakit Consultant 79/2006


Conditions

Probation 12

2006 SiripornChanapol Consultant 83/2006 MarketManipulation Revocation 362006 SanayKongprapun Consultant 83/2006 MarketManipulation Suspension 122006 SutatipSomboon Consultant 83/2006 MarketManipulation Suspension 12

2006 SarankornPromwan Consultant 85/2006 DisclosingTraderIDstoOtherPersons,AvoidingInternalControlSystems Probation 12

2006 SuratArchacharoensuk Consultant 85/2006UsingTraderIDsofOtherPersons,FailuretoFollowtheStandardsofConductofSecuritiesCompanies

Suspension 12

2006 VitayaKongkeaw Consultant 92/2006 Fraud Revocation 36

2006 LatCharnanurak Consultant 92/2006

TradingonBehalfofClientsonaRegularBasis,HavinganAgreementthatProfitsWouldBeSharedBetween

theConsultantandtheClient

Suspension 9

2006 SaksilpaKongkanon Consultant 95/2006 MarketManipulation Revocation 36

2007 WeeraparnTeeraworn Consultant 02/2007 TradingonBehalfofClientsonaRegularBasis Probation 12

2007 PreechaMateedulsatit Consultant 02/2007TradingonBehalfofClientsona

RegularBasis,InterferingwithClients'Assets

Probation 12

2007 PratarnpornKasemkulsiri Consultant 06/2007 AidingOtherstoViolateAnti-Money

LaunderingLaw Suspension 12

2007 KittiPhomkajorn Consultant 06/2007 DisclosingTraderIDstoOtherPersons Probation 122007 NantawanBoonchuay Consultant 06/2007 DisclosingTraderIDstoOtherPersons Probation 122007 PiyanartSuvitsakdanont Consultant 06/2007 DisclosingTraderIDstoOtherPersons Probation 12

2007 WutikornBwonpraphakorn Consultant 06/2007 DisclosingTraderIDstoOtherPersons Probation 12

2007 LeelavadeeKajaree Consultant 06/2007 DisclosingTraderIDstoOtherPersons Probation 12

2007 GuntasitMontart Consultant 06/2007TradingonBehalfofClientsonaRegularBasis,FailuretoProperly

RecordTradingOrdersProbation 12

2007 ArtitayaCheevathammarat Consultant 06/2007 UnauthorisedTrading,Interferingwith

Clients'Assets Probation 12

2007 KitiwanChongnarasin Consultant 06/2007UnauthorisedTrading,MarketManipulation,FailuretoProperly

RecordTradingOrdersSuspension 3

2007 NitikanBowonpraphakorn Consultant 06/2007 UsingTraderIDsofOtherPersons Probation 12

2007 PrapaiwanSnongjati Consultant 06/2007 UsingTraderIDsofOtherPersons Probation 12

2007 SombatNarkcharoenwong Consultant 06/2007 UsingTraderIDsofOtherPersons Probation 12

2007 PhornphimonLertithibaht Consultant 09/2007 PlacingImproperTradingOrders,

FabricatingEvidence Suspension 6

2007 WanvadeeSripurd Consultant 15/2007Fraud,FalsifyingDocuments,

UnauthorisedUseofClients'AccountsforOwnBenefit

Revocation 180

430


(Months)

2007 ChoomvitIsarangkunNaAyuttaya Consultant 16/2007 AssistingClientsinUsingUnorganized

MarketLoansforSecuritiesTrading Probation 12

2007 JiraponTansupong Consultant 16/2007

FacilitatingUnauthorisedMarketLoans,ForgingSignatures,

UnauthorisedUseofClients'AccountstoAvoidCreditLimitofOtherClients

Suspension 6

2007 HemmaratSuwannarat Consultant 16/2007

UnauthorisedTrading,UnauthorisedUseofClients'AccountstoAvoidCreditLimitofOtherClients,FacilitatingUnauthorisedMarketLoans,Forging

Signatures

Revocation 60

2007 JittiyutYiamyokkun Consultant 16/2007 UnauthorisedUseofClients'AccountstoAvoidCreditLimitofOtherClients Probation 12

2007 TorraninSurarat Consultant 22/2007 FollowingOrdersofNon-AccountOwners Probation 12

2007 TintrakarnPhitithaksung Consultant 22/2007

PlacingImproperTradingOrders(FalseMarket),FollowingOrdersofNon-AccountOwners,DisclosingClients'TradingInformationtoOthers

Suspension 1

2007 RatapolSrichan Consultant 22/2007TradingonBehalfofClientsona


Probation 12

2007 SombatLeeudomngernthong Consultant 25/2007 ProvidingRebatestoClients Probation 12

2007 PanatchakornSag-Tang Consultant 25/2007 TradingonBehalfofClientsonaRegularBasis Suspension 1

2007 VikronPradubmuk Consultant 25/2007 UnauthorisedTrading,InterferingwithClients'Assets Probation 12

2007 TouchKleur-Anant Consultant 28/2007 UnauthorisedTrading Suspension 24

2007 ChartchaiReuangprawat Consultant 33/2007 FollowingOrdersofNon-AccountOwners Probation 12

2007 SathitTeeranawanich Consultant 33/2007 FollowingOrdersofNon-AccountOwners Probation 12

2007 RukthaiJongsawatvatana Consultant 33/2007

MakingTransactionsforaClientDespitetheKnowledgethattheClient

DidNotOwnSuchSecuritiesProbation 12

2007 SurichaJintapradit Consultant 33/2007 TradingonBehalfofClientsonaRegularBasis Suspension 1

2007 CampiradaKiratikamolpatra Consultant 38/2007 Misappropriation,ForgingSignatures,

UnauthorisedTrading Revocation 120

2007 KritsanaSuhavutipatra Consultant 38/2007 Misappropriation,ForgingSignatures,UnauthorisedTrading Revocation 120

2007 PenprapaBoolpak Consultant 38/2007 PlacingImproperTradingOrders(FalseMarket) Suspension 36

2007 PhuwaraThanitkhosaphon Consultant 47/2007 UnauthorisedUseofClients'Accounts

forOwnBenefit Suspension 3

2007 PhimjaiManeesri Consultant 47/2007 UnauthorisedUseofClients'AccountsforThirdParty'sBenefit Suspension 18

2007 NantawatWongwises Consultant 54/2007 UnauthorisedUseofClients'AccountsforThirdParty'sBenefit Suspension 12

2007 OrawanJivavitoonkit Consultant,Executive 54/2007

UnauthorisedUseofClients'AccountsforThirdParty'sBenefit,ArrangeforNon-ClientstoUseClients'Trading

Accounts

Suspension 24

2007 SutthasineeSitti Consultant 71/2007 Misappropriation,InterferingwithClients'Assets Revocation 24

2007 SiwakornTrakunsom Consultant 80/2007 Fraud,UnauthorisedUseofClients'Account,ForgingSignatures Revocation 120

2007 NattavutKitprasert Consultant 82/2007 UnauthorisedTrading Suspension 1

2007 ThitirattThongchlermwong Analyst 90/2007

SubmissionofFalseInformationtotheSECOfficeintheLicenceApplication

ProcessRevocation 12

2008 SupakritChoksukthanapong Consultant 06/2008 MarketManipulation Probation 12

2008 VasanChangkaew Consultant 06/2008 MarketManipulation Suspension 2

2008 VeerawatKlinsunthorn Consultant 06/2008 Misappropriation,UnauthorisedUseofClients'AccountsforOwnBenefit Revocation 60

2008 KanithaKaengkam Consultant 06/2008 PlacingImproperTradingOrders(FalseMarket) Probation 12

431


(Months)

2008 PrapaiChaikunra Consultant 06/2008 PlacingImproperTradingOrders(FalseMarket) Probation 12

2008 SansaneeKitcharoen Consultant 06/2008 PlacingImproperTradingOrders(FalseMarket) Probation 12

2008 SupansaSuksawang Consultant 06/2008 PlacingImproperTradingOrders(FalseMarket) Probation 12

2008 WannapornYodsomsak Consultant 06/2008 PlacingImproperTradingOrders(FalseMarket) Probation 12

2008 SugunyaChangchua Consultant 05/5008 Fraud,TradingonBehalfofClientsonaRegularBasis Revocation 60

2008 SakkarinUttakrit Consultant 18/2008 GivingImproperAdvice Probation 12

2008 SitthidejSirisanpirun Consultant 18/2008UnauthorisedUseofClients'AccountsforOwnBenefit,Interferingwith

Clients'AssetsProbation 12

2008 PatchareeMoungsri Consultant 27/2008 PriorCriminalRecordDeemedtoHaveProhibitedCharacteristics Revocation 60

2008 PiyawatYongsawadvanich Consultant 27/2008 UnauthorisedUseofClients'Accounts

toAvoidCreditLimitofOtherClients Probation 12

2008 WittayaPermpongsacharoen Consultant 44/2008 TradingonBehalfofClientsona


2008 KittipongPiyasakulsiri Consultant 44/2008 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 3

2008 PreeyanuchAnuvongkul Consultant,Executive 59/2008 Fraud,UsingSubordinatestoFalsify

Documents Revocation 120

2008 ChatupornPhankhom Consultant 59/2008 MarketManipulation Probation 122008 SonthayaMounmiang Consultant 59/2008 UnauthorisedTrading Probation 12

2008 TippawanChaiyasawad Consultant 62/2008 Fraud,UnauthorisedUseofClients'AccountsforOwnBenefit Revocation 180

2008 NattavutKitprasert Consultant 62/2008 UnauthorisedTrading Suspension 6

2008 SurachadaChanmoosik Consultant 85/2008 FollowingOrdersofNon-AccountOwners Suspension 12

2008 SarinpatPongakramorn Consultant 85/2008 Misappropriation,ForgingSignatures Revocation 602009 ShineBunnag Consultant 23/2009 MarketManipulation Revocation 362009 SukijRoongthaweesuk Consultant 32/2009 DisobeyingClients'Orders Probation 12

2009 WachirasakKachinthorn Consultant 32/2009 GivingImproperAdvice,FailingtoGettoKnowClients Probation 12

2009 SakpanKemnak Consultant 32/2009 PlacingImproperTradingOrders Probation 12

2009 ChannarongSaelee Consultant 32/2009TradingonBehalfofClientsona


Suspension 6

2009 PojpraphanSuyanon Consultant 60/2009 UnauthorisedTrading Probation 12

2009 PimonRaksurong Consultant 60/2009 UnauthorisedTrading,FalsifyingDocuments Suspension 12

2009 NapasananWarapichayothai Consultant 74/2009 Fraud,FalsifyingDocuments Revocation 180

2009 PrakaidawJongdee Consultant 84/2009TradingonBehalfofClientsona


Probation 12

2009 PrachaJu-ngake Consultant 84/2009TradingonBehalfofClientsona


Suspension 1

2009 PeeraNokdum Consultant 84/2009

TradingonBehalfofClientsonaRegularBasis,InterferingwithClients'Assets,SupportingorCooperatingwith

ClientsinTradingSecuritiesinaMannerInappropriateforClients'

FinancialConditions

Suspension 1

2009 KunakornKarnchavakul Consultant 99/2009 Fraud,InterferingwithClients'Assets Revocation 120

2009 SutasineePansawat Consultant 99/2009 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 3

2010 NopakunWongratana Consultant 11/2010 FollowingOrdersofNon-AccountOwners Probation 12

2010 SurawadeeSriprasert Consultant 11/2010 UnauthorisedUseofClients'AccountstoAvoidCreditLimitofOtherClients Probation 12

2010 DitipanMokdara Consultant 13/2010 InterferingwithClients'Assets Probation 122010 NitiwatJurawathee Consultant 13/2010 PlacingImproperTradingOrders Probation 122010 WathanyaWongopasi Consultant 13/2010 PlacingImproperTradingOrders Suspension 12010 ChirawanVatanavijarn Consultant 13/2010 SevereProfessionalMisconduct Revocation 602010 NapatJitpassorn Consultant 32/2010 Fraud,Misappropriation Revocation 120

432


(Months)2010 WarrachedPitijomwong Consultant 32/2010 InterferingwithClients'Assets Probation 12

2010 ChonladaTeethavolpisal Consultant 39/2010TradingonBehalfofClientsona


Suspension 6

2010 UnchaleeChusri Consultant 45/2010 FollowingOrdersofNon-AccountOwners Probation 12

2010 ChawawatBuranasittichai Consultant 45/2010

UnauthorisedUseofClients'AccountsforOwnBenefit,DisseminationofFalse

NewsSuspension 24

2010 JirapornSirisawad Consultant,Executive 47/2010

TradingonBehalfofClientsonaRegularBasis,InterferingwithClients'

AssetsSuspension 3

2010 PraepakKuptanond Consultant 65/2010 InterferingwithClients'Assets Probation 12

2010 AkarawatThanachitnawarat Consultant 65/2010 GivingImproperAdvice,Interfering

withClients'Assets Probation 12

2010 AdirekUmbangtalad Consultant 91/2010 MarketManipulation Revocation

PendingCriminalProceedin

gs

2011NoppadonTuphitakphol(NakornThanasornkornchatchol)

Consultant 24/2011 MarketManipulation Revocation


gs

2011 PakittaChiablam Consultant 53/2011 Fraud,UnauthorisedUseofClients'AccountsforOwnBenefit Revocation 120

2011 SayanPeurkong Consultant 53/2011

TradingonBehalfofClientsonaRegularBasis,UnauthorisedUseofClients'AccountsforOwnBenefit,

Churning

Revocation 60

2011 ChalermSuakamram Consultant,Executive 57/2011 Fraud,Misappropriation Revocation 120

2011 KruewanRittiwong Consultant 58/2011 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 12

2011 MeunjitLimpodom Consultant 58/2011UnauthorisedUseofClients'AccountsforThirdParty'sBenefit,FailuretoProperlyRecordTradingOrders

Suspension 6

2011 VachiraDuangpanya Consultant 75/2011 FailuretoProperlyRecordTradingOrders Reprimand N/A

2011 WutthipongRuengkitvanich Consultant 75/2011 PlacingImproperTradingOrders Reprimand N/A

2011 AmnajKurakeaw Consultant 75/2011 TradingonBehalfofClientsonaRegularBasis Suspension 1

2011 WatthanaTantivarund Consultant 75/2011TradingonBehalfofClientsona


Reprimand N/A

2011 WanidaSroytong Consultant 84/2011 FailuretoProperlyRecordTradingOrders Suspension 3

2011 JindawatJongsurang Consultant 84/2011TradingonBehalfofClientsona


Suspension 3

2011 SrisuppaluckRod-ari Consultant 84/2011TradingonBehalfofClientsona


Reprimand N/A

2011 SuratBoonrat Consultant 84/2011TradingonBehalfofClientsona


Reprimand N/A

2011 Jit-apaSaranwong Consultant 86/2011TradingonBehalfofClientsona


Suspension 3

2011 SurasakJulabao Consultant 86/2011TradingonBehalfofClientsona

RegularBasis,UnauthorisedTrading,InterferingwithClients'Assets

Reprimand N/A

2012 TanapornWannaprakasit Consultant 02/2012 GivingImproperAdvice Suspension 6

2012 KajornchaiNgamworrarogsakul Consultant 02/2012 MarketManipulation Suspension 24

2012 VikornThaichareon Consultant 02/2012 UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 3

433


(Months)

2012 AnongnatSrisuk Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 AnussaraChuakam Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 ChandraphaWongpaibul Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 KanokRatanaphaiboonsawat Consultant 04/2012 FailuretoProperlyRecordTrading

Orders Reprimand N/A

2012 KanungnitArtayakul Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 KraisakTanyanuraksa Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 NathineePanijphan Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 NeramitSophaporn Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 PornpaweeJankam Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 SomchaiPichetsuppakit Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 SukhonthaChatchawal Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 SumonratTraipobbhumi Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 ThepparitThong-olan Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 UssaneeNgamjitsuksee Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 VeerapongSirisumrit Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 VirojTongreukrit Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 WatchrinArunsangsuree Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 WorapotSiringam Consultant 04/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 EakbongkochManapunniyom Consultant 04/2012 FailuretoProperlyRecordTrading

Orders Suspension 1

2012 KajitsakChalitaporn Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 2

2012 KomkritKeawnern Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 NisaratHarnpimai Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 NonglukKatesub Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 NopparatSuksannoppakun Consultant 04/2012 FailuretoProperlyRecordTrading

Orders Suspension 1

2012 PimladaPattanawararoj Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 SansayaChoktaweerat Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 SompholSajjapithak Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 VarapornBudploy Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 VilawanSarasub Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 VirojDechapol Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 WannaUtthajarusit Consultant 04/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 SippakornKaosa-ard Consultant,Executive 06/2012 MarketManipulation Revocation 120

2012 ChandraphaWongpaibul Consultant 06/2012 MarketManipulation Suspension 24

2012 PrasarnRuengkittisub Consultant,Executive 06/2012 MarketManipulation,FollowingOrders

ofNon-AccountOwners Suspension 24

2012 SirisakNanthanart Consultant 06/2012 MarketManipulation,FollowingOrdersofNon-AccountOwners Suspension 3

434


(Months)

2012 SukhonthaChatchawal Consultant 06/2012 MarketManipulation,FollowingOrdersofNon-AccountOwners Suspension 2

2012 SurachaiThepsud Consultant 06/2012 MarketManipulation,UnauthorisedUseofClients'AccountsforOwnBenefit Suspension 3

2012 ChaidejOwatanusorn Consultant 07/2012 DisclosingClients'TradingInformationtoOthers Suspension 24

2012 HatthayaYungyeung Consultant 07/2012 Fraud,Misappropriation Revocation 1202012 UnyapatArunjaratpong Consultant 07/2012 Fraud,Misappropriation Revocation 1202012 SuppachaiPengchan Consultant 07/2012 Misappropriation Revocation 24

2012 PrapadaTattapornpan Consultant 08/2012 FailureinPerformingBrokerageDutiesAssignedbytheSecuritiesCompany Suspension 3

2012 SanongpolRungreungworawat Consultant 08/2012 FollowingOrdersofNon-Account

Owners Suspension 6

2012 JariyaSingharachai Consultant 08/2012 UnauthorisedTrading,InterferingwithClients'Assets Suspension 1

2012 LapadolTeerapong Consultant,Executive 08/2012 UnauthorisedTrading,Interferingwith

Clients'Assets Suspension 2

2012 SiriratLertsirirungson Consultant 08/2012 WorkingOutsidetheScopeofBusinessoftheSecuritiesCompanies Reprimand N/A

2012 ManthikaKhunhoan Consultant 43/2012 MarketManipulation Revocation


gs

2012 ThaiBunprasai Consultant 43/2012 MarketManipulation Revocation


gs

2012 WathanyaWongopasi Consultant 43/2012 MarketManipulation Revocation


gs

2012 UjcharavadeeKiriyanukul Consultant 48/2012 FailuretoProperlyRecordTrading


2012 KovitMekvichai Consultant 48/2012 FailuretoProperlyRecordTradingOrders Suspension 2

2012 UbonratNontanasilp Consultant 48/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 ArpisaraSupajinda Consultant 59/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 BhamornPholthep Consultant 59/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 NiparatSae-Tung Consultant 59/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 PatcharawarnWatthanasiri Consultant 70/2012 FailuretoProperlyRecordTrading


2012 SittichiSangopsrijinttana Consultant 70/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 TiwakornThammongkon Consultant 70/2012 FailuretoProperlyRecordTrading

Orders Suspension 1

2012 ImjitThongrubkeaw Consultant 77/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 NattachartThesmuang Consultant 77/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 KittayaKittikul Consultant 77/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 NattapornThongpoon Consultant 77/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 PanitaPanfah Consultant 77/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 PatcharaPongthanayontrakit Consultant 77/2012 FailuretoProperlyRecordTrading

Orders Suspension 1

2012 VithoonVinaikulpong Consultant 77/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 PongpatTaweesombun Consultant 88/2012 FailuretoProperlyRecordTradingOrders Suspension 3

2012 SuntareeVerojsakol Consultant 88/2012 FailuretoProperlyRecordTradingOrders Suspension 1

435


(Months)

2012 LakkigaAromseri Consultant 88/2012SubmissionofFalseInformationtotheSECOfficeintheLicenceApplication

ProcessRevocation 24

2012 NappapolBunjamnong Consultant 88/2012 TradingonBehalfofClientsonaRegularBasis Suspension 1

2012 WorrasunJaruphan Consultant 88/2012 TradingonBehalfofClientsonaRegularBasis Suspension 3

2012 NathasasiLuangpuangkeaw Consultant 88/2012 TradingonBehalfofClientsona

RegularBasis,UnauthorisedTrading Suspension 1

2012 PantharaksaJaitawin Consultant 88/2012 UnauthorisedTrading Reprimand N/A

2012 NitipongChusompop Consultant 91/2012 FailuretoProperlyRecordTradingOrders Reprimand N/A

2012 PitipongPanteeranurak Consultant 91/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 TeerapolYamma Consultant 91/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 TanapaRangsing Consultant 91/2012 FailuretoProperlyRecordTradingOrders,InterferingwithClients'Assets Suspension 3

2012 NapassornRadpibul Consultant 91/2012 TradingonBehalfofClientsonaRegularBasis Suspension 6

2012 PremrutaiRinnasuk Consultant 91/2012 TradingonBehalfofClientsonaRegularBasis,UnauthorisedTrading Suspension 6

2012 ChokchaiKansalee Consultant 100/2012 Misappropriation,ForgingSignatures,FalsifyingDocuments Revocation 24

2012 PakkawatBuawan Consultant 100/2012TradingonBehalfofClientsonaRegularBasis,UnauthorisedUseofClients'AccountsforOwnBenefit

Revocation 13

2012 MuthitaSomvong Consultant 100/2012 UnauthorisedTrading,FalsifyingDocuments,Churning Revocation 24

2012 NattakitHiranpatthanachote Consultant 106/2012 TradingonBehalfofClientsona


2012 SurapeeKhunkao Consultant 106/2012 TradingonBehalfofClientsonaRegularBasis,UnauthorisedTrading Suspension 4Months

15Days

2012 NonkanSae-Tang Consultant 111/2012 TradingonBehalfofClientsonaRegularBasis Reprimand N/A

2012 TheeraChovanaprechasilp Consultant 111/2012 TradingonBehalfofClientsona

RegularBasis,UnauthorisedTrading Suspension 6

2012 SirilertKitikunadul Consultant 115/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 SutinChimplapibul Consultant 115/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 WanchaiPetchdassada Consultant 115/2012 FailuretoProperlyRecordTradingOrders Suspension 1

2012 NantapakSupanimitr-armon Consultant 115/2012 TradingonBehalfofClientsona

RegularBasis Reprimand N/A

2013 VarapornVaramitr Consultant 03/2013 FailuretoProperlyRecordTradingOrders Suspension 1

2013 ArpornPariyapanich Consultant 06/2013 FailuretoProperlyRecordTradingOrders Suspension 2

2013 SomboonPanjaplanurak Consultant,Executive 10/2013

UnauthorisedUseofClients'AccountsforOwnBenefit,FacilitatingOff-Market

LoansforSecuritiesTradingRevocation 60

2013 ApinopJariyaeakkapas Consultant 10/2013UnauthorisedUseofClients'AccountsforOwnBenefit,FacilitatingOff-Market

LoansforSecuritiesTradingSuspension 18

2013 SamphanNantachalakornkit Consultant 10/2013



2013 SrimalTanuthep Consultant 10/2013UnauthorisedUseofClients'AccountsforOwnBenefit,FacilitatingOff-Market


2013 TanapornWannaprakasit Consultant 10/2013



2013 KornkamolArpornrat Consultant 12/2013 FailuretoProperlyRecordTradingOrders Reprimand N/A

2013 RujiraHinchin Consultant 12/2013 TradingonBehalfofClientsonaRegularBasis,UnauthorisedTrading Suspension 12

436


(Months)

2013 PassakornSrichaitarn Consultant 20/2013 TradingonBehalfofClientsonaRegularBasis Suspension 3

2013 PanaboonSombatyanuchit Consultant 20/2013

TradingonBehalfofClientsonaRegularBasis,FailuretoProperly


2013 NattakitHiranpatthanachote Consultant 26/2013 FailuretoProperlyRecordTrading

Orders Suspension 2

2013 PongsitAmorntitipong Consultant 31/2013TradingonBehalfofClientsonaRegularBasis,FailuretoProperly


2013 SiriratChantarasaengaram Consultant 40/2013

TradingonBehalfofClientsonaRegularBasis,UnauthorisedUseofClients'AccountsforOwnBenefit

Revocation 15

2013 ChulaluckSrimosarn Consultant 41/2013 TradingonBehalfofClientsonaRegularBasis Suspension 9

2013 ChaninanLuangvekin Consultant,Executive 43/2013 MarketManipulation,UnauthorisedUse

ofClients'AccountsforOwnBenefit Revocation 72

2013 PatcharapornPlaiprasert Consultant 43/2013 PlacingImproperTradingOrders Suspension 32013 SutthirakTassanasri Consultant 43/2013 PlacingImproperTradingOrders Suspension 3

2013 NiradaGarrett Consultant 43/2013UnauthorisedUseofClients'AccountsforThirdParty'sBenefit,Placing

ImproperTradingOrdersSuspension 6

2013 JirattayaVairotjanakit Consultant 46/2013

FollowingOrdersofNon-AccountOwners,TradingonBehalfofClientsonaRegularBasis,FailuretoProperly

RecordTradingOrders

Suspension 5

2013 ChalermchaiPanyavachirokul Consultant 47/2013

FollowingOrdersofNon-AccountOwners,DisclosingClients'TradingInformationtoOthers,FailuretoProperlyRecordTradingOrders

Suspension 2

2013 KannikaAnukulwittaya Consultant 47/2013 TradingonBehalfofClientsonaRegularBasis Suspension 1

2013 PrakarnSripalakit Consultant 47/2013 TradingonBehalfofClientsonaRegularBasis Suspension 3

2013 SunanthaChaichamni Consultant 51/2013 TradingonBehalfofClientsonaRegularBasis Reprimand N/A

2013 ValsuwichNaSongkla Consultant,Executive 51/2013 TradingonBehalfofClientsona


2013 SiraUdompricha Consultant 58/2013 FailuretoProperlyRecordTradingOrders Suspension 2

2013 SumritTrimethasilp Consultant 58/2013 FailuretoProperlyRecordTradingOrders Suspension 1

437

Appendix4

InterviewQuestions

The final list of revised interview questions consisted of twenty-eight main

questionsorganizedunderfiveheadings.

(a)SectionI:GeneralInformation

Thefirstsectionconsistsofninegeneralquestionsinvestigatingtheparticipants’

work experience, work environment, organization’s structure, general work

pressure, sources and satisfaction of income, occupational mobility, and the

impactoftheliberalizationofbrokerageindustryuponthem.Probingquestions

followingthefirstfewmainquestionswerealsoemployedtosetthestageforthe

interview and to establish a good contact between the interviewer and the

interviewee.

Question 1:Howlonghaveyouworkedinthebrokerageindustryandhowlong

haveyouworkedforyourcurrentcompany?

The purpose of this question was to gather general information on the

interviewee’s work experience and on his or her opinions of the differences

betweensecuritiescompaniesheorshehasworkedfor.Anexampleofafurther

probing question used was: “Could you please explain the differences between

eachfirmthatyouhaveworkedfor?”

Question 2: Could you please explain your job responsibilities as a securities

broker?


interviewee’s job description and responsibilities, and also his or her views of

theprofession. Furtherprobingquestionswereemployed to inquire about the

interviewee’sdifferentrolesandresponsibilitiestowardstraditionalclientsand

438

Internet clients. Examples of probing questions used were: “As far as I know,

there are 2 types of clients, traditional clients and Internet clients. Do you look

afterbothtypes?Isthereanydifferenceinhowyoulookafterthem?

Question 3: Could you please explain your current work environment and

corporatestructure?


interviewee’s work environment and his or her relationships with colleagues

andsupervisors.Thequestionalsoexplored“pressure”sideoftheFraudTriangle

relating to work environment and relationships within the organization. An

example of a probing question used was: “Could you please explain the

relationshipbetweenyouandotherteammembers?”

Question 4: Is there much pressure in your workplace, such as from your

colleagues,yoursupervisor,andthecompany?

Thepurposeofthisquestionwastoexploregeneral“pressure”perceivedbythe

intervieweeduringthecourseofwork.Exampleofprobingquestionsusedwere:

“Does your supervisor pressure you to perform?” and “Does the pressure you

receivedmakeyouchangethewayyouwork?”

Question 5:Do you think there is any difference inwork environment between

local,foreignandcommercial-bankrelatedsecuritiescompanies?

Thepurposeof thisquestionwas to test thehypothesis thatdifferent typesof

securitiescompanieshavedifferentworkingculturesandimposedifferenttypes

andamountsof“pressure”uponthesecuritiesbrokers.Anexampleofaprobing

questionusedwas:”Isthereanydifferenceinthewaybrokersinthethreetypesof

companieswork?”

439

Question 6: Could you please explain sources of your earnings as a broker and

howsatisfiedyouarewithyourcurrentearnings?

The purpose of this question was to gather information on the interviewee’s

sources of earnings as a securities broker and to explore “pressure” and

“rationalisation”factorsassociatedwithhisorherincomesatisfaction.Examples

of probing questions used herewere: “Comparingyourearnings toexpenditure

and the lifestyleyouwant tohave,howsatisfiedareyou?” and “Comparingyour

earningstoyourresponsibility,howsatisfiedareyou?”

Question 7: What is the impact of the liberalization of the commission fee

structurethattheSECintroducedinJanuary2012uponyouasabroker?

Thepurposeof thisquestionwas togather informationon the impact that the

liberalizationofthecommissionfeeshasupontheintervieweeaswellastotest

the hypothesis that such liberalization has increased “pressure” imposed upon

securities brokers, which in turn has increased the likelihood that brokerage

fraud and related violations would be committed. An example of a probing

questionusedherewas: “Doesthedecreasinglevelof incomeaffectthewayyou

workoryourrelationshipwithyourclients?”

Question 8: Ifyoufeeluncomfortablewithyourcurrentemployer,howeasyisit

for you to switch to another securities company or go and do something else

altogether?

The purpose of this question was to gather information on the occupational

mobility of the securities brokers and to explore “pressure” and “opportunity”

factorsrelatingtosuchanissue.Anexampleofprobingaquestionusedwas:"So

whichismoredifficult,movingtoanothercompanyorgoingtodosomethingelse?”

Question 9: Could you please explain your relationship with your clients? How

close youarewith themandhowdoes sucha relationshipaffect yourworkasa

securitiesbroker?

440

The purpose of this question was to gather information on the relationship

between the interviewee and his or her clients. The questions also explored

“pressure”and“opportunity”factorsrelatingtosuchrelationship.Anexampleof

probingquestionusedwas:“Haveyourclientsaskedyoutodoanythingforthem

thatyoudidnotliketodo?”

(b)SectionII:AttitudesTowardsLawandInternalControlMechanisms

The second section consisted of two questions investigating the participants’

knowledge of law and relevant regulations, their awareness of enforcement

incidents,andtheirattitudestowardsinternalcontrolmechanismemployedby

thecompanies.

Question 10: How much do you know about the law and the SEC regulations

relatingtotheconductofsecuritiesbrokers?

Thepurposeof thisquestionwas togather informationabout theparticipant’s

knowledge of law and relevant regulations and the awareness of enforcement

incidents. The questions also explored “opportunity” factors relating to

knowledge.Thisquestionwasfollowedbyseveralprobingquestions.Examples

of probing questions were: “Before you’re qualified as a securities broker, you

neededtopassanexaminationtoobtainyourlicence.Doessuchexamprovideyou

with adequate knowledge on the law and regulations of the SEC and the SET?”;

“After you passed the test, does the SEC or your employing securities company

provideanytrainingtoeducatebrokersaboutthelawandregulationsoftheSEC

andSET?”,and“WhentheSECpunishesbrokersfortheirmisconduct,theSECwill

send information to securities companies detaling who was punished. Has such

informationbeenforwardedtoyou?”

Question11:Doesyourcompanyhaveacodeofconductandaninternalcontrol

mechanism to supervise securities brokers, and how has such a code of conduct

beenenforced?

441

Thepurposeofthisquestionwastoinquirewhethertheparticipant’semploying

companyprovidesacodeofconductfortheiremployeebrokersandtoexplore

theparticipant’sviewsandopinionstowardtheinternalcontrolmechanism.An

example of a probing question asked was: “Do you think the compliance

departmentofyourcompanyworkseffectivelyandefficientlyenough?”

(c)SectionIII:PerceptionofCauses,Opportunities,andRationalisationRelatingto

theFocusOffences

Thethirdandcoresectionoftheinterviewconsistedofeightquestionsexploring

theparticipants’perceptionofpressure/motive,opportunity, andrationalisation

leadingtothecommissionofthefourfocusoffencesofthisstudy.

Question12:Whatisyourviewoftheoffenceoffailingtoproperlyrecordtrading

orders,especiallyover-the-phoneorders?

Thepurposeofthisquestionwastoexploretheparticipant’sviewsandopinions

toward the offence of failing to properly record trading orders. Probing

questionswerealsoemployedtogatherinformationonhowtheoffencecanbe

committed.Examplesofprobingquestionsusedwere:“Doyouhaveanyissuein

complying with this regulation?” and “Why do brokers fail to record trading

orders?”

Question13:Whatarethecausesandopportunitiesthatleadbrokerstocommit

theoffenceoffailingtoproperlyrecordtradingorders?

The purpose of this questionwas to inquire into “pressure”, “opportunity”,and

“rationalisation” factors relating to the commission of the offence of failing to

properly record trading orders. Examples of probing questions asked were:

“Howeasyisittocommitthisoffence?”and “Howoftendoyouthinkthisoffence

occurs?”

442

Question 14:What is your view of the offence of making trading decisions on

behalfofclients?


toward the offence of making trading decisions on behalf of clients. Probing

questionsaskedwhichwereaimedatgathering informationabout thereasons

thattheoffenceiscommittedwere,forexample:Examplesofprobingquestions

are “Do you have any objection to comply with this regulation?” and “Why do

brokersmaketradingdecisionsfortheirclients?”


theoffenceofmakingtradingdecisionsonbehalfofclients?


“rationalisation” factors relating to the commission of the offence of making

tradingdecisionsonbehalfofclients.Examplesofprobingquestionsaskedwere:

“Howhardisittocommitthisoffence?”and “Howoftendoyouthinkthisoffence

occurs?”

Question 16:What is your viewof the offence of unauthorized use of a client's

account?


towardtheoffenceofunauthorizeduseofaclient'saccount.Probingquestions

werealsoemployedtogatherinformationonhowtheoffencecanbecommitted.

Examples of probing questions used were: “How do brokers use their clients’

accountsfortheirownbenefit?”and“Doyouthinkthatitisnormalforbrokersto

havenomineeaccounts?”


theoffenceofunauthorizeduseofaclient'saccount?

443


“rationalisation” factors relating to the commission of the offence of

unauthorizeduseofaclient'saccount.Examplesofprobingquestionsusedwere:

“Howhardisittocommitthisoffence?”and“Howoftendoyouthinkthisoffence

occurs?”

Question18:Whatareyourviewsoftheoffencesoffraudandmisappropriation?

Thepurposeof thisquestion is toexplore theparticipant’sviewsandopinions

toward the offence of fraud andmisappropriation. Probing questions are also

employed to gather information on how the offence can be committed. An

exampleofprobingquestionsaskedwas:“Howdobrokerscommitfraudagainst

theirclients?”


theoffencesoffraudandmisappropriation?


“rationalisation”factorsrelatingtothecommissionof theoffencesof fraudand

misappropriation.Examplesofprobingquestionsaskedwere “Howeasyisitto

committheseoffences?”and“Howoftendoyouthinktheseoffencesoccur?”

(d)SectionIV:AttitudesTowardstheSEC’sFunctionsandtheSanctionsImposed

The fourth section of the interview consisted of sevenquestions exploring the

participants’ attitudes towards theSEC’s regulatoryandenforcement functions

aswellastheirattitudestowardsadministrative,civil,andcriminalproceedings

and sanctions. Factors relating to opportunity and rationalisation were also

exploredinthissection.

Question 20: What do you think of the role and the capability of the SEC in

regulatingbrokers’ conduct, especially in thedetectionofwrongdoingand in the

impositionofsanctions?

444

Thepurposeof thisquestion is toexplore theparticipant’sviewsandopinions

towardtheSEC’sregulatoryandenforcementfunctions.Anexampleofprobing

question used was: “In your opinion, how can the SEC improve its detection

capability?”

Question21:Whatisyourviewofthedisciplinarysanctionofreprimandthatthe

SECimposesuponoffendingbrokers?


toward the administrative sanction of reprimand. An example of a probing

questionusedwas:“Howseriousisitandwhatwouldtheimpactbeifthesanction

wasimposeduponyou?”

Question 22:What is your view of the disciplinary sanction of a suspension of

licencethattheSECimposesuponoffendingbrokers?


toward theadministrativesanctionofa suspensionof licence.Anexampleofa

probingquestionusedwas:“Howseriousisitandwhatwouldtheimpactbeifthe

sanctionwasimposeduponyou?”

Question 23:What is your view of the disciplinary sanction of a revocation of

licencethattheSECimposesuponoffendingbrokers?


toward the administrative sanctionof a revocationof licence.An example of a

probingquestion askedwas: “Howserious is itandwhatwouldthe impactbe if

thesanctionwasimposeduponyou?”

Question 24: What is your view of the criminal proceedings and the criminal

sanctionsthatclientsandtheSECmaypursueagainstoffendingbrokersincasesof

fraudandrelatedviolations?

445


toward the criminal proceedings and criminal sanctions thatmay be imposed

uponhimorher.Anexampleofaprobingquestionaskedwas:“Duringthecourse

of your work, have you ever thought about the possibility of being subject to

criminalproceedingsandsanctions?”

Question 25: What is your view of the civil claims for compensation that the

clientsmaypursueagainstoffendingbrokers?


toward the civil proceedings and monetary compensation that clients may

pursueagainsthimorher.Anexampleofaprobingquestionaskedwas: “How

oftendoclientspursuecivilclaims?”

Question 26:Whatdo you think of the role and the capability of the securities

companies to regulate their employees’ conduct, to detect wrongdoing, and to

imposeinternalsanctionsuponoffendingbrokers?


about the capability of his or her employing company to regulate his or her

conduct through theuseof internal sanctions.Anexampleofprobingquestion

askedherewas:“Doesyourcompanyimposeanyfurtherinternalsanctionoverthe

sanctionsimposedbytheSEC?”

(e)SectionV:FinalQuestions

Thefifthandlastsectionoftheinterviewconsistedoftwoconcludingquestions

askingforothersuggestionsandfeedbackabouttheinterview,respectively.

Question 27: Do you have anything else that you would like to say in this

interviewthatyouhavenotsaidyet?

446

Thepurposeof thisquestionwas toprovide theparticipant a chance to freely

expresshisorheropinionsonanyissueand/orintroduceanewtopic intothe

interviewthatheorshebelievedwasrelevanttothestudy.

Question28:Howdoyoufeelaboutthisinterview?

The purpose of this question was to let the participant freely express their

feelings, opinions, and experience relating to the interview. The question also

providedtheparticipantwithachancetovoiceanyconcernortowithdrawfrom

thestudyduetoanyreason.

447

Appendix5

ParticipantInformationSheet(FirstInterviewPhase)

(TobetranslatedtoThaiandhandedouttoparticipants)

Researcher:

Myname isAbhichonChandrasen. I amaPhD candidate at theCollegeof Law,

TheAustralianNationalUniversity.IgraduatedwithanLLB(FirstClassHonours)

from Chulalongkorn University, Thailand and an LLM from London School of

EconomicsandPoliticalScience,UK.

ProjectTitle:

Enhancing Deterrence of Anti-Fraud Measures in Thai Securities Law and

ComplianceProcedure

GeneralOutlineoftheProject:

Thisproject ismyPhDthesisattheAustralianNationalUniversity.Theproject

focuses on the legal issue of brokerage fraud and violation of securities

regulationintheStockExchangeofThailand,exclusivelyintheareaoffourlow-

levelbrokeragefraudsandregulatoryviolationsasfollows:

1.Theoffenceoffailuretoproperlyrecordtradingorders;

2.Theoffenceofmakingtradingdecisionsonbehalfofclients;

3.Theoffenceofusingaclient'saccountforthebroker'sownbenefit;and

4.Theoffencesoffraudandmisappropriation.

The primary aim of this research is to find effective measures to enhance

deterrenceoftheanti-fraudregimeusinganoptimalcombinationoflegaltools:

variousformsofsanctions,civilresponsibilities,licences,educationandtraining,

acodeofconductand internalcontrol,etc. Inorder todoso, it is important to

identifykeyfactorsleadingtothecommissionoffraudandregulatoryviolation

448

byThaisecuritiesbrokersandtogatherviewsandopinionsoftheregulatorsand

theregulateestowardsthecurrentThaianti-brokeragefraudregime.

I have chosen to use semi-structure interviewmethodology to collect data for

thisproject.Moregeneralthematicquestionswillbeasked,followedbyseveral

shortquestions.Theinterviewhastwophases.Thefirstisaseriesofinterviews

ofeighteensecuritiesbrokersand thesecond isan interviewof fiveofficersof

theOfficeoftheSecuritiesandExchangeCommission.

ParticipantInvolvement:

In this first interview phase, I have selected you as a potential participant

becauseofyourworkasabroker ina securities company.Participation in the

project is purely voluntary, and therewill be no adverse consequences if you

decidenottoparticipate.Ifyouparticipateinthisresearchproject,Iwouldlike

toaskforyourviewsandopinionstowardspotentialcausesandopportunitiesin

the commission of brokerage fraud as well as your view of the law and

regulatoryregimeassomeoneregulatedbyboth.Theinterviewsessionwilllast

approximatelyoneandahalfhours.Ifyouagree,Imayrecordtheinterviewona

digital recorder. The recordingwill be transcribed and translated intoEnglish.

Afterthetranslationiscompleted,IwillsendbothThaiandEnglishtranscripts

toyoufortheconfirmationofaccuracy.

Youmaywithdrawfromparticipationintheprojectatanytime,andyoudonot

needtoprovideanyreasontome.IfyoudecidetowithdrawfromtheprojectI

will not use any of the information you have provided and the data will be

destroyed

Potentialrisksinparticipation:

Duetothenatureofthisproject,thereisachancethatanywrongdoingdisclosed

by you and/or any third party could be revealed. Under Thai law and the

regulationoftheSecuritiesandExchangeCommission,thereisnoobligationto

reportsuchinformationtotheauthority,ifthewrongdoingisinthescopeof(1)

theoffenceoffailuretoproperlyrecordtradingorders,(2)theoffenceofmaking

449

trading decisions on behalf of clients, (3) the offence of unauthorized use of a

client'saccount for thebroker'sownbenefit, and (4) theoffencesof fraudand

misappropriation.

Although there isnosuchobligation, Iwill take the followingsteps inorder to

protectyouasaparticipant.First,Iwillnotrecordyournameandthesecurities

companythatyouareworkingfor.Codeswillbegiventorepresentyouandyour

company. Second, if youwould like togiveexamplesormentionanyactionor

wrongdoing of third parties, please do not mention their names or their

employers,unlesssuchincidenthasalreadybeenreportedandpubliclyrecorded

bytherelevantauthority.

Inadditiontothelegalriskabove,ifyoufeelanyinterviewquestionispersonally

sensitiveoryoufeelreluctancetodiscussany issueduetoanyconcern,please

immediatelynotifyme.Youhavetherightnottoansweranyofthequestionsin

thisinterview.

ConfidentialityandDataStorage:

All informationyougivemeinthis interviewwillbekeptconfidentialas faras

the law allows.Only the one assistant and I, who together will transcribe the

recordingsintotextandtranslatethetranscriptsfromThaitoEnglish,willhave

access to the voice recordings. All voice recordings will be erased after the

translationiscompletedandthetranscriptsareverifiedbytheparticipants.The

transcripts, inThaiandEnglish,willbe insecurestorage forat least fiveyears

followingpublication.Alldatawillbestoredonmypasswordprotected laptop

computer.Hardcopiesofthetranscriptswillbestoredinalockedfilingcabinet.

During the qualitative data analysis phase, the transcriptswill be additionally

storedandprocessedbyapasswordprotecteddesktopcomputeratmyofficein

TheJohnYenckenBuilding,ANU.

QueriesandConcerns:

Ifyouhaveanyquestions,comments,orcomplaintsaboutthisresearch,please

donothesitatetocontact:

450

AbhichonChandrasen(Researcher)

CollegeofLaw,TheAustralianNationalUniversity

Phone:+66813833200(Thailand)or+61413570212(Australia)

Email:[email protected],or

NitivadeeTasuwanin(LocalContact)

CountryGroupSecuritiesPLC

Phone:+66896347247(Thailand)


DrPrasongVinaiphat(LocalContact)

TheOfficeoftheSecuritiesandExchangeCommission

Phone:+6681814-6927(LocalContact)


A/ProfMarkNolan(Supervisor)

CollegeofLaw,TheAustralianNationalUniversity

Phone:+61261258354(Australia)

Email:[email protected]

EthicsCommitteeClearance:

The ethical aspects of this research have been approved by the ANU Human

ResearchEthicsCommittee. Ifyouhaveanyconcernsorcomplaintsabouthow

thisresearchhasbeenconducted,pleasecontact:

EthicsManager

TheANUHumanResearchEthicsCommittee

TheAustralianNationalUniversity

Telephone:+61(0)261253427

Email:[email protected]

451

Appendix6

OralConsentRequest(tobetranslatedtoThaiandreadouttoparticipants)

1. Ihavegivenyoutheinformationsheetabouttheresearchproject,Enhancing

DeterrenceofAnti-FraudMeasures inThai SecuritiesLawandCompliance

Procedure,andyouhavereadit.Wastheinformationclear?Doyouhaveany

questionsabouttheproject?

2. Letmemakeitclearthatduetothenatureofthisproject,thereisachance

thatwewilldiscoveranywrongdoingorviolationofthelawcommittedby

you and/or any third party. Under Thai law and the regulations of the

SecuritiesandExchangeCommission,wedonothaveanobligationtoreport

suchinformationtotheauthority,ifitisinthescopeofthefouroffencesthat

Imentionedintheinformationsheet.Isthiscleartoyou?

3. Althoughwedonothavealegalobligationtoreport,Iwilltakethefollowing

steps inorder toprotectbothofusand Iwillkeepall the informationyou

givemeinthisinterviewconfidentialasfarasthelawallows.First,Iwillnot

record your name and the securities company that you are working for.

Codes will be given to represent you and your company in this project.

Second, if you would like to give examples or mention any action or

wrongdoing of third parties, please do not mention their names or their

employers. You may wish to do so, however, if you are certain that the

matteryoudiscusshasalreadybeendealtwithcompletelybytheregulator

oranyotherinvestigator.Third,anynoteorrecordingImakewillbekeptin

apassword-protectedcomputerandalockedcabinet.Iwillnotsharethem

withanyoneelse.Areallthesecleartoyou?Wouldyouallowmetoproceed?

4. SomeoftheinformationyougivememaybepublishedinEnglishorThai.It

will not be possible from these reports to directly identify individuals.

However, there is still a possibility that people will recognize you by the

things you say during the semi-structured interview, so you should avoid

452

disclosingsensitiveinformationorsayinganythingdefamatory.Isthatclear?

5. Youcanstopthisinterviewatanytime,withoutgivingmeanyreason.Andif

youmentionanything thatyoudonotwantmetorecordor include in the

research,pleasesaysoandIwillfollowyourrequest.Inaddition,ifyoufeel

any interview question is personally sensitive or you feel reluctance to

discussany issuedue toanyconcern,please immediatelynotifyme.Okay?

Aftertheinterview,ifyoudecidetowithdrawfromtheprojectorwouldlike

me not to use any part of the interview, you can directly contact me at

(mobile number and email) or contact (Miss Nitivadee Tasuwanin in first

interviewphase,DrPrasongVinaiphatinthesecondinterviewphase,andDr

KanateWangpaichitrinthethirdinterviewphase)whoisthecontactofthis

projectat(mobilenumber).Isthiscleartoyou?

6. Iwouldliketorecordthisinterviewusingadigitalaudiorecorder.Thatway,

IcanlistentotherecordingafterwardsandcatchthingsyousaythatImight

notfullyunderstandduringtheinterview,ormightotherwiseforget. Iwill

not give access to the recording to anyone else. The recording will be

transcribedandtranslatedintoEnglish.Afterthetranslationiscompleted,I

willsendyouboththeThaiandtheEnglishversionsforverification.Doyou

givemepermissiontorecord?

7. Doyouhaveanyfurtherquestions?Canwestarttheinterviewnow?

453

Bibliography

AArticles/Books/Reports

Abdullatif, Modar, 'Fraud risk factors and audit programme modifications:

Evidence from Jordan' (2013) 7(1)AustralasianAccountingBusiness&Finance

Journal59

Administrative Court of Thailand, 'National report of Thailand. Review of

administrativedecisionsofgovernmentbytheAdministrativeCourtofThailand'

(2010)

Albertecht,WS-Albertecht,FraudExaminationandPrevention(2003)

Albrecht,Chadetal,'TherelationshipbetweenSouthKoreanchaebolsandfraud'

(2010)33(3)ManagementResearchReview257

Albrecht, Chad et al, 'A cross-country perspective on professional oversight,

educationstandardsandcountries'perceived levelofcorruption' (2012)19(4)

CrossCulturalManagement:AnInternationalJournal433

Albrecht, WS et al, 'Red-flagging management fraud: A validation' (1986) 3(S

323)AdvancesinAccounting333

Albrecht,WSteve,ChadAlbrechtandConanCAlbrecht,'Currenttrendsinfraud

anditsdetection'(2008)17(1)InformationSecurityJournal:AGlobalPerspective

2

Albrecht,WSteveetal,Fraudexamination(CengageLearning,5thed,2015)

Albrecht,W Steve, KeithRHowe andMarshall BRomney,Deterring fraud: the

internalauditor'sperspective(InstofInternalAuditors,1984)

454

Anand, Vikas, Blake E Ashforth and Mahendra Joshi, 'Business as usual: The

acceptance and perpetuation of corruption in organizations' (2004) 18(2)The

AcademyofManagementExecutive39

Anandarajan, Asokan and Gary Kleinman, 'The impact of cognitive biases on

fraudulent behaviour: the Leeson case' (2011) 2(1) International Journal of

BehaviouralAccountingandFinance40

Apostolou,BarbaraAet al, 'The relative importanceofmanagement fraud risk

factors'(2001)13(1)BehavioralResearchinAccounting1

Association of Certified FraudExaminer (ACFE),FraudExamineraManual (TX:

ACFE,2009)

Association of Certified Fraud Examiner (ACFE), Report to the Nations on

OccupationalFraudandAbuse(TX:ACFE,2010)

Atmiyanandana, Vinita and Jolm J Lawler, 'I3 Culture and management in

Thalland'(2003)CultureandmanagementinAsia228

Ayres, Ian and John Braithwaite, Responsive regulation: Transcending the

deregulationdebate(OxfordUniversityPress,1992)

Bazeley,Patricia,Qualitativedataanalysis:Practicalstrategies(Sage,2013)

Bazeley, Patricia and Kristi Jackson,Qualitative data analysiswithNVivo (Sage

PublicationsLimited,2013)

Beasley,MarkS,JosephVCarcelloandDanaRHermanson,FraudulentFinancial

Reporting: 1987-1997: An Analysis of US Public Companies: Research Report

(AICPA,1999)

455

Bell,TB,SSzykownyandJJWillingham,'AssessingtheLikelihoodofFraudulent

Reporting: A Cascaded Logical Approach' (1991) 4 International Journal of

IntelligentSystemsinAccounting,FinanceandManagement113

Bell,TimothyBandJosephVCarcello,'Adecisionaidforassessingthelikelihood

of fraudulent financial reporting' (2000)19(1)Auditing:AJournalofPractice&

Theory169

Benson, Michael L, 'Denying the guiltymind: Accounting for involvement in a

white‐collarcrime'(1985)23(4)Criminology583

Beny, Laura Nyantung, 'Insider trading laws and stock markets around the

world:An empirical contribution to the theoretical lawand economicsdebate'

(2006)32J.Corp.L.237

Beyleveld, Deryck, 'Identifying, explaining and predicting deterrence' (1979)

19(3)TheBritishJournalofCriminology205

Bhattacharya, Utpal and Hazem Daouk, 'The world price of insider trading'

(2002)57(1)TheJournalofFinance75

Bian, Yanjie and Soon Ang, 'Guanxi networks and job mobility in China and

Singapore'(1997)75(3)SocialForces981

Bierstaker,JamesLetal, 'TherelationshipbetweenSouthKoreanchaebolsand

fraud'(2010)33(3)ManagementResearchReview257

Black,Julia,Involvingconsumersinsecuritiesregulation(Citeseer,2006)

Black, Julia, 'Financialmarkets' inPeterCaneandHerbertM.Kritzer(eds),The

Oxfordhandbookofempiricallegalresearch(OxfordUniversityPress,2010)151

456

Blume,Marshall E andDonald B Keim, Institutional investorsand stockmarket

liquidity:trendsandrelationships(2012)

Bottoms, Anthony and Andrew Von Hirsch, 'The crime preventive impact of

penalsanctions'(2010)TheOxfordhandbookofempiricallegalresearch96

Boyatzis,RichardE,Transformingqualitativeinformation:Thematicanalysisand

codedevelopment(Sage,1998)

Braithwaite, John,Restorativejustice&responsiveregulation (OxfordUniversity

PressonDemand,2002)

Braithwaite, John, 'Responsive regulation and developing economies' (2006)

34(5)WorldDevelopment884

Braithwaite, John, 'Leading from behindwith plural regulation' (2009)Patient

SafetyFirst:ResponsiveRegulationinHealthCare

Braithwaite, John, 'TheEssenceofResponsiveRegulation' (2011)44UBCLRev.

475

Braun, Virginia and Victoria Clarke, 'Using thematic analysis in psychology'

(2006)3(2)Qualitativeresearchinpsychology77

Brennan,NiamhMandMaryMcGrath,'Financialstatementfraud:Somelessons

fromUSandEuropeancasestudies'(2007)17(42)AustralianAccountingReview

49

Brewer,JohnandAlbertHunter,Multimethodresearch:Asynthesisofstyles(Sage

Publications,Inc,1989)

Brickman,PhilipandDonaldTCampbell, 'Hedonic relativismandplanning the

goodsociety'(1971)Adaptation-leveltheory287

457

Brown, Alexander Jonathan et al, International handbook on whistleblowing

research(EdwardElgarPublishing,2014)

Bryman,Alan,andEmmaBell,Businessresearchmethods(OxfordUniversity

Press,USA,2015)

Bryman,Alan,EncyclopediaofSocialScienceResearchMethods(2004)

Cane, Peter and Herbert Kritzer, The Oxford Handbook of Empirical Legal

Research(OUPOxford,2010)

Cendrowski,Harryet al,Thehandbookof frauddeterrence (JohnWiley&Sons,

2007)

Chan,SiewHetal,'ACulturalPerspectiveofAuditors’AssessmentoftheLikelihood

ofFraudDetection:TheEffectsofGuanxiandMianzi'(2015)

Chen,Ming-Jer,InsideChinesebusiness:Aguideformanagersworldwide(Harvard

BusinessPress,2001)

Choo,FreddieandKimTan,'An“AmericanDream”theoryofcorporateexecutive

Fraud'(PaperpresentedattheAccountingForum,2007)

Chwa,Sung-hee,TheEvolutionofLargeCorporationsinKorea:anewinstitutional

economicsperspectiveoftheChaebol(EdwardElgarPublishing,2002)

Cieslewicz,JoshuaK,'Thefraudmodelininternationalcontexts:Acalltoinclude

societal-level influences in the model' (2012) 4(1) Journal of Forensic and

InvestigativeAccounting214

Cohen,Jeffreyetal,'Theroleofmanagers’behaviorincorporatefraud'(2008)

458

Cohen, JeffreyR,LaurieWPantandDavidJSharp, 'Culturalandsocioeconomic

constraints on international codes of ethics: Lessons from accounting' (1992)

11(9)JournalofBusinessEthics687

Cohen, Jeffrey R, Laurie W Pant and David J Sharp, 'Culture-based ethical

conflicts confronting multinational accounting firms' (1993) 7(3) Accounting

Horizons1

Cohen,JeffreyR,LaurieWPantandDavidJSharp,'Anexploratoryexamination

of international differences in auditors’ ethical perceptions' (1995) 7(1)

BehavioralResearchinAccounting37

Cohen, Jeffrey R, LaurieW Pant andDavid J Sharp, 'Amethodological note on

cross-culturalaccountingethicsresearch'(1996)31(1)TheInternationalJournal

ofAccounting55

Coleman, James William, 'Toward an integrated theory of white-collar crime'

(1987)AmericanJournalofSociology406

Coleman,JameW,TheCriminalElite(St.Martin'sPress,2002)

Cornish, Derek B and Ronald V Clarke,The reasoning criminal:Rational choice

perspectivesonoffending(TransactionPublishers,2014)

CPAAustralia,'Employeefraud:Aguidetoreducingtheriskofemployeefraudand

whattodoafterafraudisdetected'(2011)

Cressey, Donald R, 'The criminal violation of financial trust' (1950) 15(6)

AmericanSociologicalReview738

Cressey, Donald R, Other people's money; a study of the social psychology of

embezzlement(1953)

459

Cressey, Donald R, ‘The Theory of Differential Association: An Introduction’

(1960)8Soc.Probs.2

Dechow, Patricia M, Richard G Sloan and Amy P Sweeney, 'Causes and

consequences of earnings manipulation: An analysis of firms subject to

enforcement actions by the SEC' (1996) 13(1) Contemporary Accounting

Research1

Dellaportas, Steven, 'Conversations with inmate accountants: Motivation,

opportunity and the fraud triangle' (Paperpresented at theAccounting forum,

2013)

Dexter,LewisAnthony,Eliteandspecializedinterviewing(EcprPress,2006)

Donegan, James J and Michele W Ganon, 'Strain, differential association, and

coercion: Insights from the criminology literature on causes of accountant's

misconduct'(2008)8(1)AccountingandthePublicInterest1

Donohue III, John J and Peter Siegelman, 'Allocating resources among prisons

and social programs in the battle against crime' (1998) 27(1) The Journal of

LegalStudies1

Doob, Anthony N and Cheryl Marie Webster, 'Sentence severity and crime:

Acceptingthenullhypothesis'(2003)Crimeandjustice143

Dorminey, Jack et al, 'The evolution of fraud theory' (2012) 27(2) Issues in

AccountingEducation555

Douglas, JackD, Investigative social research: Individualand teamfieldresearch

(SageBeverlyHills,1976)

460

Efendi, Jap, Anup Srivastava and Edward P Swanson, 'Why do corporate

managersmisstate financial statements? The role of option compensation and

otherfactors'(2007)85(3)Journaloffinancialeconomics667

Erickson,Merle,MichelleHanlonandEdwardLMaydew,'Istherealinkbetween

executive equity incentives and accounting fraud?' (2006) 44(1) Journal of

AccountingResearch113

Erickson, Merle, Brian W Mayhew and William L Felix, 'Why do audits fail?

Evidence from Lincoln Savings and Loan' (2000) 38(1) Journal of Accounting

Research165

Erlandson,DavidA,Doingnaturalisticinquiry:Aguidetomethods(Sage,1993)

Farber,DavidB,'Restoringtrustafterfraud:Doescorporategovernancematter?'

(2005)80(2)TheAccountingReview539

Farrall, Stephen,Rethinkingwhatworkswithoffenders:Probation,socialcontext

anddesistancefromcrime(WillanCullompton,2002)

Farrington,DavidP,PatrickALanganandPOWikstrom, 'Changesincrimeand

punishmentinAmerica,EnglandandSwedenbetweenthe1980sandthe1990s'

(1994)3StudiesonCrimeandCrimePrevention104

Festinger, Leon, 'Cognitivedissonance theory',PrimaryPreventionofHIV/AIDS:

PsychologicalApproaches(SagePublications,1989)

Fidel, Raya, 'Qualitative methods in information retrieval research' (1993) 15

LibraryandInformationScienceResearch219

FinancialServicesAuthority,'LevelsofFinancialCapabilityintheUK:Resultsof

abaselinesurvey'(March2006)

461

Fisher,KenandLaraWHoffmans,Howtosmellarat:thefivesignsof financial

fraud(JohnWiley&Sons,2009)

Gentile, Mary C, 'Values-driven leadership development:Where we have been

andwherewecouldgo'(2012)9(3)OrganizationManagementJournal188

Gibbs,GrahamR,Analysingqualitativedata(Sage,2008)

Glaser, Daniel, 'The differential association theory of crime' (1962) Human

BehaviorandSocialProcesses425

Golafshani,Nahid,'Understandingreliabilityandvalidityinqualitativeresearch'

(2003)8(4)Thequalitativereport597

Gottfredson,Michael R and Travis Hirschi,Ageneral theoryof crime (Stanford

UniversityPress,1990)

Greene, Jennifer C, 'Qualitative program evaluation' (1994) 530 Handbook of

qualitativeresearch544

Haines, Fiona, Corporate Regulation: Beyond "punish Or Persuade" (Clarendon

Press,1997)

Haller, Linda, 'Regulating the professions' in Peter Cane and Herbert Kritzer

(eds),TheOxfordhandbookofempiricallegalresearch(2010)

Hansen, JV et al, 'A generalizedqualitative-responsemodel and the analysis of

managementfraud'(1996)42(7)ManagementScience1022

Hawkins, Keith, Lawas last resort: Prosecution decision-making in a regulatory

agency(OxfordUniversityPressonDemand,2002)

462

Haynie, Dana L and D Wayne Osgood, 'Reconsidering peers and delinquency:

Howdopeersmatter?'(2005)84(2)SocialForces1109

Healy, Marilyn and Chad Perry, 'Comprehensive criteria to judge validity and

reliability of qualitative research within the realism paradigm' (2000) 3(3)

Qualitativemarketresearch:Aninternationaljournal118

Henry,StuartandMarkLanier,Theessentialcriminologyreader(WestviewPress

Boulder,CO,2006)

Hoepfl,MarieC,Choosingqualitativeresearch:Aprimerfortechnologyeducation

researchers(1997)

Hogan, Chris E et al, 'Financial statement fraud: Insights from the academic

literature'(2008)27(2)Auditing:AJournalofPractice&Theory231

Hollinger, Richard C, Dishonesty in the workplace: A manager's guide to

preventingemployeetheft(LondonHousePress,1989)

Hollinger, Richard C and John P Clark, Theft by employees (Lexington Books

Lexington,MA,1983)

Holmes, Henry, Suchada Tangtongtavy and Roy Tomizawa,Working with the

Thais:AguidetomanaginginThailand(WhiteLotus,1995)

Holmes, Vivien, '‘Giving Voice to Values’: enhancing students’ capacity to cope

withethicalchallengesinlegalpractice'(2015)18(2)LegalEthics115

Holtfreter, Kristy, 'Is occupational fraud “typical” white-collar crime? A

comparison of individual and organizational characteristics' (2005) 33(4)

JournalofCriminalJustice353

463

Huddleston,Pat,Thevigilantinvestor:AformerSECenforcerrevealshowtofraud-

proofyourinvestments(AMACOMDivAmericanMgmtAssn,2011)

InternationalOrganizationofSecuritiesCommissions,CredibleDeterrenceInThe

EnforcementOfSecuritiesRegulation(June2015)

International,QSR,TheNVivoWorkbook(QSRInternational2012)

Jackson,Jonathanetal,'Whydopeoplecomplywiththelaw?Legitimacyandthe

influenceoflegalinstitutions'(2012)Britishjournalofcriminology

Jackson, Jonathan et al, 'Monopolizing force? Police legitimacy and public

attitudes toward the acceptability of violence' (2013) 19(4) Psychology, Public

Policy,andLaw479

Jackson,RonaldL,DarleneKDrummondandSakileCamara,'Whatisqualitative

research?'(2007)8(1)QualitativeResearchReportsinCommunication21

Kahn, Robert L and Charles F Cannell, The dynamics of interviewing; theory,

technique,andcases(1957)

Kaptein, Muel and Mark S Schwartz, 'The effectiveness of business codes: A

critical examination of existing studies and the development of an integrated

researchmodel'(2008)77(2)JournalofBusinessEthics111

Kassem,RashaandAndrewHigson,'Thenewfraudtrianglemodel'(2012)3(3)

JournalofEmergingTrendsinEconomicsandManagementSciences191

Keedy, JohnL, 'The interactionof theorywithpractice in a studyof successful

principals: An interpretive research in process' (1992) 31(2) Theory Into

Practice157

464

Kelman, Herbert C and V Lee Hamilton, Crimes of obedience: Toward a social

psychologyofauthorityandresponsibility(YaleUniversityPress,1989)

Killias, Martin, David Scheidegger and Peter Nordenson, 'The Effects of

Increasing the Certainty of Punishment A Field Experiment on Public

Transportation'(2009)6(5)EuropeanJournalofCriminology387

King, Nigel and Christine Horrocks, Interviews in qualitative research (Sage,

2010)

Kingsford-Smith, Dimity and C Williamson, 'How do online investors seek

information, and what does this mean for regulation?' (2004) 1(2) Journal of

Information,LawandTechnology1

Kirk, Jerome and Marc L Miller, Reliability and validity in qualitative research

(Sage,1986)

Kitiyadisai, Krisana, 'Privacy rights and protection: foreign values in modern

Thaicontext'(2005)7(1)EthicsandInformationTechnology17

Komin, Suntaree,Psychologyof theThai people:Values andbehavioral patterns

(ResearchCenter,NationalInstituteofDevelopmentAdministration,1990)

KPMG,FraudSurvey1997(1997)





465



Kraichitti,Sansern,'TheLegalSysteminThailand'(1967)7WashburnLJ239

Kraivixien,Tanin,'ThaiLegalHistory'(1963)49WomenLaw.J.6

Kranacher,Mary-Jo,RichardRiley and JosephTWells,Forensicaccountingand

fraudexamination(JohnWiley&Sons,2010)

Krippendorff, Klaus,Contentanalysis:An introduction to itsmethodology (Sage,

2004)

Kritzer,HerbertM,Legaladvocacy:Lawyersandnonlawyersatwork(University

ofMichiganPress,1998)

Kvale,Steinar.InterViews.Anintroductiontoqualitativeresearchwriting(1996)

Kvale,Steinar,Doinginterviews(Sage,2008)

La Porta, Rafael et al, 'Investor protection and corporate governance' (2000)

58(1)Journaloffinancialeconomics3

Langan,PatrickAandDavidPFarrington,CrimeandJusticeintheUnitedStates

andinEnglandandWales(1981)

Larpsiri,RavipaandMarkSpeece, 'Technologyintegration:Perceptionsofsales

forceautomation inThailand's lifeassurance industry' (2004)22(4)Marketing

Intelligence&Planning392

466

Levitt, StevenD, 'Understandingwhy crime fell in the1990s:Four factors that

explain the decline and six that do not' (2004) 18(1)The Journal ofEconomic

Perspectives163

Lincoln,YvonnaSandEgonGGuba,Naturalisticinquiry(Sage,1985)

Lister, Linda M, 'A practical approach to fraud risk: comprehensive risk

assessmentscanenableauditorstofocusantifraudeffortsonareaswheretheir

organizationismostvulnerable'(2007)64(6)Internalauditor61

Lodge,MartinandKaiWegrich,Managingregulation:regulatoryanalysis,politics

andpolicy(PalgraveMacmillan,2012)

Loebbecke, James K, Martha M Eining and John J Willingham, 'Auditors

experience with material irregularities-Frequency, Nature, and Detectability'

(1989)9(1)Auditing-AJournalofPractice&Theory1

Lou, Yung-I and Ming-Long Wang, 'Fraud risk factor of the fraud triangle

assessingthelikelihoodoffraudulentfinancialreporting'(2009)7(2)Journalof

Business&EconomicsResearch(JBER)

Lyn, Richards, Handling qualitative data: a practical guide (Sage Publications,

2005)

Maguire, Mike, 'Crime data and statistics' (2007) 4 The Oxford handbook of

criminology241

Majid, Abdul, Ferdinand A Gul and Judy SL Tsui, 'An analysis of Hong Kong

auditors' perceptions of the importance of selected red flag factors in risk

assessment'(2001)32(3)JournalofBusinessEthics263

Marshall, Catherine and Gretchen B Rossman, Designing qualitative research

(Sagepublications,2014)

467

Matsueda, Ross L, 'The current state of differential association theory' (1988)

34(3)Crime&Delinquency277

Menakanist, Twekiat, Amnart Netayasupha and Chanchai Arreewittayalerd,

GeneralPrinciplesofCriminalLaw(FacultyofLaw,ThammasatUniversity,2014)

Merriam,SharanB,Qualitativeresearchandcasestudyapplicationsineducation.

Revisedandexpandedfrom(ERIC,1998)

Moorhead, Richard, Avrom Sherr and Alan Paterson, 'Contesting

professionalism: legal aidandnonlawyers inEnglandandWales' (2003)37(4)

Law&SocietyReview765

Mulder,Niels,InsideThaisociety:Religion,everydaylife,change(SilkwormBooks,

2000)

Murdock,Hernan, 'The three dimensions of fraud: auditors should understand

the needs, opportunities, and justifications that lead individuals to commit

fraudulentacts'(2008)65(4)Internalauditor81

Naruedomkul, Pornchai, Pannipa Rodwanna and Jarunee Wonglimpiyarat,

'Organization Frauds in Thailand: A Survey on Risk Factors' (2010) 5(1)

InternationalJournalofCriminalJusticeSciences203

Nawatrakulpisut, Nontawat et al, Research for Studying Forms of Policy

Corruption(NACCResearchCenter,2008)

O'Gara, John D, Corporate fraud: Case studies in detection andprevention (John

Wiley&Sons,2004)

Ogus, Anthony I, Costs and Cautionary Tales: Economic insights for the law

(BloomsburyPublishing,2006)

468

Owusu-Ansah,Stephenetal,'Anempiricalanalysisofthelikelihoodofdetecting

fraudinNewZealand'(2002)17(4)ManagerialAuditingJournal192

Parker,Christine,JustLawyersRegulationandAccesstoJustice(1999)

Patton,MichaelQ,QualitativeResearch&EvaluationMethods(2002)

Patton, Michael Quinn, Qualitative Research & EvaluationMethods: Integrating

TheoryandPractice(SagePublications,2014)

Petison, Phallapa and Lalit M Johri, 'Dynamics of the manufacturer-supplier

relationshipsinemergingmarkets:AcaseofThailand'(2008)20(1)AsiaPacific

JournalofMarketingandLogistics76

Piansoongnern, Opas and Pacapol Anurit, 'A Global Competitiveness Study of

ThaiSecurities Industry:ACaseStudyofFactors Influencing Investors'Loyalty

to Securities Companies in Bangkok' (2007) 8(1/2) Global Journal of Flexible

SystemsManagement1

Pincus, Karen V, 'The efficacy of a red flags questionnaire for assessing the

possibilityoffraud'(1989)14(1)Accounting,OrganizationsandSociety153

Piquero, Nicole Leeper, Stephen G Tibbetts and Michael B Blankenship,

Examining the roleofdifferentialassociationand techniquesofneutralization in

explainingcorporatecrime(2005)

Polinsky, A Mitchell and Steven Shavell, The economic theory of public

enforcementoflaw(Nationalbureauofeconomicresearch,1999)

Pratt,TravisCetal,'Theempiricalstatusofdeterrencetheory:Ameta-analysis'

(2006)15Takingstock:Thestatusofcriminologicaltheory367

469

Preece, Roy A, Starting research: an introduction to academic research and

dissertationwriting(PinterPubLimited,1994)

Rae, Kirsty and Nava Subramaniam, 'Quality of internal control procedures:

Antecedentsandmoderatingeffectonorganisationaljusticeandemployeefraud'

(2008)23(2)ManagerialAuditingJournal104

Ramamoorti, Sridhar, 'The psychology and sociology of fraud: Integrating the

behavioral sciences component into fraud and forensic accounting curricula'

(2008)23(4)IssuesinAccountingEducation521

Ramamoorti,Sridhar,DavenMorrisonandJWKoletar,'BringingFreudtoFraud:

Understanding the state-of-mind of the C-level suite/white collar offender

through“ABC”analysis'(2009)TheInstituteforFraudPrevention1

Rezaee,Zabihollah, 'Causes,consequences,anddeterenceoffinancialstatement

fraud'(2005)16(3)CriticalPerspectivesonAccounting277

Robinson, Paul H and JohnMDarley, 'Does criminal law deter? A behavioural

scienceinvestigation'(2004)24(2)OxfordJournalofLegalStudies173

Rorie,Melissa,'ResponsiveRegulation'(2015)OxfordHandbooksOnline

Rubin,Hand I.S.Rubin,Qualitativeinterviewing:Theartofhearingdata (Sage,

1995)

Schaffer, Bryan S and Christine M Riordan, 'A review of cross-cultural

methodologies for organizational research: A best-practices approach' (2003)

6(2)OrganizationalResearchMethods169

Schwartz,Mark S, ThomasWDunfee andMichael JKline, 'Tone at the top:An

ethicscodefordirectors?'(2005)58(1-3)JournalofBusinessEthics79

470

Shenton, Andrew K, 'Strategies for ensuring trustworthiness in qualitative

researchprojects'(2004)22(2)Educationforinformation63

Silverman, David, Doing qualitative research: A practical handbook (Sage

Publications,2013)

Simon,HerbertA, 'Abehavioralmodelof rational choice' (1955)Thequarterly

journalofeconomics99

Solin, Daniel R,DoesYourBrokerOweYouMoney?: If You've LostMoney in the

MarketandIt'sYourBroker'sFault--YouCanGetItBack(Penguin,2006)

Somjaiwong,Kultida,AtinuthChalermpongandKittiSuttiattasilp,Bottlenecksin

ThaiSecuritiesMarket(CMRI,December2012)

Sriussadaporn, Roong, 'Managing international business communication

problemsatwork:apilotstudyinforeigncompaniesinThailand'(2006)13(4)

CrossCulturalManagement:AnInternationalJournal330

Stenbacka, Caroline, 'Qualitative research requires quality concepts of its own'

(2001)39(7)Managementdecision551

Stoneman,TracyPrideandDouglasJeromeSchulz,BrokerageFraud:WhatWall

StreetDoesn'tWantYoutoKnow(DearbornTradePublishing,2001)

Straney,LouisL,SecuritiesFraud:Detection,PreventionandControl (JohnWiley

&Sons,2010)

Strauss,AnselmandJulietCorbin,Basicsofqualitativeresearch:Techniquesand

proceduresfordevelopinggroundedtheory(SagePublications,1998)

471

Sudti-autasilp,Bhornthip,CorporateCrimeandtheCriminalLiabilityofCorporate

Entities inThailand, UNAFEI ResourceMaterial Series No. 76, P 94-114, 2008,

GraceLord,ed.SeeNCJ-229030(2008)

Supreyasunthorn, Kamol, Factors AffectingWhite-collar CrimeWithin the Stock

ExchangeofThailand(MahidolUniversity,2008)

Sutherland,EdwinH,Principlesofcriminology(J.B.LippincottCo.,4thed.,1947)

Sutherland, Edwin Hardin and Gilbert Geis,White collar crime (Dryden Press

NewYork,1949)

Suwanjitaree, Prapart,Civil Liabilities inPublicOfferingof Securities (Master of

LawsThesis,ChulalongkornUniversity,2003)

Sykes,GandDMatza,Delinquencyanddrift(1964)

Tanchatchawan, Charin, The Civil Liability for Insider Trading (Master of Laws

Thesis,RamkhamhaengUniversity,2004)

Taylor, Shelley E, 'Adjustment to threatening events: A theory of cognitive

adaptation'(1983)38(11)Americanpsychologist1161

Thaicharoen, Yunyong andNashaAnanchotikul, 'Thailand’s experienceswith

rising capital flows: recent challenges and policy responses' (2008) Financial

GlobalisationandEmergingMarketCapitalFlows427

TheStockExchangeofThailand,Firststeptoinvestinthestockmarket(Boonsiri

Publishing2010)

TheSecuritiesandExchangeCommission,Directors’sHandbook(ThaiInstituteof

Directors)

472

Thomas, Jerry R, Jack K Nelson and Stephen J Silverman,ResearchMethods in

PhysicalActivity(HumanKinetics,2011)

Tungsomvorapong, Sumitra and PoonsitWongthavatchai,Measures to Increase

TheInvestmentofForeignInvestorsintheStockExchangeofThailand(TheStock

ExchangeofThailand2010)

Tyler, Tom R, Why people obey the law: Procedural justice, legitimacy, and

compliance(1990)

Tyler,TomR,'Psychologicalperspectivesonlegitimacyandlegitimation'(2006)

57Annu.Rev.Psychol.375

Tyler, Tom R and Jeffrey Fagan, 'Legitimacy and cooperation: Why do people

helpthepolicefightcrimeintheircommunities'(2008)6OhioSt.J.Crim.L.231

Tyler, Tom R, Phillip Atiba Goff and Robert J MacCoun, 'The Impact of

Psychological Science on Policing in the United States Procedural Justice,

Legitimacy,andEffectiveLawEnforcement'(2015)16(3)Psychologicalsciencein

thepublicinterest75

Tyler, Tom R and Yuen Huo, Trust in the law: Encouraging public cooperation

withthepoliceandcourtsthrough(RussellSageFoundation,2002)

Tyler,TomRandJonathanJackson,'Popularlegitimacyandtheexerciseoflegal

authority: Motivating compliance, cooperation, and engagement' (2014) 20(1)

Psychology,PublicPolicy,andLaw78

Uwanno, Borwornsak and Surakiart Sathirathai, Introduction to the Thai Legal

System(FacultyofLaw,ChulalongkornUniversity,1986)

473

Vinten, Gerald et al, 'Auditors' perception of fraud risk indicators: Malaysian

evidence'(2005)20(1)ManagerialAuditingJournal73

VonHirsch,Andrewetal,Criminaldeterrenceandsentenceseverity:Ananalysis

ofrecentresearch(HartOxford,1999)

Vona,LeonardW,FraudRiskAssessment:BuildingaFraudAuditProgram (John

WileyandSons,2008)

Webley, Lisa, 'Qualitative approaches to empirical legal research' (2010) in P.

Cane&HMKritzer.TheOxfordHandbookofEmpiricalLegalResearch926

Weisburd,Davidetal,Crimesofthemiddleclasses(YaleUniv.Press,1991)

Wells,JosephT,Principlesoffraudexamination(WileyHoboken,NJ,2008)

Wells,JosephT,Corporatefraudhandbook:Preventionanddetection(JohnWiley

&Sons,2011)

Wilks, T Jeffrey and Mark F Zimbelman, 'Decomposition of Fraud‐Risk

Assessments and Auditors' Sensitivity to Fraud Cues' (2004) 21(3)

ContemporaryAccountingResearch719

Willott, Sara,ChristineGriffin andMarkTorrance, 'Snakes and ladders:Upper-

middleclassmaleoffenders talkabouteconomiccrime' (2001)39Criminology

441

Wolfe, David T and Dana R Hermanson, 'The fraud diamond: Considering the

fourelementsoffraud'(2004)74(12)TheCPAJournal38

Zachariah, M, Criminological theory - the search for causation (Paladin House

Publishers,1977)

474

Zimbelman, Mark F, 'Empirical research on external auditors’ detection of

financialstatementfraud'(2000)19JournalofAccountingLiterature190

BLegislation

1CodesofLaw

CivilandCommercialCode

CivilProcedureCode

CriminalProcedureCode

PenalCode

2Statutes

ActonEstablishmentofAdministrativeCourtsandAdministrativeCourts

ProcedureB.E.2542(1999)

AdministrativeProcedureActB.E.2530(1987)

Anti-MoneyLaunderingActB.E.2542(1999)

ChildProtectionActB.E.2546(2003)

CommercialBankingActB.E.2505(1962)

ConstitutionoftheKingdomofThailandB.E.2550(2007)

CopyrightActB.E.2537(1994)

CrimesAct1900(ACT)

FactoryActB.E.2535(1992)

ForeignBusinessActB.E.2542(1999)

LegislationAct2001(ACT)

OrganicActonCounterCorruptionB.E.2542(1999)

475

PublicProsecutorOrganizationandOfficialActB.E.2553(2010)

ScaleandMeasurementActB.E.2542(1999)

SecuritiesandExchangeActB.E.2535(1992)

UnfairContractTermActB.E.2540(1997)

SpecialCaseInvestigationActB.E.2547(2004)

3TheSecuritiesandExchangeCommissionNotifications

TheSECNotificationNo.KorWor.12/2011

TheSECNotificationNo.SorKor.25/2005

TheSECNotificationNo.SorKor.49/2009

TheSECNotificationsNo.Thor.Wor.27/2002

TheSECNotificationontheArbitrationProcedure(2008)

The SEC Notification on the Departmental Structure and Manpower B.E. 2555

(2012)

4TheCapitalMarketSupervisoryBoardNotifications

TheCMSBNotificationNo.TorThor.43/2009

TheCMSBNotificationNo.TorThor/Khor/Dor/Nor.62/2009



TheCMSBNotificationNo.TorLorThor.3/2012


476

5TheStockExchangeofThailandNotifications

TheSETNotificationNo.BorSor/Saw01-20/2000

TheSETNotificationNo.BorSor/Saw01-28/2012

TheSETNotificationonAppealProcedures,2000

TheSETNotificationonDisciplinaryProceduresandPunishment,2000

TheSETNotificationontheRelevantPersonintheTradingSystem,2012

6AssociationofThaiSecuritiesCompanies’RulesandRegulations

NotificationoftheAssociationofThaiSecuritiesCompaniesRe:RulesonSecurities

TradingofEmployeesandDirectorsofSecuritiesCompanies

Association of Thai Securities Company’s guideline on the Compensation of

Investment Consultants, Team Leaders, and Managers of Securities Companies

No.3