Oasis and CIO Seth Fischer Receive Record Fine for JAL Trades

Today SFC publicly reprimanded Oasis Management (Hong Kong) LLC and its Chief Investment Officer, Mr Seth Hillel Fischer, and fined each of them $7,500,000 for their trading in the shares of Japan Airlines Corporation (JAL) on the Tokyo Stock Exchange (TSE) in 2006.

This disciplinary action relates to trading by Oasis in JAL shares on the TSE on 19 July 2006 on behalf of two investment funds after JAL announced a plan to issue new shares via a public offer.  Under JAL’s plan, the offering price for the new shares would be priced between 90%-100% of the closing price of JAL’s shares on one of the days from 19 July 2006 to 21 July 2006.  This type of pricing mechanism is common in the Japanese market and usually the offering price determination day is the first day of the selected range which was 19 July 2006 in this case.

Oasis entered a series of orders for JAL shares in the last 15 minutes before the market closed on 19 July 2006, including:

• market-on-close buy orders and cancelling them subsequently; and
• a large volume of short sell orders during the last five minutes before market closed on the TSE (some orders were incorrectly labelled as short sell exempt orders, such that the funds were able to enter sell orders at prices lower than the latest executed prices).

On the settlement day for the short sell orders, Oasis failed to deliver shares in nearly 70% of the shares they had short sold with approximately 50% of these transactions having to be covered by new shares issued by JAL in the public offer.

Oasis' trading strategy, which originated in Hong Kong and was executed by Fischer, appeared to have been designed to drive down the closing price of JAL on 19 July 2006 to the detriment of the market for JAL shares.  A lower closing price would benefit the funds as subscribers for the new shares.

Oasis and Fischer do not admit their strategy was designed to mislead the market for JAL shares.  However, they have agreed to accept these sanctions which SFC regards as a sufficient expiation for SFC's concerns about their conduct on 19 July 2006.

This was actually a market manipulation case happened in Japan, referred by Japanese Securities and Exchange Surveillance Commission to SFC for cross-border enforcement.

http://complier.blogspot.com/2011/09/sfc-records-historically-high-fine.html 
http://www.sfc.hk/sfcPressRelease/EN/sfcOpenDocServlet?docno=11PR108
http://mdn.mainichi.jp/mdnnews/business/news/20110916p2g00m0bu055000c.html 
http://www.fsa.go.jp/sesc/news/c_2011/2011/20110915-1.htm 
http://www.guardian.co.uk/business/feedarticle/9847697

Seth Fischer has launched a new fund which started trading on 20 Sept -
http://www.hedgefundintelligence.com/Article/2902778/News/Fischers-Oasis-fund-starts-trading.html

Oasis was recently also in the news in regards to its disposal of its interests in AIM listed Japan Leisure Hotels

http://japanrealestatecommentary.blogspot.com/2011/06/japan-leisure-hotels-minority.html
 

Japan Leisure Hotels Minority Shareholders Appalled by Directors and DKR Oasis

The shares of Japan Leisure Hotels Ltd were today cancelled from AIM
http://independent.moneyam.com/news/article.php?id=4161281&epic=

The minority shareholders believe that they have been screwed over by the directors of JLH and the main shareholder DKR Oasis (http://www.oasiscm.com/organization.html )
http://www.mynewsdesk.com/uk/view/pressrelease/japan-leisure-hotels-limited-japan-leisure-hotels-limited-jlh-or-the-company-statement-by-minority-shareholders-647100

We are minority shareholders in the Company, and have been since launch, owning in total 5.5% of the issued share capital. We are appalled at recent events culminating in the Board disposing of the Company's six hotels at a price equal to 28.4% of their net asset value. This represents a cap rate of almost 30%, a price per room of GBP44,000 or GBP67 per square foot of gross floor area. This is an historic low valuation in the leisure hotel market according to Alchemy Japan, a competitor of the Company.

Despite the difficulties of dealing with an 87.5% majority shareholder, the Board must take its share of the blame for this disastrous outcome. The Board knew in early 2010 that the DKR Oasis hedge fund was to be liquidated and that its shares in the Company were a significant part of that portfolio. However the Board failed to retain the services of a broker who could market the company to a wider range of investors than those institutions who had been contacted during the IPO process. In fact no significant marketing of the Company has been undertaken in Europe since 2009.

The Board says that the current business is not large enough to support the central overheads but the Company bought a hotel out of operating cash flow in 2008 and paid a 1p per share dividend in 2010, with a higher figure projected in 2011 according to independent research. Since the IPO in 2008, the Company's net asset value has risen by 62% in sterling terms, a record of some merit compared to many international funds listed in London. That the share price has fallen by 54% during the same period is evidence that the Board has failed to promote the Company adequately.

When it came to the current transaction, the Board failed to engage a financial adviser to manage the process and advise on tactics, relying on the Nomad to advise on the AIM rules and the Majority Shareholder to conduct an auction, a job for which he was clearly unqualified. We believe the erratic conduct of this process led to a number of credible buyers withdrawing, when they might have made proposals more favourable to the minority shareholders.

We made it clear to the Board that the minority shareholders did not wish to participate in a fire sale of assets and preferred to retain a shareholding going forward. Our preference was to leave the Company listed and obtain finance for the Company to buy in the DKR Oasis fund's shares for cancellation. Alternatively, the DKR Oasis fund's JLH shares might have been distributed to their investors in specie, leaving them to sell shares in the market, should they wish to exit for cash. Either of these outcomes would have been better for all the minority investors.

The minority shareholders refer to a comment about the low valuation for the JLH transaction -
http://japanrealestatecommentary.blogspot.com/2011/05/q1-2011-japan-leisure-hotel-operator.html

We have been following this story for a while - apart from the conduct of the DKR Oasis and the Board; which raise serious issues for the minority shareholders - there are also large questions raised about the Colliers Valuations which were used to support valuations for this company -  http://japanrealestatecommentary.blogspot.com/2011/05/investegate-japan-leisure-hotels.html

The Japanese leisure hotel sector is a sector that seems attractive and may offer high returns
 http://japanrealestatecommentary.blogspot.com/2010/06/foreign-investors-in-japanese-leisure.html

But JLH has been another story of investors having issues in this sector -
http://japanrealestatecommentary.blogspot.com/2010/01/japanese-retail-investors-look-to.html
http://japanrealestatecommentary.blogspot.com/2010/09/love-hotel-fund-freezes-redemptions.html

However, some players seems to be doing well in this sector - 
http://japanrealestatecommentary.blogspot.com/2011/08/japan-leisure-hotel-operator-announce.html