Dearly departed (Part 1 of 2)


Before the global economy started to melt down, July 2 had already signalled the last day of normalcy for the 5,000 or so employees of the listed Polaris Securities, Taiwan's second-largest brokerage by market value.

That morning, many who worked in the Taipei headquarters greeted their chairman, Wayne Pai Wen-cheng, when the 55-year-old self-made multimillionaire came into the office. A half dozen or so key staff held the regular weekly meeting with Pai, who appeared "very subdued and depressed", according to one of them in a later interview. By evening, Pai would kill himself by jumping off the high bridge of a remote island resort.

His death did not put to rest the two controversies – fraudulent share trading and money-for-honour – that had dogged him in his last days. Instead, a new controversy entered the fray: his former right-hand woman suddenly returned after two decades in Canada, claiming to be his second wife and demanding the rightful share of his estate for her son by him. Pai had been the one-man driving force behind Polaris. With him gone and his staff ill prepared to deal with the controversies, many are now wondering whether Polaris will be able to remain independent in the coming days.

Until May this year, Pai and Polaris had been flying high. In June 2004, Pai was awarded an honorary doctorate by the prestigious National Chiao Tung University, Taiwan's oldest university, whose engineering department has been indispensable in Taiwan's drive into high technology. In 2006, Pai structured a deal to sell Central Insurance, of which Polaris had bought 37% not long ago, to American insurance giant AIG. A year later, he sold the Bank of Overseas Chinese, another recent purchase, to Citibank. Both deals netted Polaris hundreds of millions Taiwan dollars in profit. Polaris, which pioneered Internet broking and exchange-linked funds, was considered the most international and cutting-edge of Taiwanese brokers, and well loved by foreign investors. As of April this year, more than half of its shares were held in foreign hands, a fact Pai was immensely proud of.

All these changed in early May, when nearly four dozen officials from the Financial Supervisory Commission raided the offices of Polaris. They also raided the homes of Pai and his elder son and heir apparent, Pai Chieh-yu, a 20something-year-old graduate from Columbia University, who was running Polaris's Hong Kong operations. Ten Polaris staff including Peter Huang, the vice chairman, were taken in for questioning and released without bail.

At the time of the raid, both Pai and Chieh-yu were in Hong Kong officiating the opening of an asset management office, a new addition to Polaris's growing Asian network. The famously impatient Pai, who once went on an eight-country marketing trip in three days, lost no time in flying back. Upon landing, he was taken to the Taipei District Prosecutors' Office for questioning.

According to statements issued by Lin Chin-chun, a spokesman for the prosecutors, the probe on Pai centred on a transaction that took place in 2005, soon after the Taiwanese authorities amended the law to allow stockbroking firms to raise their stakes in asset management companies from 20% to 100%. Prior to the change of law, Polaris Securities had owned 20% of the unlisted Polaris International, an asset manager, with Pai and many others owning the balance 80%. Pai then led a group of 22 investors, including family members and close associates, to buy out all Polaris International minorities at prices ranging from NT$16 to NT$26 a share, before turning around and selling the shares to Polaris Securities at NT$69 apiece, thus pocketing a profit of more than NT$500 million. The pricing of NT$69 a share was arrived at by an "independent valuation company" owned by the son of Lu Daung-yen. Lu was deputy chairman of the Financial Supervisory Commission, and temporarily acting chairman after Kong Jaw-sheng, the first chairman, resigned after a scandal. Lu now runs a stockbroking firm.

Although Pai pulled out the NT$69/share valuation to justify the deal, prosecutors said there were grounds to believe that Pai and his group of investors had cheated either the minority shareholders of Polaris International or those of Polaris Securities, or both, since Pai could easily have used Polaris Securities to buy over all the shares of Polaris International without himself getting involved. Pai was released on the same day on a NT$20 million bail and banned from leaving the country.

Emerging from the prosecutors' office, Pai told reporters he would "wage a vigorous fight to clear his name". The next day, the share price of Polaris Securities fell to its legal limit, but bounced back the following day, suggesting the stock market had shrugged off the investigation as a minor event. This impression seemed to have been confirmed when Pai announced that Polaris was talking to Singapore's central bank, the Monetary Authority of Singapore, to open a branch there. It said it was also considering a joint venture with DBS, a large banking group partly owned by the Singapore government.

But in June, Pai was dealt another blow. Next magazine, a mud-raking Chinese weekly that has caused endless embarrassment to the high and mighty in Hong Kong and Taiwan, ran an article accusing Pei of having bought his doctorate from the National Chiao Tung University. It also pointed out that Chang Chun-yen, then president of the university, had been close to Pai. Next published photographs showing that Chang, who stepped down from the university in 2006, had been on the payroll of Polaris, which supplied him with a chauffeur-driven car and a secretary, among perks that amounted to NT$1 million annually. Chang did not deny the accusation but only stated that he was "acting as a consultant for Polaris", and that he did not receive any money from the brokerage. He also declined to sue Next for libel. The Chiao Tung University issued a statement saying the doctoral award to Pai was decided by a committee, and that Pai was fully qualified in receiving the honour.

Close associates of Pai said the allegation of honour-for-money hit Pai harder than the probe on Polaris. Pai grew up dirt poor in Taipei and quit school at 16 to take care of seven younger siblings after his father died suddenly. After he made his fortune as a daring and innovative broker, Pai was keen to gain the acceptance of Taiwan's old money crowd. The honorary doctorate was to be his passport into this charmed circle. Now that his dream was shattered, Pai was taking it worse than charges of him defrauding minority shareholders.

(Pai's reaction is hardly unusual among Hong Kong and Taiwan tycoons. To them, ripping off minority shareholders is nothing to be ashamed of, since everyone is doing it. But when it comes to honorary degrees or namings, things get taken a lot more seriously. Three years ago, Li Ka-shing, Hong Kong's most famous billionaire, was mightily embarrassed when large numbers of students at the University of Hong Kong protested the decision to rename the medical school the Li Ka-shing Faculty of Medicine. Li had donated HK$1 billion through his foundation. His girl-friend Solina Chau, who runs the foundation, denied the renaming was a condition of the donation. Despite pleas for the medical school to be renamed after its most famous graduate – Sun Yat-sen, class of 1892 and the father of modern China – Li went ahead and accepted the naming. Many thought his decision rather ungracious. Soon after, Robert Kuok, the Malaysian tycoon and owner of the Shangri-la Hotel chain, also donated a huge sum to a Hong Kong institution, but did so quietly and did not ask for anything in return.)

When Pai turned up at the Polaris headquarters on the morning of July 2, he was unusually quiet.


> TO Dearly Departed (Part 2 of 2)


First Published: 
November 2008


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