Another Day, Another Fraud Case In Vietnam – Analysis

By Zachary Abuza

The week that Vietnam was in an official state of mourning for Communist Party General Secretary Nguyen Phu Trong, whose tenure was centered on a “Blazing Furnace” anti-corruption campaign that toppled dozens of top officials, another bigcorporate fraud trialbegan in a Hanoi court.

While its scale and scope pale in comparison to the Van Thinh Phat scandal orchestrated by businesswoman Truong My Lan, who was convicted andsentenced to deathin April 2024, the FLC (Finance, Land, and Commerce)scandal is garnering significant media attention.

Trinh Van Quyet, was a young, brash, high-flying tycoon, and briefly in 2021, the country’s wealthiest person.

Established in 2010, his property company, FLC, quickly grew into a sprawling conglomerate with some 17 subsidiaries and affiliated companies in real estate, resorts and golf courses, as well as Bamboo Airways, once the second largest privately-owned airline in the country.

Quyet, 49, was arrested in March 2022 along with his two sisters for stock market manipulation, appropriation of property, and fraud. Authorities arrested 47 other people, including FLC executives and several regulators. In all, 15 relatives are on trial. At least one other FLC executive is at large.

Perhaps more importantly, police arrested the former chairman of the Ho Chi Minh Stock Exchange, Tran Dac Sinh, its director, Le Hai Tra, and two other bourse executives. The four were charged with “abusing positions and powers while performing official duties.”

Quyet is accused of running $156 million “pump and dump” stock fraud between May 2017 and January 2022. He had his two sisters and 43 other family members establish some 500 different brokerage accounts.

False documents

Quyet and his family members traded FLC stock amongst themselves at a frenzied pace, creating the perception of demand and causing the price to soar. On many occasions, his sister would cancel a stock purchase at the last minute, having already created the impression that the shares were in demand.

In another scheme, from 2014-2016, Quyet had family members and employees at another subsidiary, FLC Faros Construction, falsify documents to make it look as though they were making investments and increasing the firm’s charter capital from VNĐ1.5 billion ($59,000) to VND4.3 trillion ($169 million).

Thus when the once loss-making private company was publicly listed, which was only possible because of the intervention of corrupt bourse officials, it appeared to be worth significantly more than it was.

Quyet and other defendants quickly sold the 391 million of 430 million shares that they controlled, netting $142 million, and collapsing the stock price for other investors.

All in all, the various schemes resulted in the six listed FLC companies seeing the value of their shares rise between 70% and 1,700%.

In addition to the fraud, Quyet sold large shareholdings without notifying financial regulators, a requirement for corporate executives. In January 2022, he sold nearly 75 million shares of FLC stock, collapsing share prices, and prompting the Ministry of Public Security to open an investigation. 

Regulatory shortfalls

The FLC case matters for three reasons.

First, it was only possible because the regulators were in on the fraud. As was the case in Truong My Lan’s massive fraud case atSaigon Commercial Bank, the scheme was abetted by poorly paid regulators.

This once again raises the question “who regulates the regulators?”

If Vietnam cannot get a baseline financial regulatory system running, it will negatively impact its domestic capital markets, corporate governance, and deter foreign investment.

While the Ministry of Public Security did a good job in investigating the fraud, as they did with Lan’sVan Thinh Phat (VTP)and Saigon Commercial Bank, it never would have gotten to this point if there was proper regulatory oversight.

Second, while Vietnam’s stock market is not that large, it stands as one of the few opportunities for Vietnamese citizens to invest their money.

With a lack of confidence in their currency, Vietnamese tend to buy gold. In fact, in the past half year, the price of gold in Vietnam was trading well above international prices. The government had to auction off some of its gold reserves just to cool the market.

Vietnamese also buy real estate, but that’s not always a safe investment. The domestic real estate market in Vietnam resembles China’s in many ways. Many property firms are saddled with debt and have defaulted, especially on dollar-denominated bonds.

A domestic credit crunch caused by the VTP scandal in late 2022 led to even more defaults and stalled real estate projects. Many Vietnamese were left paying mortgages on unfinished real estate that they could neither inhabit, nor rent.

The third place Vietnamese park their savings is in the stock market. The majority of shares in the Vietnam stock market are owned by individual, not institutional, investors. So when there is widespread fraud, it really hurts the burgeoning middle-class.

Quyet’s fraud was fairly simple, but the effects were widespread: There were nearly 100,000 victims. Although Quyet has paid some $8.3 million in restitution, it’s a drop in the bucket.

Cost to taxpayers

Third, the FLC fraud trial has an impact on the larger economy. The company – which is one of the largest private companies in the country – is still in operation, but barely.

The Ho Chi Minh Stock exchange delisted the company due to the fraud. Trading was suspended in the Hanoi Stock exchange. Its acting CEOs have been unable to unwind the fraud and restructure the company. By February 2024 FLC had shed 60% of its workforce.

Bamboo Airways went through its own painful restructuring in late 2023, laying off 60% of its workforce, closing down 10 international routes, returning three Boeing jets to its lessor, and mothballing other planes.

Even with a drastic restructuring, in December 2023, Deputy Prime Minister Le Minh Khai had to cajole the ministries of finance and transportation to help the government bailout the airline.

Additionally, FLC still owes the government over $31 million in back taxes, meaning taxpayers are footing the bill. The government has already injected $24 billion into the bailout of Saigon Commercial Bank this year.

In the first half of 2024, foreign investorssold $2 billionin Vietnamese-listed shares, which is never a sign of confidence.

Corporate malfeasance is proving to be costly to the Vietnamese citizen, and raising very fair questions about the regulatory capacity of a fast growing $430 billion economy that is highly dependent on foreign investment.

• Zachary Abuza is a professor at the National War College in Washington and an adjunct at Georgetown University. The views expressed here are his own and do not reflect the position of the U.S. Department of Defense, the National War College, Georgetown University or Radio Free Asia.