THEY started out as penny stocks, one small coin being stacked atop another, but at such a head-turning pace that in just months, many were dollar pieces balanced on towers of pennies.

Yesterday, those towers came crashing down. Singapore Exchange (SGX) undertook one of its most wide-ranging interventions in recent memory by querying six companies and swiftly suspending three of them within an hour.

One trader said: " What a crazy morning. The whole screen was red at one point."

The market opened yesterday with the six queried stocks - Asiasons Capital, Blumont Group, Innopac Holdings, ISDN Holdings, ISR Capital and LionGold Corp - falling sharply. They had a combined market capitalisation of $10.3 billion as at Thursday's close by the end of yesterday, their market value had more than halved to $4.7 billion.

Just before SGX suspended their stocks, the market cap of Asiasons, Blumont and LionGold had fallen to $4.1 billion from $9.3 billion the night before.

SGX said of its move: " This is to safeguard the interests of the market, as there could be circumstances that would result in the market not being fully informed."

Neither SGX nor the Monetary Authority of Singapore (MAS) replied to questions about whether an investigation had been launched or whether there was suspicion of wrongdoing SGX also did not spell out the conditions for lifting the suspensions.

SGX asked the companies shortly after the open whether they knew of any undisclosed information that could account for the sharp declines, and then suspended Asiasons, Blumont and LionGold before they could reply.

Investment, product sterilisation and property company Blumont, already queried earlier in the week, had announced a potential takeover of a coal-mining company before the open. It said later in the day that the deal had been called off, citing adverse trading conditions for its shares.

Gold miner LionGold had announced in the afternoon that it was in advanced negotiations for a potential takeover of a gold-mining company.

Investment firm Asiasons said market rumours - which it dismissed as false - had swirled about MAS investigators visiting its office.

MAS, which as a rule does not comment on investigations, could not be reached for confirmation.

Asiasons and Blumont also noted that their shares had been placed under restrictions by broking house UOB Kay Hian.

Boilerplate responses about not being aware of any undisclosed information were given by ISR, an investment firm formerly known as Asiasons WFG, and by ISDN, an engineering company, and Innopac, an investment and telecommunications services company.

Common threads

Traders said they were not surprised by yesterday's collapse and queries, noting that those companies had, in the last few months, all seen extraordinary stock appreciations that did not seem justified by fundamentals.

Before yesterday's collapse, the prices of five of the six queried stocks had grown multiple times over the past year - from double in the case of Innopac and ISR, to more than 20 times in the case of Blumont LionGold's non-trivial 40 per cent price increase was modest by those standards. These stocks were also among the most queried by SGX this year.

One trader noted that the companies were linked by their shareholders and directors. For example, Blumont and Innopac have a common shareholder in listed Ipco International. Ipco's company secretary Lynne Ng Su Ling is also non-executive independent director at LionGold and Blumont.

LionGold non-executive director Mohamad Wira Dani Bin Abdul Daim is also executive chairman of ISR, which used to be the broking unit of Asiasons.

Caught in limbo

The extent of Friday's unusual action stranded numerous investors, especially those with unsettled contra positions on the suspended stocks, traders said.

The Business Times understands that UOB Kay Hian, the largest stockbroking firm here, had on Sept 26 restricted the online trading of 14 stocks and covered warrants, which included some of those stocks suspended by SGX.

The fear now is that broking houses which had not put curbs on the affected stocks could face sizeable defaults if clients cannot or refuse to pay for their stock purchases. These losses could end up on stockbrokers' laps.

Retail investors are expected to be more exposed than institutional players, many of which could not trade in those stocks because they were only until recently still penny stocks, one trader said. An exception is LionGold, just one of a couple of gold-mining plays here and which has recently garnered significant investor interest.

" Institutional interest is only in LionGold," the trader said. " For the rest, institutions won't be involved ... I guess the institutional players got lucky."

Old and new

The rarity of SGX's action evoked memories of the 1985 Pan-Electric Industries crisis, in which several stocks were suspended by the regulator before the exchange had to be shut down.

Market observers generally welcomed SGX taking a closer look at the affected stocks.

Kelly Teoh, a strategist at IG Markets in Singapore, said: " The concern is that short sellers are taking advantage of the weak market sentiment. It is a good thing that SGX shows it's on top of everything. It is in the market interest to have some sort of a policing environment."

SGX's initial query of Blumont this week, which had been more detailed than usual, also drew praise.

A retail investor said: " It was a pleasant change to see SGX come out strongly to question listed companies whose shares had suddenly surged on high volumes, well exceeding a billion shares in a day, and prices more than doubling in a day for no other reason than announcements of MOUs, which in some cases can be aborted soon after the shares have surged."

But some market observers say that SGX may have moved in a bit late, given that the affected stocks have been rallying for months and that concerns about the fundamentals of some of those companies had existed for years.

One trader said: " These penny stocks, with no fundamentals to speak of, are easily manipulated with various kinds of announcements. Some of them, just a few cents several months ago, are now trading at such lofty prices. The SGX should have queried them earlier."

The question remains how long the stocks will be suspended, and how open positions will be settled.

One remisier said SGX could follow the precedent set in the Links Island Holdings case in 2001, when a settlement committee set a fair-settlement price to settle outstanding trades while a suspension was in force