DECEMBER 27, 1999 VOL. 154 NO. 25

Thailand's Scapegoat?
Battling extradition over charges of embezzlement, a financier says he's the fall guy for the 1997 financial crash
By DAVID LIEBHOLD Bangkok

At the height of his success, Thai financial wizard Pin Chakkaphak maintained a fleet of four Ferraris, a Porsche and a Honda NSX. "He liked to drive fast," says a friend. In business, too, Pin enjoyed accelerating out of turns and overtaking opponents. He became known as the "Takeover King" for aggressively acquiring dozens of companies. The assets of his main business vehicle, Finance One, rose from scratch in 1980 to become a $5.5-billion company by 1992. Somehow, Pin had an ability to get large, quick returns on any cash that came his way. "He was able to draw on the savings of a lot of wealthy Thai families who trusted him completely," says Kobsak Chutikul, director general of economic affairs in the Foreign Ministry.

But in early 1997, Finance One spun out of control and crashed--though not before Thailand's Financial Institution Development Fund had spent more than $1.5 billion of taxpayers' money trying to save it. Pin left his Bangkok home in September 1997 for a new life in New York and London. A year later, Thai prosecutors laid criminal charges against him, alleging that he and two other executives embezzled $80 million, a claim Pin hotly denies. On Dec. 11, he was arrested at his London apartment in connection with the charges, to the delight of Thai authorities. "This proves to the public that there is justice in Thailand," crooned Attorney General Suchart Traiprasit. But when extradition proceedings began last Friday, Suchart's men were unable to keep Pin in jail: he was bailed out on a $3 million surety with a requirement to report to the British police daily. Thai authorities have vowed to fight on.

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Ultimately, the case against Pin is about a fundamental issue that Thailand has yet to resolve: Who--or what--was to blame for the financial crash of 1997 that rapidly spread across Asia? In the eyes of Thai prosecutors, Pin was among the main culprits. He is the best known of the hundreds of highly leveraged entrepreneurs who amassed fortunes by riding the wave of foreign funds that began flooding Asia in the late 1980s. The only son of a distinguished civil servant, Pin was born and raised in the United States. After graduating from the Wharton business school, he rose through the ranks of Chase Manhattan Bank, serving as an assistant manager in Hong Kong and a vice president in Thailand, before buying a dormant finance company in 1980 and renaming it Finance One. He built up an innovative empire, making rapid inroads into the lucrative hire-purchase and property markets. The group's securities firms ultimately handled more than 20% of Thailand's total stock market volume. As the market boomed, Finance One's holdings were soon worth billions. "Everything Pin touched turned to gold," says Bangkok business consultant Sudhisakdi Manibhandu. "There was a perception that he could raise unlimited funds to do anything he wanted."

Finance One also went after vast capital gains through leveraged acquisitions and takeovers. Put simply, Pin borrowed money to buy companies and then pledged these, at higher valuations, against bigger loans, which were used to buy more companies. The strategy carried great risk. "It was a very big house of cards," says Graham Catterwell, former managing director of Deutsche Morgan Grenfell in Bangkok. It all began to totter when the economy weakened and the stock market contracted. In an attempt to keep Finance One standing, the firm lent $69 million to two ailing subsidiaries in late 1996 and early 1997. This was to become the basis of the embezzlement charges. In a statement released through his lawyers, Pin says these charges relate to "essentially regulatory violations, devoid of any elements of criminality. Not a single baht was moved or transferred or touched for any private purpose. The Bank of Thailand was urging and pressing us to keep those subsidiaries from collapsing. [It] knew that their condition was illiquid." Thai authorities say Pin absconded with the money, although they don't claim to know where he stashed it. (They also contend that he has been on the run for almost a year; Pin denies this, pointing out that he is listed in the London phone book and travels under his real name.)

Pin argues that he and some other financiers are being made scapegoats "for all the misdeeds and failed policies that brought on the Thai and Asian disasters." On the surface, at least, the facts seem to bear him out. The central bank's acquiescence in regulatory breaches before the crisis is well known, yet there are no officials charged in the 10-plus cases already under way. "We still haven't learned the lessons of the crash, which are about governance, the rule of law, professionalism," says Thanong Khanthong, assistant editor of The Nation daily.

Pin's guilt or innocence on the embezzlement charge is a matter for the courts. What is clear already is that Thailand has only just begun to come to terms with the crash, even as a recovery appears to be taking shape. Says Kobsak: "Something has to be done to convince the people that the wrongdoing of the past has been punished, so that we can close this chapter and move on." Whatever the final verdict, Pin's case may help to clarify what went wrong--and how Thailand can avoid another meltdown.

With reporting by Robert Horn/Bangkok and Helen Gibson/London