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June 23, 2000 VOL. 29 NO. 24

From One to Zero

Pin Chakkaphak was a hero during Thailand's boom. Fighting extradition from London, he calls himself a scapegoat for the crash
By JULIAN GEARING London

Staring out of the bars of his cell in London's Brixton Prison on a cold day last December, Pin Chakkaphak wondered where it had all gone wrong. A few years earlier he had been living his dream, as the builder of Thailand's biggest and best-managed consumer and corporate finance company - and as a rich man. Now he was fighting extradition to Bangkok. "My fellow prisoners had a problem understanding what I was being charged with," he recalls. "Heroin possession, stealing a TV, hey, they knew how much time in jail they'd get. But financial irregularities in Thailand? [They'd say:] 'Wow, man, what's all that about?'" Pin asks himself the same question. He was the one who had played by the rules, he says, even if he had sometimes tested their spirit. He was the one who had eschewed old-style connections and corruption, relying instead on modern ideas and best practices to get ahead. And he was the one who was the first squashed when the whole Thai financial system came tumbling down.

But to many back home, Pin Chakkaphak is the rogue who helped trigger the collapse of the Thai economy. "Pin is the poster-boy of bad behavior in Thailand," says a foreign businessman in Bangkok. Finance One, the empire he had built virtually from scratch, was the biggest of 56 finance companies the authorities shut down at the height of the economic storm that lashed Thailand in 1997. Of all the financiers Bangkok wants to string up for mismanagement and skullduggery leading to the Crisis, it is Pin they want most. "The actual charge against Mr. Pin is misappropriation," says prosecutor Chulasingh Na-santasingh, "a criminal charge with a maximum sentence of one million baht [$26,400] - and 20 years in jail." At the center of the case is $55 million that the authorities say FinOne lent to two subsidiaries with no collateral and no expectation of repayment. Still in London and now free on bail of $3 million, Pin says that officials just want a scapegoat - and to evade their own responsibility for the financial chaos.

A Star Is Born
Prison was hardly in Pin's plans in 1979, when at age 28 he left a secure and well-paid job at Chase Manhattan Bank in Hong Kong to pick up the reins of his family's nearly-comatose Yip In Soi Finance Company in Bangkok. "When I joined, it had three people and total assets of about 40 million baht [then $1.6 million], a really tiny company," he says. Back then, finance companies were the poor cousins of banks, handling mortgages, small business loans and hire-purchase schemes for home appliances, motorcycles and cars. But Pin had sensed opportunity when Chase earlier sent him to rehabilitate another Thai finance company. "Through the process of fixing it, I could tell that generically, [finance companies were] a very good business," he says. Demand for financial services was growing, but Thailand's antiquated family-run banks were complacently sticking to old-fashioned ways. Finance companies, from a license viewpoint, were flexible and more easily attuned to the rapidly changing global financial industry and, Pin suspected, were just the right vehicle for someone with bright ideas and a U.S. MBA.

Growing up, Pin had never wanted to be in fi-nance. Born in 1951 in Chicago (he carries U.S. and Thai passports and thinks in "American"), he grew up an only child in the well-off Thai-Chinese Yip In Soi family. In preparatory schools and college, he wanted to be a photographer, then an engineer, then an architect. When an opportunity arose to study at Philadel-phia's Wharton School of Business, he focused on marketing rather than finance or banking. But Wharton led to Chase, where Pin did well and quickly rose to vice president. Still, banking seemed too staid for the ambitious Pin, and so when his family called on him to take over its finance company, he jumped. "You grow too conservative as a banker," he says. "I had an entrepreneurial streak, and could see there was potential in running a fledgling finance company."

He may have gotten the job because of family ties, but from the start, Pin made clear he was going to be strictly professional. "My family had to sign a contract: after three years, if you don't like my face and I don't like yours, we can part ways, no hard feelings," he says. And no more family hands in the business. "I brought in other shareholders so that it wasn't a 'family' company." Among the first were Banque Paribas and the Charoen Pokphand Group. Also from the start, Pin stamped "Made in America" all over the firm, bringing in other U.S.-trained Thais on hefty salaries, combined with then-revolutionary stock options and promises of great things. One of the first was fellow-U.S. graduate Termchai Pinyawatana, who formed a now legendary partnership with Pin. Termchai says that Pin was a visionary. "He felt he could mix the best of East and West in a company which soon found itself on the cutting edge of development in the immature financial system then in place in Thailand," Termchai recalls.

Not that it was easy. Pin, in fact, waded into the Thai finance business just as the country dove into a severe economic downturn. From 1980 to 1985, scores of battered finance and securities firms had to be taken over by a government rescue fund. "It was really blood, sweat and tears," Pin recalls. But the hard times also opened the door to growth. With funds from a core of patient shareholders who were willing to forgo dividends for the time being, Pin launched an acquisition-spree, building up the company he had renamed Finance One by buying the licenses and shells of moribund rivals from the state rescue fund. Profits were a distant dream, but Pin struggled to lay a foundation for the future. In 1986 came his big break. FinOne joined Thai Farmers Bank to buy Gold Hill Securities, headed by another Wharton gra-duate, Pakhawat Kovithvathnaphong, from the rescue fund for $900,000, just as the economy and the stock market were taking off. Pin was on his way.

The Takeover King
"FinOne has management with a good track record," U.S. investment bank Goldman Sachs said in an early 1996 report. "We would describe Mr. Pin's operating system as sharp, creative, nimble and opportunistic. We also sense that Mr. Pin makes it a point to hire capable, professional managers for day-to-day operations, and to reward and retain good people via share participation and performance-based compensation." From 1986 to 1996, Pin and FinOne went from also-ran to all-conquering. Over and over, Pin would take over a shopworn company, install new, usually young and American-trained managers, build it up, list it on the stock market, and make stacks of money for himself and his investors. Gold Hill, renamed Securities One, became Thailand's biggest brokerage, achieving a market capitalization of about $900 million at its peak. Success drew big-name partners. Hong Kong merchant bank Jardine Fleming joined FinOne in 1988 to create the respected securities house Jardine Fleming Thanakorn. "Everything he touched turned to gold," recalls one former Finance One colleague.

Part of the magic was timing. After the early-1980s recession, all Thailand went on a winning streak. Gross domestic product surged as foreign in-vestors flooded in, setting up plants to manufacture everything from T-shirts to pickup trucks for both local sales and exports. From 1990 to 1994, the adolescent stock market's SET index more than tripled to 1,700. All of that created insatiable demand for the financial services Pin offered - from bread-and-butter property loans to the eurobonds that FinOne pioneered in Thailand - and a bull-market environment in which to plant his deals. "People thought me very bright or a wizard or something idiotic like that, but if you look at Finance One, it always addressed the fundamentals," Pin says. "It started with good capital, some good shareholders, and we tried to recruit the best management. What else do you need?" The results: profits grew from 1.4 million baht in 1985 to 2.4 billion at their peak in 1995. The FinOne empire at one time handled over 20% of the transactions on the Bangkok stock market. "It was always a blue-chip company, unlike other finance companies that merited junk status," a former FinOne executive says.

And with success came the rewards. Pin himself admits he was no workaholic. He was Finance One's ideas man, the marketer, while Termchai handled most of the day-to-day management and deal making. "I am actually quite lazy," Pin says. "Throughout the last 10 years I was actually abroad three or four months a year, dealing with my children, my travel, my customers - doing legitimate work for FinOne but a lot of the time out of the company." Pin jetted constantly around the world, had homes in the U.S. and Britain, and played golf with the leading lights of Thai business and politics. But he was never one for yachts and private planes, and he did not indulge in lavish parties. His most famous vice was speeding in one of his five sports cars. Pin's wife, Kasamabhan, shakes her head over rumors of an affair with a former Thai contestant in the Miss Universe pageant. "He likes to drive fast," she says. "But for the rest? He cleans the kitchen for me."

Also behind Pin's success was a certain tolerance for cutting corners. For example, Pin says the way FinOne lent money to subsidiaries, which in turn used the funds to invest, would not have been allowed in a stricter regulatory regime like Britain's. But in Thai-land, he says, the loans were 100% legal. And it was a convenient way to keep speculative assets off Fin-One's books. "It may not be in the spirit of what they want us to do, but legally you can do it anyway. The onus is on the regulators to change the rules and laws to prevent that," he says. "If they allow loopholes in the law, I mean, business is the guy who sails closest to the law. The guy that crosses the line gets killed, right?" But Pin says he shunned outright criminality and corruption. In 1993 he tried to take over Bank of Asia, Thailand's 10th-largest. It was the first time a finance company tried to buy a bank. Pin claims he was asked for a little extra on the side to consumate the deal. "Three or four billion baht in a brown paper bag," Pin laughs today. He refused. The deal ultimately fell through.

What Goes Up . . .
Pin was stung after being rebuffed by Bank of Asia. Despite FinOne's success, he felt that his company would stay stuck in a lower tier of Thailand's financial world unless it moved up a rung by controlling a bank. So he set his eyes on the nation's 12th-largest, Thai Danu Bank. He was friends with Thai Danu's president, former Citibank executive Pornsanong Tu-chinda, who was also educated in the U.S. They both felt that FinOne could bring some much-needed vitality to the conservative bank. In January 1996, the two happily agreed that FinOne would buy 20% of Thai Danu for 3.4 billion baht (then $135 million). The deal won applause all around. The central bank even bent rules that limited individual bank ownership to 5%, convinced that Thai financial institutions had to grow larger before the industry was opened to foreign competition. In August, Pin and Pornsanong signed a memorandum formalizing the deal. Pin seemed on top of the world. But his world was starting to crumble.

As early as 1993, Pin had recognized that the economy was showing signs of stress. "I remember a lecture I gave at a seminar at Thammasat University in which I warned that the economy was slowing, even though the stock market continued to soar," Pin says. But like the rest of Thailand's business establishment, he could not believe that the good times would end. Also around then came signs that Pin had perhaps stepped on a few too many toes. Rumors began to circulate about the health of FinOne, started, he says, by his rivals. Yet Pin's creation appeared to go from strength to strength. Maybe Pin should have kept in closer touch with the reality of his businesses, instead of staying above the fray as a self-described "ideas man." Or he should have remembered that his empire was built on the bones of other finance companies that had crashed in the previous downturn. Because when the Thai economy began stumbling in the second half of 1996, FinOne began to unravel.

After years of expansion, Thailand was running out of steam. The annual growth rate of exports, which accounted for 40% of GDP, slumped from 22% in 1995 to 3% in 1996 as global demand for electronics cooled and Thai production costs rose. Cities and towns were glutted with unwanted buildings built in a speculative orgy. As businesses and workers began feeling the pinch, the default rate of FinOne's property loans and hire-purchase businesses rose. Jittery investors pulling money out of the stock market, causing Bangkok's SET index to fall 30% during the year. The drop also squashed FinOne's broking and underwriting income, not to mention the value of its extensive holdings. Attacks on the baht's link to the U.S. dollar picked up, increasing interest rates and pushing up FinOne's financing costs. In August 1996, the Finance Ministry withdrew permission for FinOne to take a greater than 5% stake in Thai Danu, concerned that such linkages could cause one troubled company to pull down others. Then in October, FinOne said net profit in the first nine months of 1996 had dropped 22% from the previous year.

Before long, rumors were rampant that FinOne faced a liquidity squeeze, sparking a run on deposits. Its share price tumbled from 170 baht in 1996 to 23 baht in early 1997 as investors bailed out. Fingers began to be pointed inside FinOne on who was to blame and Termchai left the group. Fearful of the impact should FinOne collapse, the Financial Institutions Development Fund (FIDF), the descendant of the state fund from which Pin had purchased so much dross that he turned into seeming gold, pumped 40 billion baht into the ailing group. In secret, off-site breakfast meetings, Pin says he brainstormed with Bank of Thailand officials on how his company could stay afloat. What a difference a half-year makes. In March 1997, Pin and Thai Danu president Pornsanong announced another deal, but this time they were not smiling. The bank, with the government's blessing, agreed to take over FinOne - essentially to rescue the technically bankrupt group.

But worse was to come. In May, Thai Danu scrapped the rescue plan, frustrated by uncertainty about the value of FinOne's tangle of assets. Pin's empire was sliding into oblivion, although he was not alone. The entire Thai financial system was teetering. On June 27, the government suspended FinOne and 15 other finance companies, shattering what little confidence Thais and foreign investors had in the economy. On July 2, Bangkok bowed to the inevi-table and depegged the baht. It plummeted against the U.S. dollar, dragging down most of the region's other currencies, unleashing the Asian Financial Crisis. Pin himself was spent. "By mid-1997, I was pretty brain-dead," he recalls. "I couldn't sleep. I just felt stressed out due to the situation. I spent a week here [in Britain] and then went back, came out, and I resigned from abroad." For FinOne, the final nail in the coffin was hammered in on Dec. 7, when the new government closed his and 32 other finance companies. But Pin's troubles only continued.

What Goes Around.....
In June 1998, senior prosecutor Rathakorn Nim-watana left the Attorney-General's office to become assistant governor of the Bank of Thailand. His orders from the new BOT governor Chatumongkol Sonakul: grab the erring bankers and financiers who helped bring Thailand's economy to its knees. On his first day, Rathakorn says, he puffed on cigarette after cigarette, looking out the window, wondering what to do. "I've been a prosecutor for 23 years, and during that time the defendants would often be poor with no education, committing offenses like theft or selling heroin," he says. "But in the case of these financial directors, they have at least a masters in economics or an MBA - this is very difficult, these are smart people." One of the first cases he looked at was FinOne.

A key factor behind the collapse of FinOne was Pin's "100% legal" loans to subsidiaries. The biggest was One Holding, a former rubber products company purchased in 1991. The listed unit allowed FinOne to keep various transactions off the parent company's balance sheet, in essence to act as the group's stock and property speculator. The plunge in value of One Holding's investments devastated FinOne itself. But the real trouble for Pin lay in two smaller vehicles, Ekkaphak and Ruamborihanturakit. The two borrowed money from FinOne and invested it in stocks, currency trading and, dangerously, FinOne group assets. At first they were profitable and paid FinOne substantial dividends, but they plunged into the red in late 1996. To keep the subsidiaries afloat, FinOne continued to roll over its loans to them - two billion baht ($55 million) - every quarter. But Rathakorn decided that the loans, made over a three-month period from late 1996 to early 1997 with no collateral or review of whether they were collectible, were illegal, and that Pin and Termchai were guilty of criminally neglecting the interests of FinOne.

Pin is incredulous that rolling over loans that had been on the books for years could turn into a criminal activity. "These loans had been outstanding for quite a while," he says. "They have been cited in several previous BOT audits." Termchai points out that they were paper transactions, involving no cash that could have gone into someone's pocket. "Has anybody alleged 100 million baht went into Pin's account? Or 50 million went into Termchai's account?" he asks. "Nothing, because it was never that." Moreover, Pin says that since the FIDF was pumping money into FinOne during the time in question, the central bank knew what was going on. This was a regulatory infraction for which the company would have to pay a fine: that, Pin was willing to concede. Not a criminal charge against individuals.

The authorities beg to differ. "The law is the law," says Chulasingh of the Attorney-General's office. "Pin might not think he did anything wrong, but he did not perform according to what the regulations say. The person who is responsible for the company must be punished." Nor does he believe that central bank officials had known or approved of Pin's actions. "We have talked to the BOT and they say they . . . never agreed, allowed or encouraged," Chu-lasingh says. Nor, Pin's persecutors say, are they out to get financiers who simply made bad business decisions that may have led to the Crisis. "We are not prosecuting anybody on the total costs, which run into billions," says BOT governor Chatumongkol. "We are prosecuting Pin on 2 billion baht which the documentation shows him to be negligent." On Sept. 29, 1998, warrants were issued for the arrest of Pin, Termchai and another executive, Samran Kanokwat-tanawan, on the charge of misappropriating $55 million. Termchai and Samran turned themselves in, had their assets frozen, were banned from overseas travel, and were released on bail. But Pin had left Thailand in September 1997, long before charges were filed - although the authorities and local press say he skipped town because he knew charges were coming.

The Chase
The way Thai officials tell the story, Pin was an elusive prey, evading Interpol and several national po-lice forces for over a year. Pin recalls a different story. "I traveled under my own name and on my U.S. passport," he says, usually between Hong Kong, the U.S. and Britain, with an occasional trip to Macau to play golf. All they had to do was pick up the phone and call him, he says. They took another route. "The authorities roped in the FBI to collar my daughter who was in New York. She said sure, she knows where her father is, he's at home in London." The Bangkok press headlined it: "Daughter gives away Pin's hiding place." Pin remembers well the ring on the door of his low-key, third-floor apartment in Lon-don's posh Belgravia district that December morning. "The British police were civil," he says. "My wife made tea for them. They let me take a shower and dress properly. Before we left they said, 'you are going to have a lot of time on your hands,' so I took my mini-disk player and four books." He spent six days in jail while his wife and daughter raced to obtain 300 letters attesting to his character and $3 million in bail funded mostly by mortgaging their London home. Then, he dug in to fight extradition.

Or worse. Pin says that if he returns to Thailand to contest the charges, his testimony could finger many present and former officials, businessmen and politicians. In a country where a bullet in the head from a hired gunman costs as little as $100, that is not a position he wants to be in. Even if it does not come to that, Pin does not believe he can get a fair trial when the entire country wants to find a villain on whom to blame the hardships of the last three years. "I feel sympathy for the Thai government over the financial crisis," he said outside Bow Street magistrates court in London on Feb. 15 this year, which heard arguments for and against his extradition and granted him bail. "Obviously they must investigate it, but they cannot, if you'll excuse the pun, pin it on me." That kind of talk only angers officials. "If he thinks he will not get a fair trial, he is insulting the Thai justice system," huffs prosecutor Chulasingh.

Is Pin guilty? Of hubris and poor business judgment, probably. Of building an over-leveraged sandcastle that collapsed under waves of adversity, of course. But of criminal activity? "FinOne was the most transparent finance company," says Pridiya-thorn Devakula, president of Exim Bank in Bangkok. "FinOne grew because of the system and because the economy was booming. The system was at fault. If he is guilty of anything, it is that there were not more safeguards in place." However, as Chulasingh says, the law is the law, and Pin took pride in testing it.

Living in London as lawyers battle over Bang-kok's extradition request (a court date is provisionally set for Aug. 29), the former takeover king plays some golf, does a little financial advising, cleans the apartment and occasionally cooks for his wife and elder daughter. While not poor, Pin says he has nothing to show from his 20 years at FinOne, and worries about what a drawn-out legal battle will do to his finances. He does not regret what happened - in a sense business was a game that he did not take too seriously - but he does regret that FinOne was closed, which he says was not necessary. And he insists he is not a crook. "I didn't steal any money," he says. "I didn't do anything illegal. That's all." He becomes angry when lumped by the press with fugitive financier Rakesh Saxena, who allegedly embezzled millions from the Bangkok Bank of Commerce before its collapse in 1996. "It insults my intelligence to [have people] think I would stoop to rob a bank," Pin bristles. "Any idiot can rob a bank. It takes a smart person to make money." And, perhaps, to lose so much.

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