T

he freezing of the accounts of Merrill Lynch Indonesia, the local unit of the US-based wealth management firm, at a local securities depository and settlement agency will primarily affect offshore institutional investors, a senior executive from the Indonesian Stock Exchange (IDX) says.

Uriep Budhi Prasetyo, IDX director for surveillance and compliance, added, however, that the company’s clients would not lose their funds as a result of the freeze.

“Merrill Lynch, by majority, serves international institutional clients rather than retail,” he said, adding that safety mechanisms, such as individual client accounts and single investor identity (SID), existed to protect the clients from losses.

Uriep said the Indonesian Central Securities Depository (KSEI) had overseen the freezing of the securities account as required by the Jakarta High Court. He added that the freeze meant that Merrill Lynch Indonesia (MLI) was barred from settling transactions.

The KSEI provides investors and institutions with a single identity the right to perform securities trading, clearing and transaction settlements.

“Therefore, there’s no danger that the clients will find themselves hampered by the freeze, too,” he said.

Uriep said the Jakarta High Court had formally sent a letter demanding the freeze on Merrill Lynch Indonesia’s broker account. The letter is the latest twist in the legal battle between MLI and Renaissance Capital Management Pte. Ltd., a Singapore-based investment company owned and directed by Prem Ramchand Harjani.

The legal predicament began in 2008, when Renaissance ordered New York-based Merrill Lynch, Pierce, Fenner & Smith (MLPFS) to purchase 120 million shares, worth US$14.3 million, in PT Triwitra Lestari, according to media reports. However, the purchase via the Singapore-based Merrill Lynch International Bank (MLIB) was never executed because neither Renaissance nor Prem provided the funds needed to settle the transaction.

The payment failure prompted MLPFS to file a lawsuit against Renaissance in Singapore in Nov. 2008. In Aug. 2010, the Singapore High Court ruled in favor of MLPFS by convicting Prem of fraud. The court also ordered Prem and Renaissance to pay $9.4 million in damages to MLPFS, newspapers at the time reported.

However, as MLPFS was preparing the lawsuit against Prem in 2008, Prem counter-attacked by filing a lawsuit with the Jakarta High Court against MLIB and MLI for tort and defamation.

The court ruled in favor of Prem and ordered MLIB and MLI to pay Rp 251 billion in damages, although Prem had originally asked for Rp 1 trillion. The Court of Appeals and Supreme Court both concurred with the decision. The Jakarta High Court then sent a letter to the bourse to “freeze the securities account” of MLI at a securities depository and clearing agency.

Meanwhile, Frans H. Winarta, an attorney for MLI, said he had not received information about the bourse’s reply to the court.

“I cannot provide any comment before I speak to my client,” he said. He told The Jakarta Post that “there would probably be a media briefing in the coming week”. Frans had previously stated that MLI was not involved in the lawsuit that MLPFS filed against Renaissance.

He thus questioned the legality of someone embroiled in a legal battle against a foreign company abroad filing a lawsuit against a company in Indonesia.