One CAO’s losses mounted, it started facingOne CAO’s losses mounted, it started facing

One way CAO
and its executives rationalised their actions which led to the scandal was the
profits they made by correctly betting the movement of oil prices just prior
when it first entered speculative trading in the second half of 2003. (Santini & McDermott, 2004) Therefore, when
faced with losses in the first quarter of 2004, the executives were confident that
they could follow their earlier strategy and even bought fresh contacts and
increased the size of the bet. (Pottinger & Prystay, 2004) Even after its first
losses, the executives continued these actions to avoid realising the losses. (Lay Hong,
2009)

However, as
CAO’s losses mounted, it started facing difficulties meeting the demands from its
creditors. Therefore, when it inevitably did not meet the banks’ demands for
more collateral, the banks began forcibly closing some of its positions, turning
potential losses into real ones. (Santini & McDermott, 2004) When it finally
released figures indicating its losses from the trading activities in November
2004, many questions regarding the credibility of CAO and its executives were
raised. To portray a façade of a thriving company, the executives felt the need
to continue investing in the trades as much as possible, hoping to recoup the prior
losses. (Lay Hong, 2009)

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Another
rational which Mr Chen might have used to explain the scandal was that his
prior working experience were all in China, and he had never “operated
in an environment where legal constraints were more important than bureaucratic
controls or where shareholder concerns played a significant role in managerial
decision making”. (Kennedy & Stiglitz,
2013)
This meant that it would be more natural for people in Beijing, where CAO’s
parent company is based, to neglect this issue. With this mindset, Mr Chen could
have rationalised that his actions were therefore also acceptable in Singapore,
thus leading to the scandal. (Yinzhi,
2012)