Chen Jiulin, the former head of Singapore-based China Aviation Oil. (file photo)

When China Aviation Oil (Singapore) Co. Ltd. announced late last month, the company had lost over US$550 million in financial derivatives trading, the whole business world was shocked.

Its chief executive, Chen Jiulin once touted as a rising business star in Asia, was accused of unauthorized speculation on the financial market. And industry observers said he made the same mistake Nick Leeson made in 1995. Then 29-year-old Nick Leeson gambled on the financial market and brought down his employer British Barring Bank.

The question was then raised: Who is Chen? What did he do to bring China Aviation Oil to the ground?

Chen was born in the 1961. Though he spent his childhood in turbulent Cultural Revolution, he managed to receive sufficient schooling. He went to Beijing University in 1982 at a rather mature age. He spent five years studying Vietnamese in the Department of Oriental Languages.

Though there is no evidence that he received formal business trading, Chen's natural acumen landed him important positions in airline companies he joined. He worked as a translator in many important negotiations. And he later received a law degree from China University of Law and Administration.

In 1997 his employer China Aviation Oil Holdings gave him a task to establish China Aviation Oil in Singapore. His initial capital was US$210,000.

Backed by strong demand for aviation oil on the Chinese mainland, Chen soon turned his small firm into an influential company. By 2003 China Aviation Oil was worth 3 billion yuan (US$326 million). And in 2002 his yearly salary reached S$4.9 million. He is one of the best-paid executive in Singapore.

Until late November when the company announced huge losses and its shares suspended, people had always looked up to him as an honest hardworking and capable business executive. However preliminary investigation shows he had built up unbridled personal power in the disguise of good corporate governance.

The crisis of China Aviation Oil resulted from Chen's unauthorized dealings in the oil futures market. He appears to have been wrong-footed in the turbulence of world oil prices gyrating around $US50 a barrel.

As observers said, Chen gambled his company away but nobody stopped him.

China Aviation Oil (Singapore) started as an oil supplier. In 2003 Chen entered the hedging market without authorization from the parent firm.

Like Nick Leeson, he bucked the market trend in the belief that oil prices would fall. Therefore he offered a price-put option, with which investors could buy from China Aviation Oil at a given price when prevailing market prices rise.

Chen took on huge risk because at high price ranges he would have to buy from the market sell to option holders at lower prices. Yet Chen believed that the market would go his way.

At the same time, international investment banks and futures dealers also noticed Chen's move. These dealers became opponents of Chen's and they had deeper pocket and more experience in futures dealings.

Chen priced his price-put option at US$3 a barrel or US$22 a ton. He expected the oil price to be below US$400 a ton when the future contracts matured. However when contract transaction had to be executed, the market oil prices hit US$450. China Aviation Oil stood to lose US$30 for any ton of oil it sold out. As Chen did not hedge the risk by reverse contracting, the company's loss was huge in a split of a second.

Seeing potential losses, Chen did not stay his hands. Hoping to recoup his losses, he bought futures contract betting the oil prices to continue to rise. However when he had to deliver on his futures contract, oil prices dropped from US$56 to US$42. Again he incurred huge losses.

The total losses amounted to US$5.5 billion, when he realized that he had stretched his company beyond its means. He had become another Nick Leeson.

Was this just accident挂As Chen said, if he had been given US$500 million, he would have won the battle. Unfortunately not. Preliminary investigation shows that Chen had disabled his corporate governance to check his personal power, though he made it look fine from the outside.

Right at the beginning, Chen refused to the proposal from the parent company China Aviation Holdings to send a financial controller to Singapore. He took the company's financial power all to himself.

In 2002, after failing all attempts to refuse financial controls by the parent firm, he agreed to accept a financial controller from China Aviation Holdings. However after a few weeks, he moved the controller to take care of travel and logistics. Instead he hired himself a local financial manager, who reported only to himself.

Chen also cooked his books. He put large of amount of money on the financial derivative market. However his books only show the account as receivables.

Though the company reports a large amount of receivables through many years, local auditors in Singapore were not suspicious. In fact these receivables were dubious assets or losses already made in the financial market.

In spite of these dealings, he managed to make China Aviation Oil (Singapore) the most transparent firm in Singapore.

Earlier this year, he said during an online discussion with the public. He said: "China Aviation Oil in Singapore has excellent corporate governance."

However at same time, he knew losses from the market was building up.

During the discussion, he admitted he liked gambling on the future of world trade and business. And indeed, he did and lost his bet, his job and people's trust on him.

Singapore police briefly detained him in connection with the losses.