THE PACIFIC : Taiwan Braces for More Trouble in Financial Scandal : Asia: A run on short-term debt is feared. Fake-debt case may be a conspiracy, officials say.

Taiwan’s financial system, rocked by two scandals last week, is braced for more trouble and a possible run on short-term debt this week.

The main stock index of the Taiwan Stock Exchange on Saturday plunged 4.9% to a 19-month low of 4823.86 amid the possible threat to financial stability. The index has lost 32% this year in the worst performance among the world’s stock markets.

Sunday, the chief Taipei court investigator in a fake-debt scandal said a man suspected of being at the center of the case may not have been acting alone.

“There is reasonable doubt,” Tu Yin-ta said in a telephone interview Saturday.

Yang Jui-jen, a former employee at the International Bills Finance Co., has been detained by the Taipei District court and, according to the United Evening News, is suspected of forging up to $1.1 billion of commercial paper during the past six months.

The scandal followed word a few days earlier that the general manager of a credit cooperative embezzled about $104 million. The embezzlements set off the country’s worst-ever bank runs before a state-run bank took over the troubled cooperative on Friday.

“The situation is extremely dangerous,” said P.K. Kuo, a dealer with Capital Securities in Taipei.

In the foreign exchange market, the New Taiwan dollar fell 14.4 cents to a 13-month low of $26.94 New Taiwan dollars to the U.S. dollar. “The U.S. dollar is a haven currency,” a dealer at Bankers Trust said.

Taiwan’s short-term money market was in tumult Saturday. Holders of commercial paper sold by International Bills Finance redeemed billions of the debt as the company extended operating hours, the Economic Daily News reported Sunday. The interest rate on 10-day commercial paper shot up 0.75 percentage point to 6.50%.

International Bills Finance is one of Taiwan’s largest underwriters, dealers and brokers in the country’s money market--a market that is important to Taiwan’s economy because many businesses rely on short-term funds to finance long-term investments, according to a report by China Securities.

Central Bank Governor Sheu Yuan-dong said at a hastily arranged news conference Saturday that International Bills would cover the obligations still outstanding. The company has amassed capital in case investors want to redeem paper today.

“It shouldn’t be a problem,” Sheu told reporters in part of the meeting broadcast on Taiwan Television Enterprise.

Sean Chen, chief of the Bureau of Monetary Affairs, which regulates the country’s banking industry, said Sunday that the government would not step in to take over International Bills, the United Evening News reported.

Debt allegedly forged by Yang was mostly purchased by the state-run Bank of Taiwan, one of Taiwan’s largest banks, Taiwan media reported. Tu said court investigators do not understand how Yang managed to sneak the forgeries by officials at International Bills Finance and other institutions involved.

The Economic Daily News on Saturday called Yang “Taiwan’s Leeson.” Nicholas Leeson is the 28-year-old trader whose unauthorized trades in Singapore earlier this year bought down Barings, the British securities company.

Court investigators discovered the Taiwan forgeries amid a search for the source of funds allegedly used by businessman Nan-shing Jeng to manipulate the stock prices of two companies he heads. The two companies are Kao Hsing Chang Iron & Steel, a Kaohsiung-based steelmaker, and Taiwan Fluorescent Lamp, a maker of home appliances and lighting products.

Jeng was detained by the court last week.

Tu said Yang forwarded the funds raised through International Bills to Jeng, and that most of the money was used to purchase shares in Kao Shing Chang and Taiwan Fluorescent.

The Securities and Exchange Commission on Sunday ordered International Bills to submit a report on the scandal within three days.

Taiwan investigators are looking into sale of 2.38 million shares in International Bills Finance just before Yang was detained, the United Evening News reported.

Yang was detained a day after Jeng was arrested. Investigators believe that the seller or sellers of International Bills’ shares might be involved or have knowledge of the forgery scam at the financing company, the newspaper said.