Saturday, 26 November 2011

Are SC's administrative actions a real deterrent?

On November 24th 2011, the Securities Commission (SC) published the following list of "administrative actions" on its website:

I like to highlight the following four cases:

Case [1] Messrs Raine & Horne International Zaki + Partners Sdn Bhd:
Failure to comply with several requirements of the Asset Valuation Guidelines including to ensure that-

• the valuation was properly carried out and reviewed for quality control;
• the data applied in carrying out the valuation was properly verified and correctly analysed; and the adjustments made were appropriate and justified.

For the Director Noraini Jaafar Sidek :
(i) Reprimand
(ii) Refusal to accept or consider any submission to the SC for six (6) months from 2 February 2011.

For Messrs Raine & Horne International Zaki + Partners Sdn Bhd:


Case [2] ECM Libra Investment Bank Berhad:

• Misrepresented SC's term of approval in a circular; and
• Omitted to include material information in the circular, relating to SC's term of approval.
ECM Libra Investment Bank Berhad:

Reprimand (and was instructed to issue an Errata prior to the unit holders' meeting)

Case [3] Mutiara Goodyear Development Berhad:

On 30 July and 27 August 2010, Mutiara had, through its subsidiaries, entered into agreements to dispose of assets of a material amount on an aggregate basis subsequent to the announcement of the possible take-over offer by ATIS Corporation Berhad and ATIS IDR Ventures Sdn Bhd without obtaining the prior approval of Mutiara's shareholders.


Case [4] OSK Investment Bank Berhad :

(a) Failure to ensure that the information contained in corporate proposals was accurate and/or had no material omission.
(b) Failure to undertake reasonable investigation to ensure the accuracy of information and that there were no material omissions.
(c) Failure to conduct proper and sufficient due diligence which caused the issuance of a prospectus that contained a material omission.


I sincerely hope that more stern action has been taken than the above "reprimands". The valuation firm and the two corporate advisers were doing work in their own line of business, they can't claim ignorance, this is their daily bread and they have large armies of professionals. They should know how important their actions would be for the minority shareholders involved, they have a huge responsibility towards them.

The misconduct described in the above four cases is, in my humble opinion, severe, and surely a simple reprimand will not do much justice. Is there any deterrent in these kind of punishments?

To me the punishment reminds me of the "horrendous" torture scene from Monty Python, the Spanish Inquisition.

Was OSK Investment Bank "poked with pillows", did ECM Libra Investement Bank have to endure the "comfy chair"? To me it definetely looks like it.

SC has had some good succes lately with punishing some smaller listed companies and its directors. But it is about time for SC to also start getting some decent results both against the "wheeler/dealers" (the corporate finance players, the investment bankers, the writers of prospectuses and independent advice, the valuation companies) and the larger listed companies.

That will only benefit the Corporate Governance standards in Malaysia. Corporate advisers will simply walk away from "shady" deals (since the risk/reward is not good), forcing companies to come with better proposals. Corporate advisers will also ask for higher fees, which will enable it to hire better staff, partly reversing the brain drain.

In the long run it will benefit the financial returns for the minority shareholders and the general view of Malaysia.

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