Excellent article in The Star by Errol Oh: "Civil or criminal?".
Former corporate wunderkind Kenneth Vun is once again the subject of a court case filed by the Securities Commission (SC). On Tuesday, the regulator said it had taken enforcement action against him and six others at the Kuala Lumpur High Court for the manipulation of DVM Technology Bhd shares.
The SC has alleged that the seven actively transacted in DVM shares among themselves over a week in March 2006, causing the share price to rise from 11 sen on March 14 to a high of 32 sen on March 20.
The aim of this enforcement action, according to the SC, is to seek a disgorgement of all profits earned by the defendants as a result of the manipulation. The money is meant to be used to compensate affected investors. The SC is also claiming a civil penalty of RM1mil from each of the seven.
The commission also wants the defendants to be barred from becoming directors of listed companies and from trading on the stock exchange for five years.
We welcome enforcement by the authorities. However:
"Regulatory effectiveness is ultimately judged by swift enforcement actions."
Swift? The alleged share manipulation happened March 2006, more than eight full years ago! I would not exactly call that "swift" by any standard.
What determines the course of action that the SC takes in enforcing the law? How does it decide whether to take civil action or to pursue criminal prosecution?
Sure, every case is different; there can’t be a cookie-cutter approach for going after the wrongdoers. And yes, regulators can’t afford to reveal too much about how they probe suspected misconduct and how they go about trying to bring offenders to book.
However, the SC can surely be more transparent and articulate about its enforcement efforts. For example, the 100-page Capital Market Masterplan 2, which outlines strategies to grow the capital market up to 2020, doesn’t have a lot to say about the subject.
Here’s the key part: “Regulatory effectiveness is ultimately judged by swift enforcement actions. There will be greater focus on enhancing processes to expedite investigation and prosecution of cases. Towards this end, enforcement capabilities will be strengthened through the development of specialised investigation and prosecution skill sets.
“In addition, strategies will be developed to maximise the deterrent effects of enforcement actions and to enhance public awareness on the consequences of securities fraud. Greater efforts will also be made to encourage members of the public to volunteer information and evidence of possible violations of securities laws.”
In comparison, one of the four strategic goals laid out in the draft of the US Securities and Exchange Commission’s Strategic Plan for 2014 to 2018 is “foster and enforce compliance with the federal securities laws”. The discussion on this goal occupied 10 of the 39 pages of the plan.
On its website, the Australian Securities and Investments Commission has a 12-page information sheet that explains its approach to enforcement.
It’s time that the SC does more than provide updates on its enforcement policy. People ought to have a good idea of what to expect from the regulator on the enforcement front and what guides its actions when responding to violations of the law.
> Executive editor Errol Oh acknowledges that much of the regulators’ work is unseen. However, enforcement actions are strong indicators of vigilance, effectiveness and integrity.
I can't agree more with the above, the authorities should be more clear about their enforcement strategy. This is important for the shareholders, the public-in-general, but also for whistle blowers and people who file complaints with the authorities.
Kenneth Vun is of course quite well know (although often not for the right reasons), here is the previous decision against him.
Kenneth was the founder of Mesdaq listed FTEC Resources, which changed its name to Tecasia Group and then to Mangotone Group. The name changes didn't help much, the company went suddenly under in 2009, after reporting a RM 100 million loss. Kenneth had already sold his shares and resigned as a director. Large receivables, large inventories, decreasing cash, decreasing revenue, insiders selling, directors resigning, and the company "suddenly" going bust and being delisted. My guess is that the shareholders were looking at a total loss.
I am afraid that we have seen too many of these cases.
Mangotone Group and its six directors were reprimanded and fined by Bursa "for failing to make an immediate announcement of the following defaults in payments of credit facilities".
Was that enough enforcement? I doubt it. I am of the opinion that when companies that appear to be healthy, but do have some clear red flags, suddenly go under, the authorities should order an investigative audit into what really happened.
Vun is also mentioned being one of the major shareholders in Harvest Court, although he denies that.
Related articles by Where is Ze Moola can be found here and here.