It's a small world

Two interesting articles:

Penny stock crash: John Soh accused of witness tampering

7 executives of Platinum Partners charged with US$1 bil fraud

In it the companies in the "Penny Stock Saga" (Blumont, Asiasons and LionGold) are linked to ISR and John Soh and to US-based hedge fund Platinum Partners.

It is indeed a small world in the world of finance.

Good to see that at least some enforcement is being delivered in Singapore and the US.

Remains the question: John Soh seems to be (allegedly) the mastermind in this all, what would have happened if the Malaysian authorities would have punished him more appropriately for his alleged role in the downfall of several Malaysian listed companies?

The fine of RM 6 Million seems to be woefully inadequate, at least to me.

Multi Sports: new independent directors

Article from The Edge "Multi Sports gets new independent directors", some snippets:


Multi Sports Holdings Ltd's shareholders had yesterday approved the appointment of six independent directors to oversee and revamp the shoe manufacturer's operations.

Today, Multi Sports told Bursa Malaysia that Multi Sports shareholders had at the company's special general meeting approved the appointment of Kasinathan Tulasi, Naren Anand Gill, Clarence Yeow Kong Chew, Cheh Chee Mun, Guan Swee Kee and Terence Selvarajah as directors.

Multi Sports major shareholder Paramjit Singh Gill had earlier requisitioned the shareholders' meeting.

Paramjit said he wished to appoint the independent Malaysian directors to "investigate and regularise" the company's operations.


It will be interesting to follow this case, both specifically regarding Multi Sports and in general regarding Chinese listed companies on Bursa.

Officially (according to its last quarterly report) the company has plenty of cash, but given the last quoted share price, there were not many people who actually believed those numbers.

Will Paramjit and his team be able to discover the true situation, what has happened to the company since it IPO-ed on Bursa? Will they be able to extract some value for the minority shareholders? Will Chinese regulators swing into action, when needed?

In my humble opinion shareholders of Multi Sports should count on a total loss, and the (alleged) perpetrators will go scot-free. I hope I am wrong and have to eat my words.

Patimas: will there be justice? (3)

I wrote first about Patimas, after giving a long list of alleged irregularities and red flags:

"Will the authorities take appropriate action within a reasonable timeframe? Time will tell."


In the next posting in which Bursa handed down fines of RM 2 Million in total to four executive directors I wrote:

"Is the punishment enough, will it act as a deterrent? I don't think so, I think only a jail sentence will suffice."


Now the Securities Commission revealed that it "charged a former Managing Director and three former executive directors of Patimas Computers Berhad (Patimas) with ten charges of causing wrongful loss to the company."

"Law Siew Ngoh, 55, a former Managing Director, Yap Wee Hin, 58, a former Deputy Executive Chairman, Robert Daniel Tan Kim Leng, 59, and Ng Back Heang, 62, both former executive directors of Patimas are said to have made payments totalling RM5.1 million between July to December 2010, for the purported development of various software for Patimas when in fact they were not used for such purpose."

"This is the first time the SC is taking a criminal action for an offence under section 317A(1) of the Capital Markets and Services Act 2007. Under this section, an officer of a listed corporation or any of its related corporation, commits an offence if he does anything or cause anyone to do anything with the intention of causing wrongful loss to the listed corporation or its related corporation. At the material time, the offence was punishable with an imprisonment term not exceeding ten years and a fine not exceeding RM10 million."

Dufu directors, only a fine and reprimand? (2)

Dufu did indeed announce the reprimands and fines. At least the investors in Dufu know what happened.

Interesting article from Errol Oh in The Star regarding the same matter:

"It’s not mystery meat. It’s Dufu"

Some snippets:

Lee Hui Ta, who’s also known as Li Hui Ta, was was reprimanded and fined RM150,000 because he approved the payment vouchers for those remittances to the US. In other words, he helped Yong commit the offence. Li was then Dufu’s executive director and chief financial officer (CFO).

.....

Where there should be a sweet ending to the meal, we instead get a strange aftertaste. Despite Li’s part in facilitating the remittances to the US, the Dufu board didn’t ask him to leave.

Not only does he carry on as an executive director and CFO, but on June 18 last year, he was appointed the executive chairman to replace Hsu Chin-Shui, who had failed to secure re-election during the company’s AGM the same day.

That means Li is in a highly unusual position of being responsible for the financial management of Dufu as well as heading its board of directors.

......

There’s another awkward element in Dufu’s governance that should be addressed. A CFO typically reports to the CEO, but how does this work if the CFO is also the board chairman?

The Edge Malaysia in its issue of October 3, 2016 also paid attention to the same matter under the header "Paltry punishment":

"RM 200,000 is a mere 5% of the amount involved. So, does the punishment fit the crime?"

Dufu directors, only a fine and reprimand?

Article from the Securities Commission:

Yong Poh Yow, former Executive Director and Chief Executive Officer of Dufu, was found to have made remittances totalling US$1,010,041 to foreign parties in the United States between January 2013 and October 2014 without authorisation from Dufu’s Board. The monies were then used to purchase several assets which were registered under his own name. This is a breach of section 317A(1) of the Capital Markets and Services Act 2007 (CMSA).  He was reprimanded and fined RM200,000.

Lee Hui Ta, also known as Li Hui Ta, former Executive Director and Chief Financial Officer of Dufu, was reprimanded and fined RM150,000 for abetting Yong by approving payment vouchers for the said unauthorised remittances. Lee is currently the Executive Chairman of Dufu.

While a breach of section 317A(1) of the CMSA carries upon conviction, a minimum imprisonment term of two years up to a maximum of 10 years and a fine not exceeding RM10 million, the SC had imposed administrative sanctions on both Lee and Yong after taking into consideration that Yong had fully repaid the amount of US$1,010,041 to Dufu.


The punishment looks extremely mild, is this really a proper deterrent? I strongly doubt it.

The company has not yet published the above on the announcement's website of Bursa, surely this is material information for investors in Dufu.

Are SC/BM not involved in 1MDB probe? (2)

I wrote before:


“There are three agencies involved, comprising the police which deal with cheating, criminal breach of trust and so on; the MACC (Malaysian Anti-Corruption Commission) which deals with corruption; and the central bank, BNM, that deals with aspects relating to our financial system and what contravention there has been of our rules [and] regulations, and our laws."

I definitely hope that the Securities Commission and/or Bursa Malaysia are included in the probe as well. Although 1MDB is not a listed company, the following companies are or were listed on Bursa:

• Utama Banking Group Bhd
• Cahaya Mata Sarawak Bhd
• Putrajaya Perdana Bhd
• Loh & Loh Corp Bhd
• RHB Cap Bhd

I definitely should add AmBank to that list. This bank paid a penalty of RM 53.7 Million to Bank Negara, although the exact reason for it ("non-compliance with certain regulations") is very vague (here and here).

With the shareholders of AmBank being hit by the penalty, are they not allowed to know the exact facts regarding the non-compliance? Later this year, at the AGM, they have to vote about the Board of Directors, should they not know who was responsible for this issue?

More news regarding the UBG deal has been revealed by The Australian: "Email trail links banks to Malaysian scandal", some snippets:

Together with other information compiled by police in neighbouring Singapore, they also raise concerns that the UBG takeover may have ultimately benefited 1MDB adviser and UBG director Jho Low, who is close to the family of Malaysian Prime Minister Najib Razak, at the expense of ordinary Malaysians.

......

While AmBank told the world, through the Malaysian stock exchange, that PSI belonged to Obaid, internal bank emails obtained by The Weekend Australian show it was told the secrecy was necessary because Saudi royals were behind the company.

“PSI, a privately held company of the Royal Family of the Kingdom Saudi Arabia, is governed by the strictest confidentiality,” Ambank officer Daniel Lee was told in a March 18, 2010 email.

“As such, it is with regret that we are not able to provide you with access to PSI’s financials.”

Adding to the secrecy shrouding the deal, the email to Lee came from an anonymous Gmail ­account “project.unicorn1@ gmail.com”, operated by a person or persons calling themself “Team Project Unicorn”.

Even now, five years after PSI took control of UBG and delisted it from the Malaysian exchange, the identities of the person or people operating the email account remain unknown.

Saudi Arabian documents obtained by The Weekend Australian show that when PetroSaudi was set up in 2007 it was half-owned by Obaid and half by Saudi royal Prince Turki bin Abdullah. However, there is no indication Prince Turki was ever involved in PSI.

The Weekend Australian was also unable to verify the existence and status of PSI. It’s not listed on the Seychelles publicly available company register, and yesterday the country’s Financial Services Authority had yet to respond to a request for a more detailed search.

It is sometimes hard to tell who was on whose side during Project Unicorn.

In UBG’s corner, Low sat on the board as a representative of the Abu Dhabi-Kuwait-Malaysia Investment Corporation or ADKMIC, which owned a little over half of UBG — a stake it had bought from the Taib family.

Even though ADKMIC carries a name that makes it seem a fund from the oil-rich Middle East, police in Singapore have told Malaysian authorities that Low actually sits behind the British Virgin Islands company.

However, in UBG’s 2009 annual report, Low declared he owned no shares in UBG, either directly or indirectly.

......

Later in the year when PSI was mopping up minority shareholders, this would be directly contradicted in a statement to Malaysia’s stock exchange, Bursa Malaysia, describing Obaid as “the sole shareholder and director or PSI Seychelles”.

......

On January 12, 2011, almost a year after Team Project Unicorn set out the outlines of the deal, the UBG takeover was complete. With all shareholders paid out and the company now solely owned by PSI’s Malaysian subsidiary, Javace, UBG was delisted from Bursa Malaysia and dissolved.

At 2.50 ringgit a share, ADKMIC was entitled to 658m ringgit, or about $US195m.

But who got that money? When the UBG takeover was announced at the beginning of 2010, Malaysian state-owned newsagency Bernama reported ADKMIC shareholders included “prominent Middle-Eastern investors”. But police in neighbouring Singapore tell a different story. In March last year, Singapore Police’s Commercial Affairs Department told Malaysia’s central bank that an account held in ADKMIC’s name at the Singapore branch of Swiss bank BSI was “beneficially owned by Jho Low”.

Singapore Police allege that between June 2011 and September 2013 almost $529m flowed into the ADKMIC account from an account at RBS Coutts’ Zurich branch held by another company allegedly associated with Low and embroiled in the 1MDB scandal, Good Star.

The SC should have investigated these claims by now, the above might implicate serious breaches of the listing rules.

AmBank was of course also involved with the (in)famous "donation" of RM 2.6 Billion in the accounts of the PM.

But there might be more. According to blogger "jebatmustdie", there are issues with a RM 5 Billion bond from 1MDB (the article can be found here, readers in Malaysia might need a VPN to access it):

The terms and conditions of this RM5 billion bond had been clearly spelled out and that it could only be used according to Shariah principles.

Is sending money to Good Star Ltd in compliance to Shariah principles? What does Good Star do?

Securities Commission is the controller of bond issuance process. It also ensures compliance to documents when the bond was offered as well as the continuous monitoring that the terms and conditions are always being complied with.

In it's 2015 annual report, there is no mentioning at all of 1MDB, the elephant in the room

SC punishes audit company

Announcement by the Malaysian Securities Commission:

Audit Oversight Board Revokes Registration of Auditor for the First Time

The Audit Oversight Board (AOB) has revoked the registration of an audit firm Wong Weng Foo & Co along with the Managing Partner, Wong Weng Foo and its Partner, Abdul Halim Husin effective from 2 December 2015.

The revocation is under section 31Q(1)(a)(B) of the Securities Commission Malaysia Act 1993 (SCMA) for failure to remain fit and proper to audit public interest entities.

The SCMA gives AOB the power to revoke the registration of an auditor if the auditor contravenes condition of registrations imposed by the AOB under section 31O(3) of the SCMA.

Wong Weng Foo & Co, Wong Weng Foo and Abdul Halim Husin were found to have failed to comply with auditing standards in the engagement performance of two public listed entities. In addition, Wong Weng Foo & Co failed to carry out the practice honestly, competently and with due care when it failed to implement the remedial action as reported to AOB in respect of past inspection findings.

Wong Weng Foo & Co also failed to ensure that the person who audits the financial statement of a public listed entity on behalf of the audit firm is appropriately qualified, sufficiently trained and competent.

Announcement by the US Securities and Exchange Commission:

Grant Thornton Ignored Red Flags in Audits

The Securities and Exchange Commission today announced that national audit firm Grant Thornton LLP and two of its partners agreed to settle charges that they ignored red flags and fraud risks while conducting deficient audits of two publicly traded companies that wound up facing SEC enforcement actions for improper accounting and other violations.

Grant Thornton admitted wrongdoing and agreed to forfeit approximately $1.5 million in audit fees and interest plus pay a $3 million penalty.

Melissa Koeppel was an engagement partner on the deficient audits of both companies, and Jeffrey Robinson was an engagement partner on one of the deficient audits, which spanned from 2009 to 2011 and involved senior housing provider Assisted Living Concepts (ALC) and alternative energy company Broadwind Energy.  An SEC investigation found that Grant Thornton and the engagement partners repeatedly violated professional standards, and their inaction allowed the companies to make numerous false and misleading public filings.


Pretty similar announcements, one could say, but there are some crucial differences.

The US announcement does name the listed companies, the Malaysian (unfortunately) not. In the latter case the shareholders of the companies involved do not know what happened to the audits, if the management was involved, if any action has to be taken.

Also, there is a very detailed description given in the US case (please visit this website for more information including some links), but not in the Malaysian case.

It is good that some enforcement has been meted out by the Securities Commission, but more information what exactly happened would be helpful.

Why Protecting Minority Shareholders Builds Stock Markets





From Wharton university:

Once upon a time, only countries like Britain and the United States had legal provisions in place to protect the rights of minority shareholders against the actions and decisions of large shareholders and management. As a result, money flowed into the stock market, and capitalization grew vigorously, dwarfing all other markets around the world. Beginning in the 1980s, however, countries in Continental Europe and Asia introduced reforms in their corporate legislation, affording minority shareholders a number of legal protections, including boosting the powers of the general shareholders’ meeting, prohibiting multiple voting rights and dual-class shares, mandating the presence of independent directors, and requiring the disclosure of major equity stakes, among others. What has driven these changes? Have they resulted in the growth of the stock market?

A new paper by Mauro F. Guillén of the Wharton School and Laurence Capron of INSEAD sheds light on these important issues.* They have assembled information on legal protections for minority shareholders in as many as 78 countries since 1970. They document that whereas four decades ago the Anglo Saxon countries afforded minority shareholders the greatest degree of protection, after the year 2000 countries in Western Europe, East Asia, and, especially, Eastern Europe and Central Asia had passed new legislation protecting minority shareholders.

The authors show that many countries around the world passed such new rules and regulations in response to a number of factors, including new economic ideas about free markets, imitation of other countries in the same region, emulation of the United States as the global financial leader, and pressures from the International Monetary Fund, which grew eager to induce countries in under financial stress to implement reforms.

By the 2010s, the countries in the world with the greatest degree of protection of minority shareholders were Kazakhstan, Russia, Uzbekistan, South Korea, Mauritius, and Poland. This phenomenon begs the question of whether legal reforms protecting minority shareholders are actually enforced or if they remain largely ceremonial. The research by Guillén and Capron, which carefully takes into account a number of economic and financial variables, conclusively shows that the adoption of legal protections has increased stock market capitalization, trading, and turnover. But they also found that the beneficial effects of such legal provisions are larger when the government has the capacity to enforce them.

Guillén and Capron argue that governments should continue to promote minority shareholder rights as an antidote against the abusive use of private information. Global competition for capital has intensified considerably, and having an appropriate legal framework that protects minority shareholders should be at the top of the policymaking agenda. Their research also has implications for companies and investors. Companies making investments in foreign countries need to carefully consider the extent to which minority shareholder rights are protected whenever they make decisions about floating part of their equity in a foreign subsidiary. Investors seeking global diversification of their portfolios also need to study the international map of shareholder protections before making decisions.



In Malaysia the legal protections are in place, and the government has the capacity to enforce them, but will they do that, without fear or favour? Or are the reforms in the name of good (corporate) governance mostly ceremonial?

Patimas: will there be justice? (2)

I wrote before about Patimas. I ended the posting with the following:

"Will the authorities take appropriate action within a reasonable timeframe? Time will tell."

That question has been answered by Bursa, some snippets:


Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded Patimas Computers Berhad (PATIMAS) and its 4 executive directors at the material time for breaching the Bursa Malaysia Securities Main Market Listing Requirements (Main LR).  In addition, the 4 executive directors of PATIMAS were fined a total of RM1,986,200.

All the 4 executive directors had or should have knowledge of the financial affairs of PATIMAS including these transactions and were in a position or had the reasonable means to detect, ascertain, address and/or resolve the veracity of the transactions and the audit issues arising from the same.  This was particularly in light of the nature, irregularities and magnitude / materiality of the transactions and their position, roles and responsibilities in the Company (including as directors in the subsidiaries involved in these transactions) as well as their knowledge of and/or involvement in the transactions.


Is the punishment enough, will it act as a deterrent? I don't think so, I think only a jail sentence will suffice.

Jail sentences are rarely given in offences regarding listed companies in Malaysia, but we just saw one example where the Securities Commission indeed managed to get the former Managing Director of Pancaran Ikrab Berhad (PIB) jailed for six years, and fined RM1 million.

Benalec: are reprimands and fines enough?

Article in The Star: "Benalec’s Leaw brothers reprimanded":


Bursa Malaysia has reprimanded Benalec Holings Bhd’s three Leaw brothers for breaching listing requirements and also fined them a total of RM250,000.

According to the stock exchange regulator, the directors failed to make immediate announcement, appoint an independent adviser and procure shareholders’ prior approval of the land disposals entered between Benalec’s subsidiary, Strategic Land Sdn Bhd (SLSB) with Sunshine 2000 Sdn Bhd (Sunshine 2000) and Seaside Synergy Sdn Bhd (Seaside Synergy) on Jan 18, 2012 and March 12, 2012.

 

On top of that, the land reclamation player also failed to appoint an independent adviser and procure shareholders’ prior approval of the Heads of Agreement announced on Dec 5, 2013 in relation to the rescission and cancellation of the land disposals.

 

The directors, who are also brothers, are Benalec managing director Datuk Leaw Seng Hai, former executive director Datuk Leaw Ah Chye and Datuk Leaw Tua Choon, who resigned on Dec 4, 2013.

Bursa announced some more detail:


Datuk Leaw Ah Chye and Datuk Leaw Tua Choon

Based on the evidence, the Purchasers (of the Land Disposals) were persons connected to (i.e. accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of) Datuk Leaw Ah Chye and Datuk Leaw Tua Choon by virtue of the control / influence of the 2 directors and the son of one of these directors had over the Purchasers as well as their involvement in the Purchasers.

Notwithstanding their interests in the Purchasers and the Land Disposals, Datuk Leaw Ah Chye and Datuk Leaw Tua Choon had:-

(a)    failed to declare their interests to the board of BENALEC and SLSB in accordance with paragraph 10.08(8) of the Main LR;
(b)   failed to ensure that BENALEC complied with paragraph 10.08 of the Main LR; and
(c)    concealed their interests in the Land Disposals from BENALEC and its board including persistent denial (including under oath) their interests despite being asked by the board after the complaint.

Further, Datuk Leaw Ah Chye had signed the directors’ resolutions of SLSB dated 18 January 2012 and 12 March 2012 authorising SLSB to enter into the Sunshine 2000 SPA and Seaside Synergy SPA respectively in contravention of paragraph 10.08(6) of the Main LR.

Dato’ Leaw Seng Hai

He was the Managing Director of BENALEC primarily in charge of the day to day management of the business and operations of the company including land disposals by BENALEC Group and had approved the Land Disposals on behalf of by SLSB.  He was also aware or should have been aware of the anomalies / unusual circumstances of the Land Disposals and the magnitude / materiality of the Land Disposals. Notwithstanding these, he had failed to undertake due enquiry and address these anomalies resulting in the breaches of the Main LR by BENALEC.   

More background can be found in this announcement:


An allegation was made in March 2013 by a complainant via email which was disseminated to various parties, including Bursa Securities, that two (2) land disposal transactions (concluded in January and March 2012 respectively) between a wholly-owned subsidiary of Benalec Holdings Berhad as vendor and two private companies as purchasers were related party transactions in that Datuk Leaw Tua Choon and Datuk Leaw Ah Chye were linked to the purchasing entities.


Related Party Transactions (RPTs) are often bad, many examples can be found in this blog. However, even worse are RPTs which are not earmarked as such.

Many cases however will go unnoticed. In that light, the chance to get caught is small. In the above case there was a tip off.

Given all the above (the severity of the breaches and the small chance of getting caught), is the punishment as meted out by Bursa really sufficient? I strongly doubt it.

Malaysia scores dismal on "open government"

The World Justice Project published its Open Government Index 2015. In the overall score, Malaysia ended on a dismal 88th place out of 102 countries.

Malaysia scored well on "Publicized Laws and Government Data", but badly on "Right to Information", "Civic Participation" and "Complaint Mechanisms".

This kind of research always has a subjective element in it, but overall (from own experience) I would agree with the above findings: excellent laws, but what is the use of it when enforcement and transparency are so lacking.

I guess most people have similar experiences with a complaint to a government agency that ended in a drawer somewhere and never came out of it. The reason why many people don't even bother anymore to file a complaint.

More information can be found here.

MyEG shares jump after juicy government contract

Article in The Star, some snippets:


Shares of MyEG Services surged at mid-morning on Wednesday after it was appointed by the government to compile and maintain database on the country’s foreign workers.

CIMB Research in a note said that it has raised MyEG's target price from RM5.28 to RM7.80.

It said the database will come from employers of foreign workers that must use MyEG’s online foreign workers work permit renewal services (FWPR) from 2015 onwards.

“We bump up our EPS forecasts by 38%-63% to reflect higher earnings mainly from the FWPR...."


Looks like MyEG got a pretty juicy contract here. According to CIMB Research the company was suddenly about 50% worth more, just because of this single contract.

Good news also for major shareholder Wong Thean Soon, who owns 44 million shares directly and 197 million shares indirectly. If the estimate of CIMB is correct than his worth has increased by more than half a billion RM.

Suddenly the highest regulatory settlement in the history of the Securities Commission doesn't look that large anymore:


"On 26 September 2014, Wong Thean Soon (“TS Wong”), entered into a settlement with the Securities Commission Malaysia (“SC”) in the sum of RM7,000,000 when he agreed without admission or denial of liability, to settle a claim that the SC was proposing to institute against him and 13 others for the manipulation of MyEG Services Berhad shares between 16 January 2007 and 24 April 2007, contrary to section 84(1) of the Securities Industry Act 1983."

Maemode: are a 100k fine and reprimands enough?

Bursa announced that it:


.... has publicly reprimanded MALAYSIAN AE MODELS HOLDINGS BERHAD (In Liquidation) (MAEMODE) and 6 of its directors for breaching the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, the Managing Director, Datuk Dr Lim Kee Sinn was fined RM100,000.

MAEMODE was publicly reprimanded for breaching paragraphs 9.03(1) and 9.04(l) of the Main LR read together with paragraphs 2.1(c) and/or (d) of Practice Note 1 (PN1) for failing to make an immediate announcement of the default in payment of the Syndicated Working Capital Facilities of up to RM400 million from RHB Bank Berhad (RHB) and Malayan Banking Berhad to MAEMODE and its subsidiaries, AE Automotion (M) Sdn. Bhd. and Matromatic Handling Systems (M) Sdn. Bhd. (the Syndicated Facility).

Notwithstanding that MAEMODE was de-listed on 2 July 2014, the breach had been committed while MAEMODE was listed on the Official List of Bursa Malaysia Securities.


And further:


MAEMODE had defaulted in payment of the Syndicated Facility which was secured under a debenture as early as / prior to RHB’s  letter dated 16 April 2013 which had, amongst others, highlighted the arrears/ overdue position of the Syndicated Facility to MAEMODE.

Subsequently, vide letter dated 4 June 2013, RHB had informed MAEMODE that the financiers had declared the occurrence of an event of default and demanded MAEMODE to pay the total outstanding sum of RM96,082,818.51 due as at 31 May 2013 which represented 39.3% of the Group’s net assets at the material time.

However, MAEMODE only announced the default in payment of the Syndicated Facility on 20 June 2013.


Are the above fine and reprimands sufficient punishment? Is this really a credible deterrent for future violations?

I have blogged several times about Maemode, the worrisome deterioration of its financial situation between 2007 and 2013, the sudden collapse (predicted and explained in detail by blogger "Ze Moola"), the lack of subsequent transparency (the last quarterly report was for the period until May 2013, no other quarterly report followed, nor an audited year report or annual report over the years 2013 and 2014), etc.

ACGA: CG in Malaysia improving (2)

I wrote about this excellent regional Corporate Governance report before. This time I like to zero in on the disclosure of enforcement.

The relevant text in the CG Watch 2014 report is as follows:

I respectfully disagree with the above findings, especially the part about easy and logical access to enforcement information (one of the rare times I disagree with in the report).

Most likely the researchers looked from the angle of enforcement. But the angle which investors and market observers really want to use is (as so often) conveniently shown at David Webb's website:

A simple box at the top of the website, where one can search for enforcement news regarding a company or person.

Lets take an example, stock code 0010, Hang Lung Group Limited:

There are many ways to look at the data, but the beauty of the "Officers"-tab is that all the names of the people involved (either current or historic) are "clickable".

If we click for instance on "Chan, Ronnie ChiChung" then we get the following information:

That is a really helpful way for people to quickly get a grasp about both a company and its officers: have there been any issues in the past? Have the officers previously worked for other companies with issues?

Unfortunately, both the enforcement website of Bursa and Securities Commission don't even come close to this level of sophistication.

Things could be improved if Bursa would add all enforcement actions in their own announcements website under a separate category, where all enforcement news would appear, both from Bursa Malaysia and the Securities Commission grouped together, linked to the relevant company.

Despite having an otherwise excellent announcement website (I can't stress this enough, it is much better than all other announcements websites that I frequent), there is always room for improvement I guess.

I hope to continue to write more about the CG Watch 2014 report, which is in general quite positive about the CG developments in Malaysia.

Australia 'paradise' for white-collar criminals (2)

And, not completely unexpected, Medcraft, the Chairman of the Australian Securities and Investments Commission has backtracked his previous statement that "Australia was a "bit of a paradise" for white-collar crime".

At a Senate estimates hearing the next day, he said he wanted to "correct" the comments as reported, having received a phone call from Finance Minister Mathias Cormann expressing his concern.


The Sydney Morning Herald continues (some snippets):


It was the sort of startling and "courageous" comment rarely heard from a senior public servant.

Greg Medcraft, the chairman of the Australian Securities and Investments Commission, may well be regretting his since-retracted statement this week that Australia was a "bit of a paradise" for white-collar crime.

But if his aim was to attract attention to the issue of penalties for corporate wrongdoing in Australia, his lapse into frankness may well have done the trick.

Medcraft has been pushing for months for tougher penalties in this area. In February, he told a Senate committee that Australia's penalties were inadequate, with the criminal sanctions inconsistent and civil fines set too low.

When it came to deterring white-collar crimes, Medcraft said, "you have to lift the fear and suppress the greed".

"The thing that scares white-collar criminals is going to jail, and that's what scares them everywhere in the world.

"The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough."

Nationals senator John Williams, an outspoken critic of the financial advice sector who has pushed for widescale reform, told the hearing: "I've said for 5½ years that we should have a royal commission into white-collar crime because I believe Australia is, today, a paradise for white-collar crime."

Some argue ASIC could make better use of the penalties available to it – that the problem is one of enforcement.

"In some cases it's true that Australia's maximum penalties can be less than the maximum penalties overseas," said corporate law expert Juliette Overland from Sydney University.

She agrees that there is a "good argument" for more consistency in sentencing of corporate wrongdoing in Australia.

But she says the focus should be on "deterrence up front, and the idea that if you engage in this conduct you will get caught", she said.

"The biggest problem with a lot of corporate crime is that it's so hard to uncover … if people think it's only a small chance you will get caught, they might still think it's worth a try."


The above is all very relevant in the Malaysian context. Ten, twenty years ago enforcement of white-collar crimes was virtually non-existent. I am pretty sure that some corporate "players" refer to this as "the good old time".

The good news is, things have clearly improved: more enforcement, and even some jail sentences. There is also much more transparency for investors these days, enabling them to stay away from "dodgy" companies and their insiders. That is, if investors do their homework.

But still, the glass is half full, there are many cases where the alleged perpetrators seem to get away with their loot, or receive at best a much delayed slap on the wrist.

Good enforcement should have the following characteristics:

• a high chance that the perpetrators will be caught;
• the punishment itself should be an adequate deterrent;
• the whole process should be relatively fast (justice delayed is justice denied), this includes a fast response to credible complaints received from the public;
• non-biased, it should not be that certain VIPs appear to be above the law;
• transparent, both regarding the backgrounds of the enforcements, but also when no action is taken in cases where it seems that rules might have been broken.

Malaysia can still clearly improve on the above.

Australia 'paradise' for white-collar criminals

I wrote several times in a negative way about the Australian financial industry, and the lack of enforcement: here, here, here and here.

I have insights in a few (rather dodgy, to put it mildly) companies listed on the Australian exchange, and am indeed shocked, I think that most of those companies would not have been allowed to list on Bursa Malaysia. Next to that, the financial statements of the smaller listed companies compare very badly to the statements of ACE listed companies.

It seems that the chairman of the ASIC (Australia's Securities Commission) seems to agree on that, according to this article on Sydney Morning Herald's website.

Some snippets:


Australia is a "paradise" for white-collar criminals because of its soft punishment of corporate offences, the Australian Securities and Investments Commission chairman, Greg Medcraft, says.

Mr Medcraft said the only realistic response was harsher jail terms and bigger penalties for white-collar crime.

He also repeated calls for a national competency exam for financial advisers in the lead up to a crackdown on the industry and more funding for ASIC to investigate the finance sector, including a user-pays funding model.

Finance industry players were not "Christian soldiers", Mr Medcraft said on Tuesday, but were motivated by fear and greed.

"You have to lift the fear and suppress the greed," he said.

"This is a bit of a paradise, Australia, for white collar.

"The thing that scares white-collar criminals is going to jail and that's what scares them everywhere in the world."

"The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough. All you're doing is giving them a slap on the wrist [and] that is not deterring people."

In the past few years ASIC has come under fire over its handling of scandals at the financial planning arms of the Commonwealth Bank, Macquarie Group, and Storm Financial.

At recent Senate and parliamentary committee inquiries the corporate regulator was accused of being too slow to act against dodgy financial planners, of lacking transparency and being too trusting of big business.

Mr Medcraft admitted ASIC had made mistakes, but said its capacity to investigate and pursue corrupt financial advisers had been curtailed by a lack of resources.

He vowed to be more transparent about ASIC's enforcement actions and said the regulator would "not be captive to the big end of town".

"If we want to react faster, then having more resources to be able to do it is important," he said.

The Australian Securities and Investments Commission plans to devote more resources to scrutinising and investigating the financial advisory industry while also forcing the sector to lift its game through better education, monitoring and reporting of breaches.

SC enforcement

Quite a few fresh enforcement actions by the Securities Commission, here, here and here.

More details on the civil suit against Kenneth Vun and six others.

Lots of regulatory settlements regarding share manipulation and insider trading "without admission or denial of liability". I am not much a fan of the last part, but it might be a practical way to finalize the cases, which often stretch back many years in the past.

Capital Dynamics Asset Management (Tan Teng Boo's firm) was mentioned: "Failure to disclose the deferred performance fees chargeable annually in the statements issued to its clients", and received a directive "to disclose to its clients the chargeable performance fees to date, in the statement issued to its clients by 31 December 2014".

Cases against Apex Investment Services and AmInvestment Bank were older.

Bursa reprimands Nakamichi, fines ED

Bursa announced enforcement against Nakamichi and its Executive Director, some snippets:


Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded Nakamichi Corporation Berhad (NAKA or the Company) and its former executive director, Lo Man Heng for breaches of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, Lo Man Heng was fined a total of RM1,432,000 as at 8 October 2014.

Lo Man Heng, the former executive director of NAKA was found to have breached paragraph 16.13(a) of the Main LR for causing NAKA’s failure to announce the 2nd QR 2013, 3rd QR 2013, 4th QR 2013 and AAA 2013 within the stipulated timeframes resulting in the breaches of paragraphs 9.22(1) and 9.23(2) of the Main LR.  A public reprimand and fine of RM2,000 per market day for each delay of the financial statements (subject to a maximum fine of RM500,000 for each financial statement) until the relevant accounts, information / documents of the subsidiary, Tamabina Sdn. Bhd. (Tamabina) was furnished to NAKA to enable preparation and finalisation of the 2nd QR 2013 were imposed on Lo Man Heng.

....

The finding of breach and imposition of the above penalties on NAKA and Lo Man Heng were made pursuant to paragraph 16.19 of the Main LR upon completion of due process and after taking into consideration all the facts and circumstances of the matter including the following:-

• the aggravating conduct of Lo Man Heng; and
• the materiality / impact of the breach vis-à-vis the material price and volume movement of NAKA’s securities upon the announcement that the Company would not be able to submit its 2nd QR 2013 within the timeframe stipulated and the non-submission of the 2nd QR 2013 had led to the suspension in the trading of NAKA’s securities from 9 September 2013 pursuant to paragraph 9.28(5) of the Main LR.

The people behind Golden Plus (about which company I wrote before, here and here) might want to take notice of the above.

Slow enforcement, low punishment

I have often complained about slow enforcement and low punishments (often just a reprimand, sometimes a relative small fine) in Malaysia, regarding listed companies.

A recent example of slow enforcement is to be found here, and of low punishments here and here.

However, it is important to notice that all is not well in other countries in the world either.

Two glaring examples just appeared.

Bronte Capital wrote: "Steal three billion dollars, get a 700 thousand dollar fine: the scammers have a better business model - Sino Forest edition".


At its peak, Sino-Forest was the biggest forestry firm on the Toronto Stock Exchange, with a market value of more than $6-billion. It also raised a staggering $3-billion from investors between 2003 and 2010 before falling into creditor protection in 2012.

 Simple question: Where did that $3 billion that was raised go?

Answer: Into someone's pocket.

 Have you made a few billion dollars lately?

 Repeat after me: the fraudsters have a better business model.


In the category "slow enforcement", David Webb provides the following link:

"Hong Kong Institute of Certified Public Accountants takes disciplinary action against a certified public accountant (practising), a certified public accountant and a firm of certified public accountants".

This is in relation to poorly executed audits performed on a company in respect of the financial years 1995 until 1997. In other words, almost twenty years ago.

Kenneth Vun in the limelight again

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.