How Much Fine For Cooking Your Books? Part II

On today's Star Business:

• Does white-collar crime pay?
• What the Securities Commission (SC) says
• The lack of deterrent sentencing
• Notable foreign white-collar crimes and punishment
• Challenges in making a case

From the first article...

• To illustrate the matter, consider these cases. Former director of Fountain View Development Bhd, Datuk Chin Chan Leong was fined RM1.3mil in default of 13 months’ jail and only one day in prison for manipulating the share price of Fountain View seven years before. During the period of the alleged stock manipulation, Fountain View’s shares shot up from RM1.99 a piece to hit a high of RM6.15, raising its market capitalisation from RM885mil to RM2.73bil at that time.

Oh yeah... that Fountain View! This was blogged on 7 Feb 2010: Fountain View's Share Manipulators Caught And Fined!

Let me reproduce...

----------------

On Business Times:

• Fountain View ex-director, ex-remisier fined
  
  Published: 2010/02/06
  
  FORMER director of Fountain View Development Bhd, Datuk Chin Chan Leong, was fined RM1.3 million or in default of 13 months' jail as well as sentenced to serve one day in prison for manipulating the share price of the company seven years ago.
  
  Chin pleaded guilty yesterday to the offence committed between November 18 2003 and January 20 2004 for creating a misleading appearance of active trading of Fountain View shares on Bursa Malaysia through at least 20 CDS accounts.
  
  These accounts were beneficially owned by the accused through the companies that Chin controlled.
  
  Hiew Yoke Lan, a former Avenue Securities Sdn Bhd remisier, was also fined RM1 million or 10 months default jail sentence for abetting Chin in the offence. Hiew was responsible for executing and relaying orders for the sale and purchase of the shares during the material time to various stockbroking firms.
  
  In a statement issued yesterday, the Securities Commission (SC) said this is the second conviction for market manipulation which it has successfully prosecuted.
  
  The regulator said it has been proactively pursuing this and other market misconduct cases such as manipulation, market rigging and insider trading because such activities severely undermines investor confidence and tarnishes the reputation of the Malaysian capital market.

I remember this one.

Anyway, let's have an idea on what happened. "A misleading appearance of active trading of Fountain View shares on Bursa Malaysia through at least 20 CDS accounts".

The offence was committed between November 18 2003 and January 20 2004.

From yahoo finance, these are the historical stock prices I am looking at for Fountain View.

http://finance.yahoo.com/q/hp?s=6335.KL&a=10&b=18&c=2003&d=00&e=20&f=2004&g=d

During this period, Fountain View had a low of 1.99 and a high of 6.15!!!!

And here is the nice handy work.

Now consider this also. Fountain View has 444.940 million shares. Currently, Fountain View is suspended at 22 sen. At 22 sen, Fountain View carried a market cap of 97.8 million.

Back in Nov 2003, at a low of 1.99, Fountain View carried a market cap of 885 million.

And at the peak of this share manipulation of around 6.15, Fountain View carried a market cap of 2.73 billion!!!

Which meant that some 1.845 billion in market cap was created via the share manipulation!

How?

The fine today is only 1.3 million!!!!!!!!!!!!

Yeah, I did blog on Fountain View before. See That Fountain View Again.

Let me side track a bit. Do you know that back on 14 Feb 2004, there was this news clip involving Fountain View.

• Fountain View in talks to buy Kurnia Setia stake
  
  BY JOSE BARROCK
  
  FOUNTAIN View Development Bhd is eyeing a stake in plantation counter Kurnia Setia Bhd. It is believed that talks between both parties have just commenced and therefore, details are not forthcoming.
  
  Kurnia Setia – a little known main board plantation counter with a market capitalisation of only about RM69.32 million – has some 11,522 ha of oil palm and rubber plantation, and is controlled by the Agricultural Development Board of Pahang with a 45.41 per cent stake in the company.
  
  It is believed that Fountain View Development is looking to increase its presence in the plantation business, especially in oil palm cultivation, capitalising on high crude palm oil (CPO) prices to boost its earnings. The company has been suffering losses since financial years 2001 and 2002.
  
  The financial year just ended may not bring much cheer to Fountain View Development shareholders as well. The company, for the nine months ended September 2003, posted a net loss of RM3.84 million on the back of RM56.32 million in sales.
  
  CPO prices have been on an upward trend since September last year, gaining some 35 per cent to close at RM1,892.50 on Thursday.
  
  “The problem is with the company's property development arm which is based in Johor. A focus on plantations will boost earnings, especially with the current high CPO prices,” the source says.
  
  Fountain View has about 11, 570 ha of plantation land, of which almost 70 per cent is cultivated with oil palm while the remaining are planted with rubber and cocoa. Previously known as Plantation and Development (Malaysia) Bhd, Fountain View was a PN4 counter. Under a restructuring scheme, Plantation and Development became a wholly owned subsidiary of Fountain View after a share swap, capital reduction exercise, issuing of irredeemable convertible unsecured loan stocks and debt compromise.
  News of Fountain View's interest in Kurnia Setia has yet to hit the market. Kurnia Setia shares closed at RM1.11, down three sen from its close on Wednesday. It hit its 52-week high of RM1.25 on Dec 8 last year while its low of 63 sen was on Feb 27 last year.
  
  Fountain View shares have risen six fold, since listing at RM1 on Nov 18 last year. The counter closed at RM5.80 on Thursday.

And this was Fountain's reply to Bursa in 2004: ARTICLE ENTITLED : "Fountain View in talks to buy Kurnia Setia Stake"

• The Board of Directors wish to inform that the Company has never been involved in any talks to acquire a stake in Kurnia Setia Berhad and as such wish to deny the following statement :

And which company benefited from such news article? See the jump in Kurnia Setia after such news reporting:

http://finance.yahoo.com/q/hp?s=5193.KL&a=01&b=10&c=2004&d=01&e=20&f=2004&g=d

See the jump in volume and share price for Kurnia Setia? Nice eh? The power of the press using words like 'it is believed' and 'according to sources'.

read rest here: Fountain View's Share Manipulators Caught And Fined!

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And in another blog posting: 29 March 2007: That Fountain View Again.

>>>>>>>>>>>

Saw this news article: Fountain View, directors reprimanded

I've added some comments in green bold

• By Azlan Abu Bakar
  alan@nstp.com.my
  
  March 29 2007
  
  FOUNTAIN View Development Bhd and its directors have been publicly reprimanded by Bursa Malaysia Securities Bhd for breaches of several listing requirements.
  
  Among those reprimanded were non-executive chairman Datuk Dr Ir Abdul Rashid Maidi and former non-executive chairman Datuk Miskon @ Miskam Setera @ Sutero, who had resigned in June 2004.
  
  Bursa Malaysia said Fountain View had failed to take into account adjustments made by the company in its fourth quarterly report for the financial year ended December 31 2005.
  
  In that financial year, the company had reported an unaudited loss after tax and minority interest of RM5.36 million, compared to an audited net loss of RM68.48 million in the annual audited accounts. (WOW!!!!! 5.36 million and rm68.48 million is a lot, isn't it? Really!!!! What if there is the issue of intent???)
  
  The difference of RM63.12 million represents a 1,176.8 per cent deviation.
  
  Fountain View was also found to have breached the listing rules in respect of payments of RM27.98 million made to Bizvista Success Sdn Bhd during the period of February 10 to April 5 2004.
  
  The payments were made on behalf of Wright Mart Sdn Bhd and Burke Greenville Sdn Bhd prior to its directors' approval for the proposed subscription of Wright and Burke on May 26 2004.
  
  Its directors were reprimanded, among others, for failure to ensure that the advances to a contractor (Matrix Home Sdn Bhd) amounting to RM31.066 million in relation to a property development project in Alam Mutiara were fair and reasonable to Fountain View and not to the detriment of the company and its shareholders.
  
  Bursa Malaysia said the penalties were imposed after taking into consideration all circumstances of the matter and upon completion of due process.
  
  The directors were fined between RM2,500 and RM500,000 respectively.
  

Seriously only fined between rm2,500 amd rm500,000???

How can?

Remember: The difference of RM63.12 million represents a 1,176.8 per cent deviation.

Read rest : That Fountain View Again.

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The Star Business article then talks about Welli and Pancaran Ikrab.

• More recently, two former board members of Welli Multi Corp Bhd, a food manufacturer, were convicted of falsely reporting sales in the company’s audited financial statements. They were sentenced each to one-day jail and a fine of RM400,000 in default of one-year jail. Also a former director of a de-listed company, Pancaran Ikrab, was also jailed one day and fined RM2mil after being convicted of fraud involving millions

Welli was highlighted on this blog in 2008: Welli: Charged with Cooking Their Books

And earlier this month: How Much Fine For Cooking Your Books?

18th Feb 2008, on Business Times

• SC may take legal action against parties involved
  
  By Francis Fernandez Published: 2008/02/18
  
  The regulator says the probe into the issuance of Welli Multi's 2005 and 2006 financial reports that contained false information is in the advanced stages
  
  THE Securities Commission (SC) may take legal action against those who cooked the books at Welli Multi Corp Bhd.
  
  An SC spokesperson said that the regulator does not consider the matter closed just because Welli re-issued its financial reports.
  
  "Investigations into the parties responsible for the issuance of the company's 2005 and 2006 financial reports that contained false information are in the advanced stages.
  
  "Appropriate enforcement action will be decided upon completion of the investigations," the SC spokes-person wrote in an e-mail to Business Times.
  
  It is understood that initial investigation revealed a number of bankers acceptance notes were issued by the company to "questionable" companies.
  
  Last June, Welli was told to withhold releasing quarterly accounts and the annual audited accounts for the period to March 31 2007. This was to verify the authenticity and recoverability of some RM113 million worth of trade receivables.
  
  The Penang-based palm kernel processor, listed on the second board, was instructed to rectify and re-issue its accounts.
  
  Last Friday, Welli re-issued its accounts up to the period ended December 31 2006, reporting a net loss of RM17.61 million.
  
  Net assets per share for the period under review stood at 50 sen a share versus 70 sen a share before.
  
  It has until March 15 to issue financial accounts for the remaining quarters.
  
  Welli's managing director Datuk Abdul Ghani Ali Kadir told Business Times that he had been interviewed by the SC, but he declined to speculate on their intentions.
  
  Abdul Ghani, who was appointed as executive chairman and managing director of Welli in September, is not being investigated.
  
  In November, Abdul Ghani bought 16.06 per cent of the company from controlling stakeholders, the Ang brothers, who represented the interest of Ang Sun Beng, Ang Soon An and Ang Sun Tiong
  
  Abdul Ghani, who is currently in South Korea, is heading a team to "rescue" Welli from its current predicament.
  
  "I believe in the business. It is in a very good industry, but we will have to tweak the operations and have proper check and balance mechanism in place," said Abdul Ghani.

16th April 2008, on Business Times:

• Charged with cooking books
  
  Published: 2008/04/16
  
  The Securities Commission says two former Welli Multi directors, the Ang brothers, falsified company accounts in the 2005 annual report and quarterly reports for 2006
  
  THE Securities Commission has charged two former directors of Welli Multi Corp Bhd with falsifying company accounts, about 10 months after it first took action against the palm kernel crusher.
  
  The regulator has sued Ang Sun Beng, 62, the former managing director of Welli and his younger brother Ang Soon An, 58, who was also a former executive director.
  
  "Upon conviction, the accused persons are liable to a fine not exceeding RM3 million or to imprisonment for a term not exceeding 10 years, or both," the SC said in a statement released yesterday.
  
  They were charged with falsifying accounts in its 2005 annual report where Welli posted a revenue of RM573 million and a net profit of RM5 million.
  
  They were also charged with manipulating the numbers for the first three quarters of fiscal 2006, which ends on December 31.
  
  In addition, the SC has fined Welli's former executive director and chief executive officer, Tan Chin Han, RM100,000 for authorising the submission of the 2006 third quarter accounts.
  
  The Ang brothers have claimed trial to the charges.
  
  Judge Rozana Ali Yusoff imposed bail of RM150,000 with one surety on each of them and ordered them to surrender their travel documents. She fixed May 9 for mention.
  
  In February, the SC told the Business Times that it may take legal action against those who cooked the books at Welli. It had said that investigation was at an advanced stage.
  
  Initial investigations revealed a number of bankers acceptance notes were issued by the company to "questionable" companies.
  
  In June 2007, Welli was told to withhold releasing quarterly accounts and the annual audited accounts for the period to March 31 2007.
  
  This was to verify the authenticity and recoverability of some RM113 million worth of trade receivables.
  
  The Penang-based palm kernel processor, listed on the second board, was instructed to rectify and re-issue its accounts.
  
  Welli then re-issued its accounts up to the period ended December 31 2006 in February this year, reporting a net loss of RM17.61 million.

This is the Star Business version: SC queried Welli over unusual market activities

• PETALING JAYA: Welli Multi Corp Bhd, whose former managing director (MD) and executive director (ED) were charged yesterday for providing false information to the regulators, had been queried by the Securities Commission (SC) several times over the unusual market activities and its string of proposed acquisitions.
  
  Following the SC’s move to charge former MD Ang Sun Beng and ED Ang Soon An, the company issued a statement saying that the brothers ceased to be directors on April 9 and Nov 22 last year respectively.
  
  Welli said the brothers had also ceased to be substantial shareholders since March 26.
  
  The company had on several occasions sought Bursa approval for time extensions to release its financial results. It had on Dec 6, 2006, sought to delay the release of the financial results for the quarter ended Sept 30, 2006. When it released the results on Feb 28, 2007, it reported a net profit of RM375,000. However, when the results were revised and released on Feb 15 this year, there was a net loss of RM5.01mil instead
  
  Welli had also sought extensions to submit the reports for the quarters ended June 30, 2007; Sept 30, 2007; and Dec 31, 2007. It also sought for delays in submitting the audited financial statements for the period ended March 31, 2007.
  
  However, on April 8 this year, Bursa rejected all the extensions.
  
  Last year, while Welli was delaying the release of its results, its share price saw heavy speculative trading from May to June. The stock surged from 92.5 sen on May 16 last year to RM3.32 on May 29, a whopping 258%.
  
  On May 18, in response to a Bursa query, Welli said it was in discussion with a food company for a possible tie-up to expand and grow its businesses. This announcement sent the share price rallying, prompting a warning from Bursa on May 22 that it would not hesitate to take appropriate regulatory action to ensure fair and orderly trading of Welli shares after the run-up in the share price.
  
  It hit a 52-week high of RM3.32 on May 29 before tumbling to RM1.11 on June 3. On June 26, the SC ordered the company to withhold the release of its results as the authority had received information questioning the authenticity and recoverability of 84% or RM113mil of its trade receivables of RM135mil as at Dec 31, 2005.
  
  Welli is involved in processing copra and palm kernel, foodstuff and also provided computer software consultancy services. Over the past two years, it had also announced a string of deals, ranging from a plan to build the world’s largest, state-of-the-art halal gelatine plant, which was later dropped.
  
  It also announced in July last year that it had entered into a heads of agreement with the government of Inner Mongolia to develop halal beef and major infrastructure like mining, toll roads and power generation.
  
  It also said it would acquire a stake in China’s Chi Feng Dadi Basic Industry Co Ltd, which is listed on the Shenzen Stock Exchange.
  
  It closed 0.5 sen lower to 30.5 sen yesterday.

So the brothers ceased to be shareholders since March 28th. (Anyone interested in doing the audit in how much they got from disposing their shares? Check Bursa links below)

• 21/03/2008 Changes in Director's Interest (S135) - Ang Sun Beng
• 17/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Soon An
• 17/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Sun Tiong
• 17/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Sun Beng
• 17/03/2008 Changes in Director's Interest (S135) - Ang Sun Beng
• 11/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Sun Tiong (Amended Announcement)
• 10/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Sun Tiong
• 10/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Soon An
• 10/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Sun Beng
• 10/03/2008 Changes in Director's Interest (S135) - Ang Sun Beng
• 07/03/2008 Changes in Sub. S-hldr's Int. (29B) - Ang Sun Beng
• 07/03/2008 Changes in Director's Interest (S135) - Ang Sun Beng

Remember in 2008, SC made the following statement:

• "Upon conviction, the accused persons are liable to a fine not exceeding RM3 million or to imprisonment for a term not exceeding 10 years, or both," the SC said in a statement released yesterday.

On today's Business Times.... judgement day.

• 2 former Welli directors convicted
  
  Published: 2010/10/12
  
  WELLI Multi Corp Bhd former managing director Ang Sun Beng and former executive director Ang Soon An were convicted in the Kuala Lumpur sessions court yesterday for furnishing the Securities Commission with misleading sales information.
  
  In a statement yesterday, the SC said both executives had furnished RM141 million in fictitious sales in its audited financial statement for the year ended December 2005.

So how much were they fined?

• At the Sessions Court yesterday, judge Rozana Ali Yusof sentenced each of the accused to one day’s jail and a fine of RM400,000 in default of one-year imprisonment.

One day's jail and a fine of RM 400,000!

They cannot be serious!? Can they?

Posted on Saturday: Lack Of Punishment For Corporate Crimes!

On Star Business: Too little punishment for too much

Several points to highlight:

• Now, the scale of the offence becomes much clearer. Ngu used RM15.5mil to finance his purchase of shares in Pancaran Ikrab and caused RM37mil to be transferred out of the company, making in all a massive RM52.5mil.
  And all he got was a day’s jail and a fine of RM2mil. Why? And there was nothing said about restitution or return of the monies.

A day jail and a fine of 2 million for an offence worth rm 52.5 million???

Sigh!

With punishments like these, would we ever see the end of corporate crimes? Yeah, how are we going to stop corporate crimes?

Star Business had a slightly longer coverage: Former Welli Multi directors convicted

• Brothers jailed one day and fined for false reports
  
  PETALING JAYA: Two former board members of Welli Multi Corp Bhd, a food manufacturer, was convicted by the Kuala Lumpur Sessions Court yesterday for falsely reporting sales in the company’s audited financial statement for the year ended Dec 31, 2005.
  
  Judge Rozana Ali Yusof sentenced each of the accused, who are brothers, to one day jail and a fine of RM400,000 in default of one year imprisonment.
  
  The brothers pleaded guilty to the charges and were convicted under the Securities Industry Act 1983 together with three other charges that were taken into consideration in the sentencing.
  
  The Securities Commission (SC) said in a press release that the two, Ang Sun Beng, 64, a former managing director of the company, and Ang Soon An, 60, a former executive director and member of Welli Multi’s audit committee, had furnished misleading reports which consisted of over RM141mil in fictitious sales for that financial year.
  
  “The misleading statement which was released to the market, made a significant impact on the market price of the company,” the SC said.
  
  It added that the company’s share price dropped 43% after news of the statement became known to the public in 2008 following a restated financial statement for 2005.
  
  Welli Multi was then listed on the second board of Bursa Malaysia but changed its name to Energreen Corp Bhd in November 2008.
  
  Energreen was delisted from the stock exchange on Aug 17, 2009 after Bursa Securities found that the company’s financial condition and level of operations did not warrant continued trading or listing

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Here's two interesting articles in 2007.

From the Edge:

• 8 Oct 2007: Corporate: What's going on, Welli?
  By Cindy Yeap
  
  If anything, investors scoot at the mere mention of "accounting irregularities". Another phrase that elicits similar behaviour is "suspect receivables", especially after what auditors unearthed at Transmile Group Bhd.
  
  Yet, it seems, investors have made an exception of Welli Multi Corp Bhd. Its share price has held firm over the last three months although the Securities Commission (SC) is investigating the authenticity of RM113 million or 84% of its RM135 million trade receivables for FY2005. This works out to RM1.31 per share.
  
  Also ignored is the fact that Welli's CEO resigned in the middle of last month after less than four months in the post. Then, there's the fact that Welli has not presented its unaudited quarterly accounts for four quarters (the last unaudited results it released were for the quarter ended Sept 30, 2006) as well as last year's audited accounts. Its reason? There was a fire in its administration department last November.
  
  Amazingly, there was a spike in the stock's price and volume early last week. The counter rose 17.5 sen or 18% to RM1.14 last Tuesday, with 22.5 million shares traded.
  
  An SC spokesperson tells The Edge that Welli had until last Friday to reply to a show-cause letter sent to the company "with regard to the discrepancies in its financial statement for the year ended Dec 31, 2005, and quarterly reports for March 31, 2006, June 30, 2006 and Sept 30, 2006".
  
  "The SC's investigation into Welli Multi Corp is ongoing… Other actions against the company may follow, depending on the outcome of our ongoing investigation," the spokesperson adds.
  
  The credibility of Welli's books is not the only thing in question here. While the SC had the foresight in June to bar the company from issuing any other financial statements until the regulator had ascertained previous numbers were accurate, that order has not stopped potentially misleading information from being disseminated. At the same time, there has been a slew of board changes at Welli.
  
  Let's not even go into the number of HoAs (heads of agreement) and MoUs (memorandums of understanding) that have been signed over the past few months, and the rather "suggestive" statements that found their way to the local press. An example: Hadhari Cattle Industry Sdn Bhd offering RM1.50 a share for a 19% stake in Welli, owned by the Ang family led by Ang Sun Beng.
  
  Whether or not this "leak" was intentional, Welli's share price, which had closed at RM1.05 prior to the speculation, jumped to RM1.61 on July 5. It was only when Welli replied to a Bursa Malaysia query that it became publicly known that HCI's offer for the 19% stake was off. Welli said the two parties could not agree on terms.
  
  The thing about the revelation is that it came only after Bursa made a query based on a news report.
  
  Minority shareholders would have benefited if Welli had explained why CEO Abdul Rashid Tang Abdullah left the company and elaborated on the status of its plans to build the world's largest halal gelatine plant with HCI. Abdul Rashid owns 35% of HCI. Moreover, he is on record as saying that he accepted the CEO's post at Welli because he believed its books were clean.
  
  While the letter of the law does not require a company to provide a reason for its CEO's resignation, a board with its minority shareholders' interest at heart would have provided some details.
  
  Instead, Welli only announced that it had elevated chairman Datuk Abdul Ghani Ali Kadir, 53, to group managing director. Abdul Ghani, who is also the executive chairman of Boon Koon Group, was formerly the executive secretary of Barisan Nasional Kedah and is said to be a long-time associate of Tan Sri Muhyiddin Yasin.
  
  Abdul Ghani's redesignation on Sept 17 came together with the appointment of two new independent directors — Datuk Seri Ibrahim Saad and Datuk Wira Jamaludin Abdul Rahim.
  
  It would be so easy to brush Welli Multi aside. It is a Second Board company with only RM90 million in market capitalisation. But the SC's probe shows that the regulator is serious about ensuring strict adherence to the law, and will wield the stick if necessary.
  
  Still, there is a need to ensure investors get accurate and timely information about what is going on at the company. If at all, Welli should inform its minorities why Abdul Rashid resigned, particularly since he had a promising story for the company

And...

• 3 Dec 2007: Big Money: When the message is vague
  By Cindy Yeap
  
  Ever tried asking those who regularly read company announcements posted on the stock exchange's website how many are pleased with what they see? The announcements may pass muster most of the time but there are times when they are unambiguously vague.
  
  Really, there should be no need for reminders that announcements must be easily understood by the average investor and in sentences whose meaning cannot possibly be misunderstood. Public-listed companies should know they are required by law to do so.
  
  The Bursa Malaysia listing rules clearly state that a public-listed company's obligation does not end at making timely announcements. Companies must ensure their announcements contain "sufficient information" to enable investors to make informed decisions. They must also clearly state what effects the developments will have on the company, and explain why if it is unable to do so. In short, the content of an announcement is as important as its timing.
  
  Queries made by Bursa Malaysia officers do help make more information available. But even then, there are still companies that give vague replies to the stock exchange.
  
  Take, for instance, the announcement by Second Board-listed Welli Multi Corp Bhd last Tuesday. In a statement, Welli Multi announced that the Securities Commission (SC) had on Nov 27 instructed the company to rectify and reissue its financial reports within one month for four financial periods — being its audited accounts for the year ended Dec 31, 2005; as well as quarterly reports for its first, second and third quarter of its financial year ending Dec 31, 2006.
  
  The company did not specifically say why the SC had ordered the accounts to be reissued. All it did was cite six previous announcements. The six include one dated June 26 where the SC had instructed the company to withhold further issuance of its financial results pending the completion of the SC's investigation on alleged RM113 million in suspect receivables for FY2005, being 84% of its trade receivables of RM135 million for the period.
  The following day, Bursa Malaysia promptly queried Welli Multi, ordering the company to immediately release specific details of the required rectification to its accounts as ordered by the SC.
  
  Here's how Welli Multi replied in verbatim: "The SC has via its letter dated Nov 27, 2007, instructed the company to rectify and reissue the following financial reports by excluding the following figures from group revenue: (a) audited financial statements for the year ended Dec 31, 2005, with exclusion of RM141,272,866; (b) quarterly report for the quarter ended March 31,2006, with exclusion of RM40,361,892; (c) quarterly report or the quarter ended June 30, 2006, with exclusion of RM45,076,031; (d) quarterly report for the quarter ended Sept 30, 2006, with exclusion of RM86,791,804. The board of directors wishes to advise that the aforesaid exclusion is subject to the auditors' verification."
  
  Put simply, Welli Multi is saying the SC has found mistakes in the company's revenue in its latest three quarterly earnings announcements as well as in its latest audited accounts and has ordered corrections be made.
  
  The obvious questions here to an investor are, what impact the reduction would have on the company's book and why the SC ordered the changes. Then there's the question of whether Welli Multi agrees with the SC's findings and whether there are still grounds for dispute. There's no question as to whether these pieces of information are material.
  
  Even if Welli Multi had been given one month to make the changes and may have planned to give a lengthy explanation after the changes have been made, there's still no excuse for not stating clearly that the changes may result in the company making a loss. If one were to reduce RM141.27 million from Welli Multi's revenue for FY2005, its revenue will be reduced to RM431.26 million, which is less than the reported RM550.7 million in cost of sales. Furthermore, the amount of alleged misstatements is twice the size of Welli Multi's market capitalisation.
  
  But at press time, there were no subsequent announcements on the matter. The SC, too, had not made any statements on the status of its investigations on Welli Multi's accounts.
  
  It's regrettable that such a state of affairs is now new. Incidentally, Welli Multi had made another one just the week before. On Nov 21, Welli Multi said three of its main shareholders — Ang Sun Beng, Ang Soon An and Ang Sun Tiong — had agreed to sell a 16% stake in Welli Multi to the company's group managing director Datuk Abdul Ghani Ali Kadir. It did not say at what price the share sale was agreed at nor did it say why two of the Ang brothers, both executive directors of the company, had subsequently resigned. It also did not say if the Ang brothers had any shares left after the sale.
  
  When asked, a Bursa Malaysia spokesperson said the regulator did not find it necessary to query Welli Multi on the announcement pertaining to the share sale agreement because the company has two weeks from the change in shareholding to make an announcement. If you were an investor of company X and company X made the same announcement Welli Multi did, would you not think the price at which the share sale had been agreed upon is material information?
  
  Welli Multi was only queried by Bursa Malaysia three days later after it was highlighted in the media that Abdul Ghani had agreed to pay RM1 a share for the 16% block. Still, the company did not say how the price — which at the time represented a 40% premium to market — was agreed upon. Bursa Malaysia had also asked Welli Multi to state the effect of the agreed share sale on those involved.
  
  The Welli Multi announcements illustrate that much more needs to be done to ensure that all investors get the information they need to make informed investment decisions. The regulators play a great part in ensuring that all public-listed companies toe the line. After all, it's an age-old saying that mice will play when the cat is away — or asleep.

=============================

Me say?

I feel the punishments ares way too light.

Sigh!

Don't you agree?

And the long term consequences, if thing remains the same, who would dare invest in the markets? How can anyone trust the listed companies when fraud is so prevailing?

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The lack of deterrent sentencing

Saturday October 30, 2010
The lack of deterrent sentencing
By ELAINE ANG

RECENT CASES

Pancaran Ikrab Bhd

Earlier this month, the construction outfit’s former managing director Ngu Tieng Ung was given a custodial sentence of one day and a fine of RM2mil for committing two counts of financial fraud involving RM15.5mil 13 years ago. Sessions court judge S.M. Komathy Suppiah allowed Ngu, 43, to pay the fine in 12 instalments starting next month, to be paid by the fifth of each month or a 30-day jail sentence if he fails. Ngu was charged with causing the transfer of RM15.5mil from Pancaran Ikrab’s bank account for the purchase of shares when the money was not meant for that purpose. The offences were committed in October 1997 and Ngu was charged in May 2005.

The Securities Commission (SC) said that under Ngu’s watch, a total of RM37mil was transferred out of Pancaran Ikrab. The money was never recovered and was written off in the company’s accounts.

Granasia Corp Bhd

In March, the Kuala Lumpur Sessions Court convicted Chan Kok Suan, the former managing director of Granasia for submitting false statements to the SC, namely the revenue and profit after tax of the company for the year ended Dec 31, 2002. The information was submitted in connection with Granasia’s proposal to list on the main board of the stock exchange. Chan was convicted under section 32B(4) of the Securities Commission Act and imposed a fine of RM500,000 in default, 10 months imprisonment, according to the SC. He was charged on Feb 9, 2006 and pleaded guilty on March 1, 2010. Prosecution has filed an appeal against the sentence to the High Court.

MEMS Technology Bhd

In February, the Kuala Lumpur Sessions Court convicted director and substantial shareholder Ooi Boon Leong and former director and chief financial officer Tan Yeow Teck for knowingly authorising the furnishing of a misleading statement by MEMS, listed on the then Mesdaq market, to Bursa Malaysia. The misleading statement is in relation to MEMS’ group revenue for the year ended July 31, 2007 contained in the condensed consolidated income statements. The Sessions Court sentenced each accused to a fine of RM300,000 (in default two years imprisonment). Ooi and Tan were charged on April 16, 2009 and pleaded guilty on Feb 25, 2010. Prosecution has filed an appeal against the two sentences to the High Court.

Fountain View Development Bhd

The Sessions Court sentenced the company’s former director Datuk Chin Chan Leong to a fine of RM1.3mil (in default 13 months imprisonment) and a one-day imprisonment for share manipulation in February. Chin was charged with creating a misleading appearance of active trading in Fountain View shares through transactions that did not involve any change in ownership on Bursa Malaysia through 20 central depository securities accounts. Avenue Securities Sdn Bhd former remisier Hiew Yoke Lan was fined RM1mil (in default 10 months imprisonment) for abetting Chin in the said offence. Both were charged on June 27, 2005 and pleaded guilty on Feb 5, 2010. Prosecution has filed an appeal against the sentence to the High Court.

Kiara Emas Asia Industries Bhd

Last November, the SC secured a conviction against director Datuk Tan Hooi Chong for abetting Kiara Emas in the misappropriation of the rights issue proceeds amounting to almost RM17mil between Dec 16 and Dec 31, 1996. Tan pleaded guilty to the offence under Section 32(6) of the SCA 1993 read together with Section 40 and Section 109 of the Penal Code. Tan had also admitted to misutilising the rights issue proceeds for his personal benefit. He was fined RM600,000.

PAST CASES

Idris Hydraulic (M) Bhd

According to the SC website, in 2001, former Idris Hydraulic managing director Datuk Ishak Ismail was convicted by the courts for disclosing false information to the SC in a proposal by Idris Hydraulic to the SC that stated he did not hold any shares in KFC Holdings Bhd (KFC). The information submitted was in connection with a proposal for the acquisition of an asset of KFC by Idris Hydraulic. Ishak pleaded guilty and was convicted on Aug 23, 2001.

He was fined RM400,000, in default six months imprisonment. In 2003, Ishak, as a director of Idris Hydraulic, was also compounded RM400,000 by the SC for misusing RM50mil of the proceeds raised from the disposal of Kewangan Bersatu Bhd.

As a result of the compound, the charge was withdrawn.

Aokam Perdana Bhd

Teh Soon Seng, former managing director of Aokam Perdana was suspected of being involved in short-selling the company’s shares. The SC subsequently investigated him for “possible breach of securities law”. They interviewed Teh for two days in Kuala Lumpur in 2003. Teh, however, has maintained his innocence to this day. It was reported that the SC said it had previously conducted an investigation involving Teh for possible breach of the securities law. However, the investigation revealed no evidence for action to be taken against him. Teh eventually sold Aokam and resigned as its managing director on March 8, 1997 before the Asian Financial Crisis became full blown. He subsequently left Malaysia for good. Nine months later, it was reported that the Malaysian police were seeking his help in connection with the alleged theft of logs and misappropriation of funds of about RM55mil belonging to Aokam. In 1998, Aokam declared it was insolvent and could not pay some RM33.3mil in debts.

Omega Securities Sdn Bhd

On Aug 5, 1999, Omega Securities co-founder Datuk Tony Tiah Thee Kian and businessman Datuk Soh Chee Wen were charged in the Sessions court with defrauding Omega Securities of RM424.9mil. Tiah was fined a maximum RM3mil in default 30 months’ imprisonment on May 10, 2002, after he pleaded guilty to a charge of allowing a false report to be furnished to the Kuala Lumpur Stock Exchange (KLSE). On May 11, 2002, Tiah resigned as executive chairman of TA Enterprise and his wife took over the stewardship of the company. He returned to the post in August 2007. On June 14, 2007, Soh was fined RM6mil after pleading guilty to two charges of abetting in the submission of false statements to the KLSE relating to 44,592,000 Omega Holdings Bhd shares.

Sessions Court judge Azimah Omar fined Soh RM3mil in default 30 months’ jail on each of the two charges.

Ekran Bhd

In November 2009, Tan Sri Ting Pek Khiing and six other directors of Ekran were handed total fines of RM630,000 for breaching Bursa Malaysia’s listing requirements pertaining to a related-party transaction. The penalty for Ting, the company’s executive chairman, was RM500,000. Four directors were fined RM25,000 each and the remaining two RM15,000 each. The breaches relate to the company’s failure to disclose the change in the terms of Ting’s settlement of the remaining amount owing to Ekran. To recap, Ting took some RM712.9mil from the company as an advance in return for the injection of some of his private assets in 1996/97. The amount has been long overdue – for more than 10 years.

Renong Bhd

The deal involving United Engineers (M) Bhd’s (UEM) put-and-call option raised many unanswered questions. In November 1997, United Engineers (M) Bhd (UEM) purchased a 32.6% block in Renong, its parent company, from the market at RM3.24 per share. The total cost came to about RM2.34bil. Former Renong executive chairman Tan Sri Halim Saad entered into a put-and-call option, giving an undertaking to buy back the shares from UEM at RM3.24, inclusive of the holding cost to appease UEM’s minority shareholders and the regulator. The entire amount would come up to RM3.2bil on Feb 14, 2001, when the option was due. When the put option expired, there was however no settlement. In fact, Halim resigned from the Renong/UEM group in October 2001. Khazanah Nasional Bhd took UEM private in 2001 and later cancelled the option.

Pending cases

Kenmark Industrial Co (M) Bhd

On June 16, 2010 the SC obtained an injunction against Datuk Ishak Ismail, restraining him from dealing with RM10.2mil being proceeds from his disposal of 58.7 million shares of Kenmark. These monies will be quarantined pending the outcome of a civil suit the SC has filed against Ishak alleging that he committed the offence of insider trading and market manipulation when he purchased Kenmark shares on June 9.

Linear Corp Bhd

On Dec 29 last year, Linear was awarded a massive RM1.67bil contract to build a district cooling plant, also known as the “King Dome” project in Manjung, Perak by Seychelles-based company Global Investment Group Inc. Linear’s former director Alan Rajendram paid out its entire cash hoard of RM36mil without board approval. In June, it was found that there was no evidence of any significant progress towards the execution of the contract, and no documentary evidence to demonstrate the overall viability of the King Dome project. Linear has since been classified as a PN17 company.

A special auditor was appointed in August to look into the company’s financials and any potential irregularities. It is being investigated by the SC and the stock exchange.

Axis Inc Bhd

Axis has been embroiled in some corporate scandals over the last two years, ranging from default on loans and uncollected receivables to more unusual ones involving missing documents and even stolen machinery. The latest is that a whole load of documents, including purchase and delivery orders, bank statements and cheque butts, some dating back to 2004, had gone missing, prompting it to make massive write-offs.

Most of these documents were related to its dealings with questionable contract manfacturers. This prompted the SC to issue a “stern reminder” to public listed companies about the preservation of documents and obstruction of investigations.

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