At Long Last, SC Takes Action Against Kosmo MD

Posted on 27 May 2011: At Last Some Justice For Kosmo Fraud Case

Let me reproduce the posting in full.

Back on Oct 2009, I posted Kosmo's Directors Shocking Fine!!

Let me highlight some of the facts again.

Fact 1.

Company said it made 109 thousand in its unaudited account for its fiscal year.
Company actually had LOSSES totalling 141 million according to its audited accounts.

From 109 thousand to a LOSS of 1141 million!!!

Source: here

Blogged here: Kosmo Technology Shocking Deviation Of Accounts
See also : Unaudited and Audited Accounts: UnReal or Real?

What's the major cause of the massive deviation in the accounts? According to the company's own reasoning: here, two major items were 'Impairment Loss of 55.6 million and 'Provision for doubtful debt of 75.9 million' (ps: see the importance not to discount the trade receivables issue?)

Fact 2.

Company had problems in submitting its financial statements: KOSMO TECHNOLOGY INDUSTRIAL BERHAD ("KOSMO" or "the Company") Delay in issuance of 2007 Annual Report

Fact 3.
Back in 2006, it traded as high as 8.50.
It last traded at 1 sen




At the peak, KOSMO had a stock market value of around 1 Billion.

Fact 4.
Kosmo is now delisted!

And so on 30 Oct 2009, Bursa Securities publicly reprimanded and fined two directors of another delisted company, KOSMO TECHNOLOGY INDUSTRIAL Bhd, a total of RM257,300!

From Bursa website.

Paragraph 9.16(1)(a) of the LR requires a listed issuer to ensure that its announcement is factual, clear, unambiguous, accurate, succinct and contains sufficient information to enable investors to make informed investment decisions.

Pursuant to paragraph 9.22(1) of the LR, a listed issuer must give Bursa Securities for public release, an interim financial report that is prepared on a quarterly basis, as soon as the figures have been approved by the board of directors of the listed issuer, and in any event not later than 2 months after the end of each quarter of a financial year.

Paragraph 9.23 of the LR states that a listed issuer must ensure that the issuance of the annual audited accounts and annual report by a listed issuer shall be as follows :-
(a) the annual report shall be issued to the listed issuer’s shareholders and given to Bursa Securities within a period not exceeding 6 months from the close of the financial year of the listed issuer; and
(b) the annual audited accounts together with the auditors’ and directors’ reports shall, in any case, be given to Bursa Securities for public release, within a period not exceeding 4 months from the close of the financial year of the listed issuer unless the annual report is issued within a period of 4 months from the close of the financial year of the listed issuer.

Paragraph 16.11(b) of the LR states that a director of a listed issuer must not permit, either knowingly or where he had reasonable means of obtaining such knowledge, a listed issuer to commit a breach of the LR.

KOSMO had breached :-

(a) paragraph 9.23(b) of the LR for failing to submit the Company’s annual audited accounts for the financial year ended 31 December 2007
("AAA 2007") on or before 30 April 2008. The AAA 2007 was only submitted on 30 June 2008;

(b) paragraph 9.23(a) of the LR for failing to submit the Company’s annual report for the financial year ended 31 December 2007 ("AR 2007") on or before 30 June 2008. The AR 2007 was only submitted on 6 August 2008;

(c) paragraph 9.22(1) of the LR for failing to submit the Company’s quarterly report for the financial period ended 31 March 2008 ("QR 1/2008") on or before 31 May 2008. The QR 1/2008 was only submitted on 30 June 2008;

(d) paragraph 9.16(1)(a) of the LR for failing to ensure the Company’s announcement dated 29 February 2008 on the fourth quarterly report for the financial year ended 31 December 2007 ("QR 4/2007") took into account the adjustments as stated in the Company’s announcement dated 30 June 2008, in particular the adjustments pertaining to additional provision for doubtful debts and impairment loss for development cost.
KOSMO had reported an unaudited profit after taxation and minority interest of RM109,000 for the financial year ended 31 December 2007 in the QR 4/2007. However, the Company had on 30 June 2008 reported an audited loss after taxation and minority interest of RM141,715,814 in the AAA 2007. The difference of RM141.824 million between the unaudited and audited results for the financial year ended 31 December 2007 represents a deviation of more than 100 times.

Dato’ Norhamzah bin Nordin and Encik Mohamad Nassir bin Mohd Kassim who were the directors of KOSMO at the material time were found to be in breach of paragraph 16.11(b) of the LR for permitting either knowingly or where they had reasonable means of obtaining such knowledge the Company to commit the aforesaid breaches.

They were informed of the audit concerns / issues to make provision for doubtful debt and possibility of impairment of development costs since August 2007 but have failed to demonstrate adequate efforts taken to discharge their duties to :-

(i) address the audit issues pertaining to impairment loss of development costs to enable timely submission of the financial statements in accordance with the LR; and

(ii) ensure that the QR 4/2007 made the necessary provision for doubtful debts and impairment loss on development cost to give a true and fair view of the state of affairs of the Company as at the financial year ended 31 December 2007 and in compliance with paragraph 9.16(1)(a) of the LR.

The finding of breach and imposition of the above penalties on KOSMO and the directors are made pursuant to paragraph 16.17 of the LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including in relation to the directors, the roles and responsibilities of the directors in the Company particularly pertaining to the maintenance and preparation of financial statements.

So they were fined 257 thousand and their stock, which at one time was worth ONE Billion, disappeared into thin air with its delisting!

It's now May 2011.

On Star Biz: Kosmo director, accounts manager charged by SC

• Friday May 27, 2011
  
  Kosmo director, accounts manager charged by SC
  
  PETALING JAYA: The Securities Commission charged a director and an accounts manager of Kosmo Technology Industrial Bhd yesterday for providing false information to Bursa Malaysia Securities Bhd.
  
  In a media statement, the regulator said six charges under section 122B(a)(bb) Securities Industry Act 1983 and two charges under section 369(a)(B) Capital Market and Services Act 2007 were preferred against Mohd Azham Mohd Noor and Helen Lim Hai Loon for false statements in the company’s eight quarterly unaudited results for financial years 2006 and 2007.
  
  If convicted, they will be liable to a fine not exceeding RM3mil and imprisonment for a term not exceeding 10 years for each charge.
  
  Azham and Lim were released on bail of RM150,000 with one surety each. Sessions Court Judge Rosenani Abd Rahman further ordered that their passports be surrendered to the court and fixed an application for their trial to be held jointly on June 22.
  

Finally some form of justice!

But is it enough?

According to the report, a fine not exceeding rm3 million and imprisonment for a term not exceeding 10 years for each charge.

But the stock at its peak was worth 1 Billion. And I wonder how much was profited by that incredible stock price back then?

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On Star Biz today: SC brings Kosmo Technology MD to court

Wednesday June 8, 2011

SC brings Kosmo Technology MD to court

PETALING JAYA: The Securities Commission has file a suit against Kosmo Technology Industrial Bhd group managing director Datuk Norhamzah Nordin for allegedly providing false information to Bursa Malaysia Securities Bhd.

The SC preferred six charges under section 122B(a)(bb) of the Securities Industry Act 1983 and another two charges under section 369(a)(B) of the Capital Markets and Services Act 2007 yesterday against Norhamzah for allegedly making false statements pertaining to the company’s eight quarterly reports for the financial years 2006 and 2007.

If convicted, he could be liable to a fine of not more than RM3mil and imprisonment not exceeding 10 years for each charge.

Norhamzah was granted bail at RM200,000 with one surety and was required to surrender his passport to the court.

The charges against Norhamzah followed those against Mohd Azham and Lim Hai Loon at the Sessions Court on May 26.

The court will hear the prosecution’s application for joint trial of Norhamzah, Mohd Azham and Lim on June 22.

Comments: It's great to see that SC had finally taken action against Kosmo MD.

Ok, I could be WRONG here but I am not sure if the fine of not more than 3 million is justifiable or not.

Now at the peak, Kosmo stock is worth about 1 billion in the stock market. Question I would ask is how much did they profit for giving false information to Bursa? Ok, it would be naive for me to assume a value of 1 billion but let's assume that profits were made about one third of the peak or 300 million. Would that not be possible?

Now if that was possible... surely the fine of 3 million is rather small, yes?

Remember the fact no 1.

Company said it made 109 thousand in its unaudited account for its fiscal year.

Company actually had LOSSES totalling 141 million according to its audited accounts!!!