Friday, March 22, 2013

And Finally Axis Inc's ex-Directors Are Charged With Fraud

On 31 July 2008, I wrote about Axis Inc. The stock was trading at 2.00 on 11 July 2008. By 30 Jul 2008, the stock price collapsed to 35 sen!

After the plunge, when queried, Axis announced that its autditors had unresolved issues A quick examination of Axis Inc's quarterly earnings would have shown that its receivables ballooned.

More details were explained in the posting A Deeper Look At Axis Inc

On 31 Jul 2008, the following statement stood out in Axis announcement.

  • The external auditor, Messrs Horwath are unable to obtain sufficient appropriate audit evidence and explanations to ascertain the following:- (b) the recoverability of the outstanding balances due from the Contract Manufacturers (net of the settlement subsequent to 31 March 2008) in relation to the trade receivables and advances)

Receivables had ballooned and the external auditors states that they are unable to obtain sufficient audit data!

More drama unfolded a few days later. On 3 Aug 2008. claimed it might have to write off a whopping 161 million from its accounts!

The following was taken from a Business Times article .
  • The company said its external auditor, Messrs Horwath, was not able to obtain sufficient evidence and explanation to verify three issues.

    One is an amount of RM105 million due from contract manufacturers, which is part of other receivables as at March 31 2008.

    This is a big jump from RM11 million in the previous financial year. Subsequent to the balance sheet date, RM20 million has been settled by the contract manufacturers.

    Secondly, the contract manufacturers also owed the group RM28 million for sales of fabrics by the group to the contract manufacturers.

    Finally, prepayments of RM32 million were made to certain suppliers for the supply of embroidery services, purchase of fabrics and accessories, from which only RM11 million of these services and goods were received by the group

    The balance (of goods and services) is expected to be settled by the end of September 2008.

    The contract manufacturers are LA (Cambodia) Garment Pte Ltd, Vivatino Design (Cambodia) Pte Ltd and United Garment (Vietnam) Co Ltd.

    These manufacturers are in a strategic alliance agreement with a subsidiary of Axis, where the manufacturers receive a 25 per cent advance payment of the value of a confirmed order for the cutting and sewing of the garments.

    Since Messrs Horwath was unable to form an audit opinion, Axis intends to carry out a special audit. It told Bursa Malaysia on Thursday that the company can only say how long it needs to settle the audit issues once the board appoints an independent auditor for the special audit.
I had almost forgotten all about Axis Inc until 2010. On July 2010, Axis Inc Lodges Police Report!!

Yes more drama!

A police report was made because documents and records belonging to Axis Inc went missing!!!
  • KUALA LUMPUR: AXIS INCORPORATION BHD 's board of directors has lodged a police report over several official documents and records belonging to Axis and its units which have gone missing.

    It said on Friday, June 11 that it had on Wednesday lodged the report over the missing records of the company and its units Asiapin Sdn Bhd, Chongee Enterprises Sdn Bhd and GBC Marketing Pte Ltd from 2004 to 2008 at the offices in Johor Baru, Tangkak and in Singapore.

    The missing records included documents in relation to the purchase of machinery sent to contract manufacturers in Cambodia and/or Vietnam; bank statements and cheque butts; payment vouchers and supporting documents for payments made to the contract manufacturers in Cambodia.

    Also missing were documents, letters, e-mails and correspondences between Axis group and
    the contract manufacturers; documents in relation to the orders placed with the contract manufacturers by buyers; documents of raw materials bought for the contract manufacturers (ncluding purchase orders and delivery orders).

    The report also claimed that documents on the account of monies received from the Bumiputera issue in 2004 and the sale of Ganad assets in 2007-2008 were missing.

    "As a result of the above missing records, Axis Group of companies in 2009 had to write off substantial amount of its assets and receivables due to the lack of documentary support of these assets and receivables," it said. The company said the present Axis Board was unable to answer certain queries posed by Bursa Malaysia Securities Bhd.


A month later, I wrote the following: Stock Manipulation On Axis Inc: Dealer Charged

Totally unreal!

We had accounting issues, police report, missing documents and now stock manipulation! 

Let me reproduce that posting here once again. On the Edge Financial Daily Dealer’s rep sanctioned for false trading, market manipulation
  • Dealer’s rep sanctioned for false trading, market manipulation
    Written by Loong Tse Min
    Friday, 09 July 2010 11:06

    KUALA LUMPUR: Bursa Malaysia Securities Bhd has publicly reprimanded and fined a commissioned dealer’s representative (CDR) of Kenanga Investment Bank Bhd RM100,000 for false trading and market manipulation in the trading of Axis Incorporated Bhd shares.

    In a statement yesterday, Bursa Securities said it ordered that Lee Beng Huat be struck off the register, if he was still a registered person of the exchange.

    The exchange said Lee had carried out false trading and market manipulation involving about 41 million Axis shares, out of the market turnover of 104 million Axis shares, for 87 trading days in 2006 and 2007.

    It said during that period, Lee had dealt in Axis shares mainly through the accounts of 10 clients. “He had entered buy and sell orders which were manipulative in nature and which had led to false or misleading appearance of active trading in, or market for, Axis shares and tantamount to stock market manipulations,” Bursa Securities said, adding that Lee had breached trading rules.

    It said the dealing in Axis shares by Lee via the 10 accounts, which were the top buyers and sellers during the period, had several characteristics:

    1. Entry of orders which were several bids lower than the last done price with no real intention to have the buy orders matched.

    2. Lee also engaged in order splitting, entering a series of buy orders in succession through any one of the 10 accounts with the same price. These buy orders gave rise to and created an impression of continuous demand for Axis shares which led to false or misleading appearance of active demand/market for Axis shares.

    3. The buy and sell orders executed in the 10 accounts:

    • had cross-trades which were matched among each other for about 12 million units of Axis shares involving Lee as their common CDR;
    • resulted in the buy and sell transactions of Axis shares in the 10 accounts without any change to the beneficial ownership of Axis shares (NCBO trades) and during the relevant period, there were 65 NCBO trades involving 385,800 units of Axis shares;
    • were frequently matched with the corresponding orders keyed in by another CDR from another broker which indicated that there were some form of pre-arrangements for these trades to be matched;
    • resulted in trades which were rolled over periodically with the same or almost the same block of Axis shares which gave rise to the manipulative trading activities; and
    • had trades which were subsequently amended to other clients’ accounts resulting in a change of the original party to the contract which is not permitted.

    Bursa Securities said Lee, by engaging in the manipulations, managed to sell about 72% of the sell orders (40.98 million out of 56.67 million units of sell orders entered for the 10 accounts) and bought about 55% of the buy orders (41.6 million out of 76.14 million units of the 10 accounts’ buy orders).

    It said the higher volume and percentage of the buy orders, which were subsequently cancelled and/or lapsed due to the orders being lower than the last done price resulting in lower percentage of buy orders matched, gave an impression of and created an inflated demand for Axis shares.

    This, it said, led to a misleading appearance of an active market for Axis shares.

    Bursa Securities said Lee had failed to take heed of the concerns raised by the exchange on his irregular trading activities in Axis shares in the 10 accounts but had continued to trade in the irregular and manipulative manner.

    This article appeared in The Edge Financial Daily, July 9, 2010.
Hmm... as stated in the article

"Lee had carried out false trading and market manipulation involving about 41 million Axis shares, out of the market turnover of 104 million Axis shares, for 87 trading days in 2006 and 2007. ". 

Here is the chart of Axis between 2006 and 2007... yeah... I can see the massive volume...

And what's interesting is what happened after 2008... here's the chart from 1 Jan 2008 to May 2009.

I wonder who were the big sellers were when the shares plunged in 2008. :P

Ok it's not very clear (LOL! yeah.. what's new! :P ) ... anyway, remember the posting Axis Inc Lodges Police Report!? I had an Axis chart posted?

Let me post an ammended chart now. :P ( I have now crossed out 2007 stock bumper year and changed it to 2007 Stock Manipulation time! :P )

Now see the bottom arrow on the volume...

Can you see what it suggests? Can you?

Anyway.... I am glad that the dealer was caught but... I am wondering... is the dealer the chief 'tukang masak'? (do check out some of the comments posted )

Let me repeat the this one sentence: the dealer that was charged, was said to "carried out false trading and market manipulation involving about 41 million Axis shares, out of the market turnover of 104 million Axis shares, for 87 trading days in 2006 and 2007."

Think about it...
Think about the SIZE of the manipulation.
Think about the SIZE of missing accounts.

On  today's Sun Daily:3 Axis ex-directors charged with fraud
  • 3 Axis ex-directors charged with fraud
    Posted on 22 March 2013 - 05:40am
    PETALING JAYA (March 22, 2013):

    The Securities Commission (SC) has charged three former directors of garment manufacturer, Axis Incorporation Bhd for providing false information to Bursa Malaysia between 2006 and 2008.

    Koh Tee Jin, Saipuddin Lim and Lee Han Boon were each charged with five counts of furnishing false statements relating to the revenue of Axis to Bursa.

    If convicted, the three ex-directors will be liable to a fine not exceeding RM3 million or imprisonment for a term not exceeding 10 years for each charge or both.

    In a statement yesterday, the SC said the charges were in relation to false statements contained in Axis' four quarterly reports for the financial year 2007 and the quarter ended March 31, 2008.

    Koh, 47, Saipuddin, 54, and Lee, 32, were each granted bail of RM100,000 with two sureties by the Sessions Court and were required to surrender their passports to the court. The matter has been fixed for case management on May 21, 2013.

    Axis was delisted from Bursa in November 2010

    "We will continue to bring enforcement actions to ensure accurate and timely disclosure of financial information by listed companies as this is an important aspect in upholding integrity and investor confidence in the capital market," said the SC.

Fine of 3 million and a jail term not exceeding 10 years for each charge or both?

Is it enough?