Earlier Welli Multi was in the limelight over SC’s query over the authencity of its trade receivable of Rm113m, recently, the company’s former managing director Ang Sun Beng and former executive director Ang Soon An were charged by the Securities Commission (SC) with four counts of providing misleading financial statements to both the SC and Bursa Malaysia Securities Bhd.

Details:

• Both brothers were released on bail of RM150,000 each with the stipulation that both surrender their international passports to the court. If convicted, each faces a fine of up to RM3 million or a maximum jail term of 10 years, or both.
  The alleged offences were committed in contravention of Section 122B(a)(bb), read together with section 122(1) of the Securities Industry Act 1983 (SIA). The alleged misleading statements relate to Welli Multi’s revenue figures in the audited statements for the year ending Dec 31, 2005 and its quarterly reports for the financial periods ended March 21, June 30 and Sept 30, 2006
• The SC also compounded Welli Multi’s former executive director and chief executive officer Tan Chin Han for RM100,000 for knowingly authorising the furnishing of a misleading statement to Bursa Malaysia on Feb 28 last year. The misleading statements were in relation to Welli Multi’s revenue figures for the three months ended Sept 30, 2006 and are in breach of Section 122B of SIA.
• Since November last year, the SC has been coming down on Welli Multi to rectify and reissue the aforesaid financial statements. The company, which is in the business of processing palm kernel, was also on the SC’s radar due to suspicious receivables.
• Although Welli Multi saw the injection of new blood at the beginning of April, the company has yet to supply Bursa Malaysia with its outstanding financials.
  These comprise quarterly reports for the quarters ended June 30, 2007, Sept 30, 2007 and Dec 31, 2007; audited financial statements for the period ended March 31,2007 and the annual report for the year ended March 31, 2007

Liqua Health Corporation Bhd, a main board-listed company which is primarily involved in the selling of health food products like spirulina using the multi level marketing model/concept has informed Securities Commission that it had appointed chartered accounting firm Baker Tilly Monteiro Heong to conduct an investigative audit of certain transactions disclosed in the company’s fourth-quarter results for the period ended Dec 31, 2007.

Some details:

•  The special audit is to look at a transaction amounting to RM15 million paid by Liqua’s wholly owned subsidiary Liqua Health Marketing (M) Sdn Bhd to an exclusive supplier of health care products. According to the notes to the accounts for the unaudited results for the financial year ended Dec 31, 2007, Liqua stated that the money was paid to the supplier of nine core products who is supposed to deliver the products to its wholly-owned subsidiary, Liqua Health Marketing (M) Sdn Bhd.. However, the scheduled products were not received leading to the cancellation of the orders and Liqua sought repayment of the amount paid. A written confirmation and commitment to repay was given by the supplier. Notwithstanding this commitment from the supplier and pending finalisation of the proposed settlement, Liqua has made a provision for RM8 million in doubtful debts. It is believed that the probe could be to ascertain if Liqua would be required to make additional provisions and who the supplier is.
• Liqua, which posted over RM11 million in net losses on the back of RM41 million revenue for the financial year ended Dec 31, 2007, has seen significant changes to the board last month. It appointed Low Donald Han as chairman in mid-March and also redesignated executive directors Rohaya Hashim and Yeoh Eng Kong to non-executive positions.
• The health food marketing firm had chalked up some RM92.37 million in net losses for the financial year ended Dec 31, 2005 on the back of RM37.76 million revenue. The company booked RM78.46 million of “impairment of goodwill” for the year as stated in its 4Q05 results filing to Bursa.
• Net losses shrank to Rm3.39m during the 2006 financial year, but more than tripled to Rm11.08m during the 2007 financial year, despite an improvement in revenue to Rm41.36m. At the end of FY07, Rm108.67m in accumulated losses.

The Minority Shareholders Watchdog Group (MSWG) had stakes in 232 public-listed companies at the end of August, giving the body with the locus standi to attend shareholders’ meeting to protect minority interest.

MSWG chief executive officer Abdul Wahab Jaafar Sidek said:-

·       the group had taken proactive action by buying shares in certain listed companies so that it could attend the shareholders’ meetings as corporate representatives and participate actively as shareholders.

·       The criteria for the purchase of shares in selected listed companies included firms with issues raised by minority shareholders, companies subject to action by the regulatory authorities as well as those having a wide impact on stakeholders.

·        MSWG would also continue to attend shareholders’ meetings by way of proxies from minority shareholders.

·       The Shareholding Survey 2007, conducted in collaboration with Nottingham University Business School, was due for completion by the end of October. This survey covers all companies listed on Bursa Malaysia on June 30, 1997 and June 30, 2006, with the objective of identifying and comparing the demographic of shareholding, shareholding structures and value of the listed companies before and after the 1997 financial crisis.

·       As for the Company’s Meeting Survey 2007, it was expected to be completed by end-November. The survey, covering top 100 listed companies, is a collaborative effort between MSWG and Universiti Teknologi MARA. 

Megan Media Holdings Bhd, which had been hit by accounting scandals, reported an unaudited net loss of RM67.19 million for the first quarter ended July 31, 2007 compared with a net profit of RM13.45 million in the previous corresponding quarter. Announcing its results on Sept 28, it said ·        Revenue plunged to RM11.5 million from RM230.3 million a year ago.

·        Loss per share was 33.08 sen.

·        Compared with the fourth quarter ended April 30, 2007, the loss before taxation was reduced from RM1.38 billion to RM67.2 million largely due to the fact that significant write-off was made in the fourth quarter arising from the financial irregularities uncovered by the investigative audit.

·        Among the irregularities were fictitious trading creditors and debtors created by its subsidiary Memory Tech Sdn Bhd to overstate purchase and sales, and its financing of payments to fictitious trading creditors through bank debts.

·        On the prospects, the viability of the company and the group as a going concern depended “on the completion of a successful implementation of debt restructuring and regularisation plans”. Incidentally, the company has eight months, since June 19, 2007 to submit a regularisation plan to the relevant authorities. In a separate statement, it said that under Bursa Malaysia Securities’ listing requirements, it had to provide its audited financial statements for the financial year ended April 30, 2007 for public release within four months, which was on or before Aug 30, 2007. Failing to do so could result in its suspension.Meanwhile, the auditors of the company and its subsidiaries were still finalising the audit of the financial statements of the group for the financial year ended April 30, 2007. Upon completion of the audit, the company will release the audited accounts for the financial year ended April 30, 2007. [On Sept 21, Megan Media’s unit Memory Tech Sdn Bhd (MTSB) has been served a winding-up petition by Mayban Trustees Bhd in respect of a default on a total of RM472.83 million Bai Bithamin Ajil Islamic debts securities. The securities issued by MTSB were RM320 million primary bonds, RM112.27 million non-detachable secondary bonds and Hibah promissory notes of RM40.56 million. Following MTSB’s inability to honour maturing banking facilities, Mayban Trustees had issued a declaration of event of default on May 30, followed by a demand for payment of RM436.11 million on June 5, 2007.]

The Kroll Survey report(conducted by risk consulting company, Krol Inc) draws on a survey by the Economist Intelligence Unit of 900 senior executives worldwide, and examines the problem of corporate fraud, both for business in general and within particular industries. In the report, it revealed that:·        35% of the respondents in Asia believed that fraud was more prevalent.Four out of five companies have suffered from corporate fraud in the past three years, and particularly widespread is the theft of physical assets or stock, 

·   The widespread and more prevalent fraud is due to the more reliant on information technology, increased globalisation and greater interconnectedness. Earlies such information theft, various information technology (IT) crimes, and false reporting by asset managers were rarely seen 25 years ago;

·         Employee fraud remained a key concern in Singapore, as evident in the cases involving Asia Pacific Brewery’s finance manager Chia Teck Leng, and Singapore Airlines’ Teo Cheng Kiat.

·         Concern over fraud was highest in emerging markets, of which 49% of respondents saw fraud as having increased in India and 42% in China.

·         The average cost due to fraud to large global companies with annual revenues of more than US$5 billion (RM17.5 billion) was more than US$20 million, with about one in 10 losing more than US$100 million.

·         11% of Asia correspondents had lost US$100,000 in fraud, while 8% had lost more than a US$1 million.

·         Regional variations with intellectual property theft and counterfeiting were closely linked to countries rather than regions.

·         Among firms operating in China, 38% of respondents have experienced such fraud in the past three years. This figure for Singapore and Malaysia is only 15% and 9% respectively, well below the global average of 19%,;

·        More than 30% of global respondents believed that IT complexity had increased their exposure to fraud.

·        High staff turnover was rated the most frequent cause of increased exposure to fraud, followed by complex IT arrangements, entry into new markets and increased collaboration between companies.

·         In Asia, 40% of respondents said staff turnover had increased their company’s exposure to fraud and 25% cited weak internal controls,

·        The proportion of companies that had recently suffered from fraud in the Middle East and Africa was by far the highest.

·        60% of respondents in India and China saw themselves as vulnerable to bribery and corruption.

·        Emerging markets showed the lowest adoption of counter measures, with Latin America respondents showing the lowest level of adoption of due diligence on partners, clients and vendors.

FTEC Resources Bhd’s managing director Kenneth Vun Yun Liun has resigned from the company following the Securities Commission’s action in initiating a civil suit against him demanding the restitution of RM2.5 million to the company.

FTEC told Bursa Securities that Vun, 33, had tendered his resignation as managing director of the company. Vun is a major shareholder of FTEC, with 32.27% stake comprising a direct interest of 50.99 million shares and an indirect interest of 3.89 million shares.

Earlier, the SC alleged that Vun had utilised the RM2.5 million, which was part of the proceeds in an initial public offering (IPO) raised by FTEC in 2003, for his own benefit and personal use. Vun’s misconduct was uncovered following its investigation into the utilisation of the public issue proceeds by the company.

The SC also asked that Vun be restrained from directly or indirectly managing funds of FTEC Group in the absence of proper controls being put in place by the said companies including but not limited to external supervision by the SC and that he caused FTEC to properly disclose in its audited report for the next financial year, the manner in which the sum of RM2.496 million had been utilised.

FTEC develops, manufactures and distributes computer hardware and software, information technology (IT) systems and digital surveillance security systems. It was listed on the Mesdaq Market on Dec 19, 2003.

“The Securities Commission (SC) has filed a landmark suit on Sept 26 to compel FTEC Resources Bhd (FRB) managing director and shareholder Kenneth Vun @ Vun Yun Liun to restitute RM2.5mil to the company.”

Details:

·         The sum of R2.5mil represented part of proceeds raised by FRB in an initial public offering in 2003;

·         The commission’s investigation into the utilisation of the public issue proceeds had uncovered that Vun had utilised a portion of the proceeds for his own benefit and personal use;

·         Vun’s personal utilisation of the proceeds had not been reflected in the FRB Groups’ unaudited quarterly financial statements for the first quarter ending on 31 March, 2004 released to Bursa Malaysia Securities Bhd;

·         The utilisation of proceeds was not in compliance with the conditions set by the SC in the listing approval of FRB.

Incidentally, the aforesaid action against Kenneth Vun is one of the numerous civil enforcement action undertaken by the SC recently against directors of public listed companies for corporate governance misdeeds.

Other civil actions by the SC include:

·         the disgorgement of companies’ ill-gotten gains and the freezing of assets to prevent them from being diverted. One such notable case is the Ayer Molek Rubber Company Berhad, where the SC had obtained an injunction to safeguard the RM20mil of the company’s monies to prevent the company and its solicitors from disposing or dealing with the said monies representing the company’s sale proceeds of several pieces of land in 2006 and 2007.

·         More recently, in the Swisscash Internet Investment scam where the SC had obtained a worldwide Mareva injunction to prevent the disposal of assets by the defendants and the SC had also secured a court order to direct one of the defendants, Amir Hassan, to transfer RM35mil of Swisscash monies held in bank accounts overseas back to Malaysia.

With the accounting fraud of Rm622million for the past three years still hovering in their mind, the minority shareholders in the AGM of Transmile BHd had voted for not giving a single cent of fee to the directors  for the year ended 31 st December 2006.

Indeed, this is the best news for anyone who hear it However, shockingly, the share price of Transmile has gone up due to so called regained confidence level that accounting fraud might not occur again and Robert Kuok’s further purchase of shareholding in Transmile. Such an irony!

Anyway, if we call this irony can we explain or justify reasons when we often heard news from overseas, pertaining to the hugh payout of golden handshakes/bonus/incentives when their CEO supposedly resign or services being terminated from their companies?

Fraud can be in many forms/types. However, studies revealed that there are some common characteristics of fraud which are as follows:

• Many people are targeted for a little money with the hope they don’t notice, don’t care, or don’t do anything about it
• A trusted relationship is created
• Promise of legitimacy, authenticity
• Another offer or incentive to participate. There may be an effort to create information confusion – that is, attention is distracted from the scam/fraud by other information, issues, or opportunities
• Pressure is applied – often time pressure – e.g., need to hurry and make a quick decision or take quick action or the opportunity will be lost
• Offers exceptional/extraordinary gain with little or no risk
• There is a cap on the maximum level of participation
• Secrecy

The Securities Commission has charged three former executives of Transmile Bhd with giving misleading financial statements :

• ex-chief financial officer Lo Chok Ping,
• ex-executive director Khiudin Mohd and
• founder Gan Boon Aun, who resigned as chief executive officer in June ’07 when a police report is filed.

Earlier Transmile has also filed an announcement dated 29/6/07 pertaining to its audited financial statements for the financial year ended 31/12/06.The content of the announcement is as follows:

The Company wishes to announce that it had today announced its audited financial results for the financial year ended 31 December 2006. In regards to the above, the Company wishes to the highlight the following: (i) the audited financial statements of the Company for the financial year ended 31 December 2006 have included the adjustments which were highlighted in the announcement dated 16 June 2007 (”Adjustments“), comprising both the adjustments arising from the findings by Moores Rowland Risk Management Sdn Bhd (”MRRM“) and additional adjustments proposed by the Company;

(ii) in addition to the Adjustments, the Company has made other adjustments to the assets in the audited consolidated balance sheet as at 31 December 2006, mainly as set out in Table 1 as attached, largely due to:

(a) impairments required to be carried out to the assets of the group under the Financial Reporting Standards issued by the Malaysian Accounting Standards Board;
(b) reclassifications of assets to property, plant and equipment; and
(c) other consequential adjustments arising therefrom;

(iii) The consolidated loss after taxation of TGB for the financial year ended 31 December 2006 was RM126 million; and

(iv) As a result of the above, the shareholders’ funds of TGB as at 31 December 2006 was RM597 million, comprising share capital of RM264 million and reserves of RM333 million.

Please refer to the announcement made by the Company today for the audited consolidated results of the Company for the financial year ended 31 December 2006.

TABLE 1 

* Difference due to rounding.