TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
Comments
I REFER to the report, ‘Yet another S-chip bites audit dust’ (BT, March 25).
Like other recent S-chip scandals, the problems at China Gaoxian have to do with accounting issues relating to major balance sheet items such as cash and bank balances, receivables and payables.
In the case of China Gaoxian, it is interesting that SGX had earlier queried the company on its unaudited results for the year ended Dec 31, 2010.
In its reply dated March 7, 2011 to a query on why there was an increase in short-term bank loans even as the company’s reported cash balances had increased from 460 million yuan to 1.06 billion yuan, the company offered the curious reply that it had converted bills payable to short-term loans at the request of its banks to help the banks meet their loan quotas!
If this were true, one would wonder if the banks would also help the company dress up its balance sheet!
It is likely that the accounting problems that are now emerging in the recent S-chip scandals were latent, but more are now coming to light because of increased vigilance.
In March 2009, the SGX reminded listed entities and auditors to be more stringent in checking and validation in key risk areas such as the safeguarding of cash, impairment of accounts receivable and assessment of off-balance sheet items.
Also, in its third public report on its practice monitoring programme published in August 2009, the Accounting and Corporate Regulatory Authority (Acra) had called on auditors to adopt ‘a more diligent and rigorous approach to tests for assets and liabilities such as accounts receivable and accounts payable’.
The fourth report in July 2010 noted a need for auditors to ‘step up the level of professional scepticism and audit rigour’ and found that, in some cases, there was ‘insufficient work performed to rely on the work of component auditors’ (specifically, those in foreign jurisdictions).
While we should draw some comfort from increased vigilance by regulators, auditors and audit committees, a major concern is how pervasive the problems are and how to prevent them from getting worse.
One newspaper report had mentioned that China Gaoxian had listed ‘six months after clean-up measures were implemented following a spate of earlier S-chip irregularities’.
I believe that there should be a comprehensive review of the regulatory regime for foreign companies. Most of the problems in S-chips have arisen in their subsidiaries based in China, where most of the operations of the company are conducted.
The governance of these subsidiaries and the ability of the board of directors of the listed company to effectively oversee them is problematic. Further, it is evident that there is little effective enforcement actions that SGX and other regulators can take even when there are very serious breaches of our laws and rules.
Piecemeal measures which do not sufficiently take into account cultural, legal and other differences in foreign countries and which are ultimately difficult for boards to implement or for regulators to enforce will not address the problems.
I believe that the SGX owes a responsibility to its stakeholders, including the many well-governed companies here who play by the rules and the investors who invest in our market, to ensure that it has a proper regulatory regime before it continues to admit foreign companies especially from markets where there have been systemic problems.
Another parallel to other S-chip scandals, such as those relating to China Hongxing Sports and Hongwei Technologies, is that the day before the trading halt was called, the trading volume was more than 10 times the trading volume of each of the two days prior, and the share price fell by almost 25 percent.
Like those other cases, this raises the possibility of insider trading in the shares of China Gaoxian.
Given the worrying frequency of such unusual price and volume movements before the announcement of bad news in a number of recent cases, there is a significant risk that our supposedly robust regulatory regime governing insider trading will be called into question.
Regulators in other countries, such as the US and the UK, have become increasingly aggressive in pursuing insider trading actions because they understand that unchecked insider trading can considerably undermine market integrity. We need to do the same.