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
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Because of Pan-El, regulation here changed, corporate governance stopped being a joke and senior people cooperated with each other.
David Mason
28 May 2015
PAN-Electric Industries, the small but rather significant listed company in Singapore, was suspended from listing on Nov 19, 1985. Its significance drew from its connections and its involvement in “unusual” financial transactions - the forward share contracts that may, or may not, have been genuine. Its connections reached into the heart of the Malaysian government but, more significantly for Singapore, it involved several thousand small shareholders, who had assumed that the Stock Exchange of Singapore (SES) regulated listing more carefully. Thus it was a political scandal in the making - locally and across the Causeway.
The jitters that started with suspension reached fever pitch as facts and rumours emerged after Nov 19. By Nov 30, it was clear to all interested parties (except the small shareholders, who screamed about a cover-up) that Pan-El was dead and it went into receivership.
The Singapore (and Malaysian) authorities were sufficiently concerned that the stock markets of both countries were closed for the next three working days. The move was to calm nerves as too many people feared a run on the market and some sort of financial meltdown. In retrospect, this was quite unlikely, given that the big counters were both closely held and mainly related to the governments. In politicians’ terms it was a “bold” move, but it paid off.
Over the next several months, real information about Pan-El, its board, its shareholders and its dodgy deals emerged. Because of the very high profile of its major shareholder, Tan Koon Swan - leader of the Malaysian Chinese Association - Pan-El was hardly off the front pages. For most of December 1985 and January 1986, rumours persisted of Koon Swan rescuing Pan-El using his Malaysian connections. Some of these related to his providing funds (and indeed he did, giving S$20 million to the receivers in early December, but no more thereafter) to various “White Knights” from Malaysian and Hong Kong connections. However, it transpired that Koon Swan ran out of friends in January 1986 and, in a bombshell move, CAID arrested him at the Orchard Hotel on Jan 21. Demonstrations were held in Kuala Lumpur the next day. There was a little bit of political shenanigans to follow, with some Temasek interest in saving Selco (the “jewel in the crown” of Pan-El ) and the bankers being persuaded not to foreclose too soon, but the inevitable followed with liquidators appointed on Feb 6, 1986. Pan-El disappeared as an organisation quite swiftly, with the bigger bits snapped up fairly quickly. Sembawang Maritime was launched out of Selco, not long after CEO Nevile Watson aimed a playful “kick up the backside” to the writer for causing the problem.
RIGGING OF SHARE PRICES
The Pan-El saga changed a lot of things in Singapore, not just on the commercial scene. The most immediate result was a subtle change in relations between Malaysia and Singapore. Ever since Singapore was thrown out of Malaysia in 1965, there had been bickering. However, the two countries had never fully delinked in business operations. The market in forward contracts was not illegal, but Pan-El put the spotlight on probable attempts to rig share prices, as the forward settlement prices were not at market, but at predetermined prices. Given recession, some of these prices were illusory.
The players in the forward market included major names on both sides of the Causeway. Few of them ever came to public light, but there were instances of “compensation” and one significant religious conversion (a “Born Again” admission).
Regulation of the financial markets was changed dramatically by Pan-El. SES had been “self regulating” up to this point and had not found it necessary to worry about forward share dealing. It was an instance of the hangover from British rule, with a laissez-faire attitude to the market (in stark contrast to the Monetary Authority of Singapore or MAS at the time, which had had its “Night of the Long Knives” several years before). Pan-El caused the immediate ban on forward contracts and SES came much more directly under the wing of MAS, which had previously concentrated on regulation of banking activities. The Securities Industry Act followed soon after.
The composition of SES membership was blown apart. At the height of the Pan-El crisis, it was thought that a number of major brokers would go bankrupt if the Pan-El contracts were not fulfilled, due to a knock-on effect for other contracts. Brokers were called to a major meeting at MAS to set up a “lifeboat” fund, underwritten by the major local banks. This meeting was acrimonious as many established brokers recognised that it was the end of their way of life. To quell opposition, they were locked in until they reached agreement, a very practical solution. I only know this because we were in the room across the corridor, radioing the Selco fleet to stay out of harbour in case of being detained by creditors. Anyway, one of the outcomes was that the providers of finance to the “lifeboat” got seats on the Exchange and accelerated the change to major broking houses we see today. The old days, with lunch at the Town Club, were over.
Corporate governance became a headline. The key points of any corporate governance regime are a sound board (with independent directors), good internal audit, proper external audit and adequate internal controls and systems. Pan-El failed spectacularly. The board was incompetent and beholden to one major shareholder. There was no suspicion of internal audit and the external auditors were berated by Richard Hu, then finance minister, in parliament - “an inexplicable audit failure”. Systems were derisory and internal controls were overridden at will by the financial controller (NB - things had not got much better by the time Barings Futures went down in 1995 - a future theme). All the current initiatives on corporate governance flow from the horrendous facts that emerged from Pan-El . Singapore has a justified reputation as the safest place to do business in Asia and with one of the strongest corporate governance regimes in the world.
MAS began to mature after Pan-El. It had started life much along British traditions of fair play and common consent (and laissez-faire of course, which is a prime cause of the global meltdown in 2008, with political consent, but that is many years later). After a “coup” several years before Pan-El, it became very aggressive towards bankers, via its Banking Supervision Department. Banking opportunities at the time were quite limited, with different licences for different work and very strict controls on who could do business with individual Singaporeans - very laudable in the growing years of the nation. However, Singapore was also getting a reputation as a good place to be in to conduct regional banking business, so just about every bank in the world wanted a licence of some sort and were seeking people to lend to. Pan-El was a great opportunity - apparently good financials, operating in a well regulated market, etc, etc.
(Bankers’ Note - Shame that Banking Secrecy means that I did not know that 37 other banks were lending to an organisation that would be piffling in the country I come from. Mind you, this is a growing market, so I do not need to do much due diligence because I can rely on published financials and the then Big 8 accounting firms).
MAS was quite right to judge bankers as opportunists and bankers were quite right to think that Singapore was a safe place to do business, because of sound regulation. MAS’s attitude to bankers before Pan-El was to show them who was the boss, rather than conducting civilised conversations. (MAS - If you want to attend school in my country, you not only follow the rules, but you do exactly what I say you should do. And don’t argue, because you will go straight to the naughty chair or I will expel you from school.)
It was often farcical. MAS would threaten bankers with withdrawal of licence for (often legitimate) “offences” and banks would grovel. MAS sent home several foreigners for perceived offences and “blacklisted” a number of audit partners, effectively limiting the market to the major international firms. MAS inspections were dreaded and every finding, material or not, would have to be answered in detail by both the bank and its auditors, together with a full explanation as to why they had not found it themselves. As an auditor, I went to the naughty chair three times and was threatened with blacklisting twice. At a key Pan-El bankers’ meeting in the MAS boardroom, with Koon Swan meeting Joe Pillay and Koh Beng Seng in a backroom, the MAS lady in temporary charge of the meeting caught my eye and said “Mason, you are disgusting!”. Several days previously she had berated me for sticking up for my client on the classification of a banker’s guarantee of S$25 million, which her inspector thought should be on another line. The temerity! Her outburst earned me lots of respect from assembled banks.
It sounds silly, but this attitude pervaded MAS/bank relations in 1985. Pan-El killed it, because we all sat around the same table with the same problem and came to the same conclusions. Bankers were incredibly compliant and stayed their hands for almost three months when they could see Pan-El falling apart. MAS got a totally different view on bankers as a result - they were not always out to rip Singapore off. Supervision was still harsh - MAS inspection reports continued to use quite colourful language.
Later in 1986, I was in New York for a meeting and one of my bank clients asked me to go to the Federal Reserve on their behalf. Their Singapore branch had been issued with a report that stated that their internal controls were inadequate and, of course, the “Fed” took this extremely seriously. It took some time to persuade the US regulator that the language in the report was not the language they would have used. But the attitude face-to-face with MAS became much more cordial. My last visit to the “naughty chair” involved a severe reprimand about my audit of a client, but done with a twinkle in the eye, followed by “now that’s out of the way, let’s get on with. . .”
Pan-El started an atmosphere of cooperation between the regulator and regulated. Of course, people were and still are severely whacked for stepping out of line, but mutual respect grew and today’s meetings are entirely professional and contribute enormously to Singapore’s success as a financial centre.
In 1985, there was little opportunity for legal gambling for the average Singaporean. But gambling is a national obsession, so there were all sorts of strange activities taking place, such as the betting on paper boats in the storm drains outside the Polo Club. This club was one of the first to get licences for fruit machines and it was well known that droves of taxi drivers would be there rather than collecting fares. Talking of taxi drivers, the ability to get a taxi on a Saturday afternoon was close to zero, especially if the races were at Bukit Timah. Driving in the area was not recommended.
Punting on the stock market was another gambling activity, but the number of companies with small shareholders, and small lots for trade, was tiny. Pan-El was a favourite gamble and felt to be reasonably secure, due to its listed status. For the three years leading up to its suspension, it was always in the top three traded counters. When it went under, many small shareholders suffered. Their problems laid a seed of sympathy. Of course, Pan-El did not lead to the establishment of casinos, but it certainly planted a thought for the future.
Pan-El was, to reiterate, a very small problem in economic terms - the size of the fraud was minuscule, if you think of what came before and after. Financially, it was a very small problem for both Singapore and Malaysia. It was the nature of the fraud and the names and connections of those involved that blew it up into such a big story. Suspending international stock markets gave it global status. It was truly a watershed for Singapore as an emerging financial centre. Because of Pan-El, regulation changed, corporate governance stopped being a joke and senior people cooperated with each other. Eventually, they grew to respect each other.
The writer, a business communications consultant in the UK, was a Price Waterhouse Singapore partner for 18 years in the 1980s and 1990s. He was the independent financial consultant appointed to look into Pan-El’s affairs when its shares were suspended, and was also a member of the steering committee of banks in discussions with MAS before receivership. Subsequently, he was Pan-El’s first receiver and manager and adviser to the group of banks seeking to rescue its maritime operations