By Goh Eng Yeow, Senior Correspondent
22 May 2011
Recently, a short wire story out of Tokyo caught my eye.
It reported that brash young Internet tycoon Takafumi Horie would be going to jail after losing his final appeal against a conviction for an accounting fraud committed more than five years ago.
For me, the news brought back a flood of memories of similar frauds that had rocked the local stock market at around the same time Horie was arrested.
Even the broad outlines of the accounting scandal involving him and the then big corporate scandals that had erupted here - waste recycler Citiraya Industries and phone repairer Accord Customer Care Solutions (ACCS) - were similar.
All three scams involved young businessmen who had been feted like rock stars. But they were also hounded by sky-high expectations in terms of business and profit, which turned out to be out of touch with reality. Inevitably, the house of cards collapsed, leaving investors to lick their wounds in the fallout.
Just a few words to jolt the memory: ACCS was run by Victor Tan, who was made out to be Singapore's corporate poster boy after taking his company public at the age of 31. Citiraya's young boss Ng Teck Lee was celebrated by the Wall Street Journal Asia as a rags-to-riches story for building a recycling business from scratch after dropping out of secondary school.
On the day ACCS was going to make its year-end results announcement five years ago, the Commercial Affairs Department raided its office.
At Citiraya, Ng was overseas on a business trip when the scam was uncovered. He never came back, and his bungalow in Paya Lebar showed signs of a hasty departure. Half-burnt joss sticks and Chinese New Year decorations adorning the house were not taken down for months after that.
The script for the two scandals roughly had the same ending as well. Justice was meted out to Tan, and while Ng was never caught, his accomplices were given long jail sentences. It provided some closure for the aggrieved investors who lost money to the scams.
However, there was no similar closure for the other spate of accounting scandals that rocked the local stock market in recent years. They involved China-based companies - or S-chips as they are known here - which had made their way in large numbers to Singapore in recent years.
Again, the scripts were broadly similar in outline. In most cases, the auditors experienced difficulties locating part of the huge cash hoard, which the companies claimed to have, when they went to inspect the books in China.
Analysts even coined a term for it - the Satyam Syndrome - after the accounting scandal that involved Indian software company Satyam Computer Services whose founder had confessed that he inflated its earnings and invented a huge cash pile in order to give the impression of fast growth.
But keeping track of the latest accounting scams involving S-chips has not been as easy.
Getting information on Citiraya and ACCS had been relatively simple because they were located here and most of their business was conducted out of Singapore. Reporters could get information from many sources like suppliers, customers and business rivals.
For S-chips, however, we have to rely on the companies' disclosures for the bulk of our information, as well as the occasional reports issued by research analysts who had visited them in China.
Often, the flow of information dries up completely when irregularities are uncovered and trading of the company's shares is suspended subsequently. It is also very difficult to verify the authenticity of the information furnished by the affected S-chips.
Even after huge sums have been spent hiring special auditors to get to the bottom of the matter, investors are often left no wiser as to what really happened.
Take China Sun Bio-chem. Back in 2009, the company called in accounting company KPMG to do a review of its accounts, after its then auditors PricewaterhouseCoopers raised concerns over its cash balance.
However, before the KPMG team could get down to work, it was told that the truck transporting the company's accounting records had been stolen while the driver was having dinner.
More recently, investors at Sino Techfibre were caught in a similar bind. Just as they were supposed to be getting their annual report last month, they were suddenly told that the company could not finalise its accounts because discrepancies had been uncovered in its sales invoices.
To rub salt into fresh wounds, Sino Techfibre then issued a statement a few days later to say that a fire had broken out at its factory's premises in Shandong province, destroying the company's books and financial records.
So far, there is very little an investor can do to get redress. As the scams occurred in China, we have to rely on the law enforcement agencies there to take action against the wrongdoers.
Stock market regulators outside China are powerless to do anything, even though the scam may involve a Chinese company that is listed on the stock exchange they oversee.
Even the powerful Securities and Exchange Commission (SEC) in the US reportedly said that it was facing problems.
One of its commissioners, Mr Luis Aguilar, was recently quoted by wire agency Bloomberg as saying that the SEC is limited in its ability to enforce securities laws on fraud committed at China-based companies listed in the United States.
He made the statement following a probe conducted by the SEC last year that arose from concerns that some China-based companies listed on US stock exchanges were doctoring their financial accounts.
But I am hopeful that this sorry state of affairs will not continue.
As China advances to economic superpower status, it will not want any corporate misbehaviour by its overseas-listed Chinese companies to besmirch its good name internationally.
It will also be in China's interests to make sure that the corporate governance concerns dogging these companies are being tackled vigorously.
engyeow@sph.com.sg
No comments:
Post a Comment