Saturday June 30, 2012
Going after wrongdoers big and small
By ERROL OH
ON Wednesday, the Securities Commission (SC) enjoyed a triumphant day when it won an appeal against the inadequate sentence in a market manipulation case.
The Sessions Court had punished Datuk Chin Chan Leong with a RM1.3mil fine and a day in prison, after he had pleaded guilty in February 2010 to creating a misleading appearance of active trading in the shares of Fountain View Development Bhd, a property developer once listed on Bursa Malaysia's Main Board.
He was found to be trading with 20 CDS (Central Depository System) accounts that he beneficially owned through companies he controlled.
According to the SC, the market manipulation took place between November 2003 and January 2004, a period during which the Fountain View share price soared from RM1.99 to RM6.05.
The High Court affirmed Chin's sentence in September 2010 and this led to the Public Prosecutor turning to the Court of Appeal.
The Court of Appeal held that Chin's offence was “a serious one with adverse consequences on the stock market and the economy, and that the sentence earlier imposed did not reflect the gravity of the offence”.
It replaced the one-day imprisonment sentence with a 12-month stretch in jail, and upheld the RM1.3mil fine, after taking into account the fact that the offence was pre-planned and well thought out.
The SC calls this a landmark decision, and points out that this is the third conviction for market manipulation that it has successfully prosecuted.
The Court of Appeal's stiffer sentence reinforces the message that corporate fraudsters are likely to have to spend quite a bit of time in the slammer if convicted. The days of merely paying fines may be over, and for some, that's a huge deterrent.
Then again, not everybody thinks a year in prison is sufficient penalty for illegally earning perhaps many millions of ringgit at the expense of investors, and for jeopardising market integrity.
But there's no easy formula for sentencing when the law doesn't provide for mandatory penalties. Various factors and principles have to be weighed, and there's room for judicial discretion.
What matters as well is that the authorities continue to diligently go after the wrongdoers.
Said the regulator: “The SC has been proactively pursuing this and other market misconduct cases (such as manipulation, market rigging and insider trading) because such activities severely undermine investor confidence and tarnishes the reputation of the Malaysian capital market.
“The SC will continue to be vigilant and take whatever action necessary to protect investors and to maintain a fair and orderly capital market.”
It's encouraging yet not well publicised that the Companies Commission of Malaysia (CCM) too seems to display a readiness to prosecute those who allegedly commit offences under the Companies Act.
So far this year, the commission has issued more than a dozen press releases to highlight its cases against directors and officers of non-listed companies.
Yes, the impact of an offence involving a Sdn Bhd is likely to be limited compared to that of a capital market transgression. Nevertheless, the CCM's court actions are similar to that of the SC in the sense that both regulators are working to protect stakeholders (especially investors) and ensure good corporate governance.
For example, in a case prosecuted on behalf of the CCM, the Butterworth Sessions Court convicted an undischarged bankrupt on July 20 for directly taking part in the management of Kulim Worm Agrotech Holdings Sdn Bhd and Kulim Worm Agrotech (M) Sdn Bhd without obtaining the High Court's consent.
In the press release, the CCM says it will continue its efforts “to ensure that the companies in Malaysia are only managed by fit and proper persons”.
In a case last month, a director of Yap Keng Sang Realty Sdn Bhd was convicted for submitting misleading information to CCM via the company's accounts for 2002 to 2004. Another director of that company was convicted for not keeping proper records.
“The charges brought against the directors of Yap Keng Sang Realty demonstrate the CCM's efforts to ensure the quality of information, in particular the audited financial statements submitted and lodged to the Registrar of Companies,” said the CCM.
It was last month as well that an officer of SMI-Q Resources Sdn Bhd pleaded guilty for defrauding investors to invest in an gold coin investment scheme. The CCM says the enforcement action demonstrates its “continuous efforts to combat illegal investment schemes activities”.
The CCM too has its landmark decision. That came on May 7, when two men were sentenced to two months imprisonment and fined RM60,000 each in default 24 months imprisonment. The two directors have failed to disclose to the board of Penasuria Corp Sdn Bhd that they have direct interest in RM1.6mil contract entered into with Isuretek Construction.
Says the commission: “The above landmark custodial sentence imposed by the Sessions Court Judge clearly demonstrates the seriousness of the offences committed by the both directors.”
Hopefully, we will see more such announcements from both the SC and the CCM. We know we have good laws in Malaysia. We now need to be assured that the regulators are working hard to throw the book at the offendors, regardless of size and impact.
● Executive editor Errol Oh's landmark decisions usually revolve around dinner and holiday destinations.