FULL and timely disclosure of accounts and any material developments in a listed firm is what differentiates the stock market from a casino.
This important guiding principle is what gives investors to put their money to work in the market in the hope of getting a better return than investing in a government bond or simply leaving it in the bank.
And as I point out in my Cai Jin column this morning, investors like to be kept informed, rewarding companies who keep them posted on important corporate developments and punishing those who ambush them with unexpected developments.
And they don’t like surprises. Bad news is never welcome, but it is harder to stomach if the bearer had not been forthcoming with it in the first place.
This is what makes Sino-Environment - the latest corporate scandal to hit the local scene - so loathsome.
Since last month, there is a public squabble by its executive directors and IDs over the SGXnet over a host of issues.
Some of the allegations made by its executive directors were particularly disturbing.
They claimed that they remitted $5 million to the Singapore office which was to be used to make interest payment on a bond issue. But the payment was not made and investors were left to guess what exactly transpired.
Now, if you are a bondholder, won’t you feel upset that the company has the money ready to pay you, but you still didn’t get paid for whatever reasons. Won’t you feel upset about it ?
In their response, the IDs said that they did not stop the payment. Why should they, anyway ? They have nothing to gain by resorting to such foolhardy measure.
The blame was then shoved to the sacked financial controller whose dismissal had led to the subsequent revelations spilling out of the firm.
Now, if you are a discerning person, will you accept the subsequent claim then that the sacked financial controller “obviously acted on his own” ?
As a 35-year old accountant paid to do a highly uneviable job as it turns out, what does he get from committing what would be professional suicide by causing a listed firm to sink by stopping the payment it should make to its creditors ?
And that comes to the other point which was raised in my Cai Jin column. Should SGXnet be used to air such allegations ?
I am glad that Sino-Env’s IDs came to their senses, and did not respond to the latest set of allegations which is threatening to turn SGXnet into a soap opera channel.
Instead, they released the findings from a special audit conducted by PricewaterhouseCoopers on the alleged irregularities – missing cash, dodgy deals and mystery bankers who kicked the auditors off the premises when pressed for details on the bank transactions by the firm.
Since last month, the various allegations between the two warring parties had alluded to the existence of a report by PwC on the subject.
The executive directors complained that they were not given a copy of the report. This was despite the fact that the IDs and their solicitors, and nTan – the financial adviser appointed to restructure the company’s debts – all had a copy.
They were aggrieved that the IDs had appointed PwC before informing them. And they raised the heat of the battle with their disclosure that the PwC investigations had cost nearly $1 million.
I had it on good authorities that despite all the heat and fury over the sizeable fee, it has not been paid yet.
But the PwC report serves to broaden the conflict further by implicating two banks in China.
I was quite horrified by what I read in the report. It is an eye-opener for those still starry-eyed about investing in China firms and a required reading for anyone who wants to do business in China. (Link to PwC report: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_97345A140A6C82F148257682002CE809/$file/PwCFindingsToDate-04Dec09.pdf?openelement )