This article first appeared in The Edge Malaysia Weekly on September 25, 2017 - October 1, 2017
THE feud between investors in beleaguered fund management outfit SJ Asset Management Sdn Bhd (SJAM) and auditor EY seems likely to end up in court again after two failed attempts at mediation.
Among the largest investors in SJAM was CIMB Group Holdings Bhd. It is understood that officials from CIMB were present at the mediation while other investors were represented by two individuals.
While CIMB’s investments were insured, the quantum is not known.
In court earlier, EY had argued that it did not owe a duty of care to investors when carrying out audits, but only to the company that sought the audit — in this case SJAM. The auditor won in the High Court but the decision was reversed on appeal and it was held that the accounting firm did owe a duty of care to the investors as well.
SJAM’s asset base was less than RM10 million when its licence was revoked in 2010, but it had RM216 million in funds invested. Out of this, some RM106 million could not be located.
For a long time, SJAM was one of a few licensed asset management companies allowed by the authorities to invest abroad. At its peak, it managed funds of about RM1 billion with high-net-worth individuals utilising the fund manager to invest overseas.
Managing director and 70% shareholder Tan Whai Oon @ Jigme Phende, who had been at the helm of the company since 1991, has been on the wanted list since 2010. But he has evaded arrest, and was at one time hiding in a monastery in Nepal.
According to news reports, there were problems with SJAM’s accounts as far back as 2001. Former Selangor police chief Datuk Kamaruddin Hamzah, who held the remaining 30% stake in SJAM, was responsible for blowing the whistle and had lodged a police report and filed complaints with the Securities Commission Malaysia (SC) when he realised something was amiss.
In mid-April 2010, BDO Consulting Sdn Bhd was appointed by the SC as an independent auditor to review SJAM’s transaction and custody fee income.
To recap, in 2010, the SC imposed conditions and restrictions on the activities of SJAM as a result of concerns over clients’ assets and the integrity of its records. At end-July that year, the SC revoked SJAM’s licence to undertake fund management activities and it was eventually wound up.
According to investigations, Tan had used a company, Annalong Ltd — registered in the British Virgin Islands but operating from Hong Kong — to hide the shortfall in funds. From the shortfall of RM106 million, some RM20 million was paid into Annalong’s account and RM60 million was used to cover clients’ redemption requests.
An initial report by BDO had suggested that as much as 24% of the RM216 million could be recovered but some of the assets were difficult to dispose of.
SJAM’s largest shareholding in a listed company was in Maxbiz Corp Bhd, a garment company that was delisted on March 26 this year. SJAM had 13.62% equity interest or 19.36 million shares in Maxbiz, which had a host of problems.
It was listed via a reverse takeover of Geahin Engineering Bhd in 2004. Geahin, a civil and structural engineering services provider, was once a high-flyer on the then Second Board of the local bourse. Its share price hit a high of RM27.50 in April 1996. However, the business faltered and debts ballooned, forcing Geahin to look for a white knight.
A restructuring took place, involving capital reduction and the issuance of Maxbiz shares amounting to RM20 million to Geahin’s creditors, and the acquisition of MKK Industries and Mayford Garments for RM120.2 million.
The restructuring also involved the settlement of five-year 2% redeemable convertible secured loan stocks amounting to RM22.6 million, secured against Geahin’s core assets of land, building, plant and machinery in Batu Berendam.
Maxbiz officials, however, contended that machinery valued at RM6.3 million, on a conservative basis, was not traceable, meaning the assets Geahin was supposed to have when the reverse takeover was undertaken were not there.
This resulted in much wrangling with EY, Pacific Trustees Bhd and Public Merchant Bank Bhd.
In August 2009, when the issues at Maxbiz came to light, Tan — a well-known fund manager then — had told The Edge, “On behalf of the clients, we are going to sue those involved (in the restructuring of Maxbiz) who had not taken due care. If we had known from the beginning, we would not have come to a decision to invest in the company … We plan to take action. We plan to take up a shareholder suit on the people we believe are responsible for all this. Obviously, we have to consult our lawyer. We can’t say anything until our lawyer tells us how to proceed.”
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