KUALA LUMPUR (Aug 27): Transmile Group Bhd's founder and former chief executive officer Gan Boon Aun has today been found guilty by the Sessions Court for furnishing misleading financial statements to Bursa Malaysia in 2007.

Sessions Court judge Hasbullah Adam sentenced the 59-year-old to a RM2.5 million fine and one day in jail. However, in the event that he is not able to pay the fine by tomorrow, he faces 18 months' imprisonment.

In delivering his judgement, Hasbullah said the defence has failed to prove that the offence committed by the group, such as furnishing misleading statements to Bursa Malaysia with intent to deceive, was not a result of Gan's consent as a director. The defence also has failed to prove that the accused had exercised all such diligence to prevent the commission of the offence.

"I am satisfied that the prosecution has established its case beyond reasonable doubt. Therefore I find the accused guilty and convicted for the offence under Section 122B(a)(bb) read together with Section 122(1) of the Securities Industry Act 1983," he read out his judgement today.

According to the aforementioned section of the Act, a convicted offender is liable to a fine not exceeding RM3 million, or imprisonment for a term not exceeding 10 years, or both.

The verdict comes after 10 years of court proceedings. The trial first commenced in 2010, with the prosecution calling 42 witnesses to testify against Gan, who was also serving as executive director of the troubled cargo carrier.

He was later called to enter his defence on March 16, 2011, but the defence only commenced seven years later on July 27, 2018, due to Gan's constitutional challenge of the law under which he was charged.

During mitigation, deputy public prosecutor Mohd Hafiz Mohd Yusof had requested for the court to impose a custodial sentence of between 18 to 24 months and a fine of RM2 million.

"We requested for a deterrent sentence and based on the sentencing trend that was under similar offence (in previous cases), we say that a range between 18-24 months (imprisonment) is appropriate given the facts of the case," he told theedgemarkets.com when met after the court proceedings.

"We’re at least happy that the trial has finished, and then we will see how it goes from there," Hafiz added.

At this juncture, the prosecution may still appeal for a heavier sentence to be imposed on Gan, subject to the consent of the Attorney-General's Chambers.

On the other hand, the defence may also appeal against the conviction as well as the sentence. When asked, lead defence counsel Datuk Tan Hock Chuan told theedgemarkets.com that he awaits his client's further instructions on whether to pursue the appeal.

Gan’s primary charge is for committing an offence under Section 86(b) read together with Section 122C(c) of the Securities Industry Act 1983 (Act 280) and punishable under Section 88B of the same Act. The offence is for abetting Transmile in making a statement that is misleading in its “quarterly report on unaudited consolidated results for FY06”. Gan was previously acquitted of this charge.

However, he was found guilty of the alternative charge for committing an offence under Section 122B(a)(bb) of the Securities Industry Act 1983 (Act 280) when he, as the director of Transmile, with intent to deceive, furnished a misleading statement to Bursa Malaysia with regard to the financial statements of the same year.

In a statement on the verdict, the Securities Commission of Malaysia (SC) recounted that it had accused Gan of overstating Transmile’s revenue “to give the impression that the financial performance of Transmile was in line with market expectations when in fact it was not”.

“The SC also claimed that Gan had played a key role in inflating Transmile’s revenue by creating fictitious sales transactions between Transmile Air Services (TAS) and 20 purported customers. TAS is Transmile’s subsidiary and biggest revenue contributor.”

To make it seem that the purported customers had paid TAS for the fake sales, Gan had authorised payments from TAS to some of these customers before they were transferred back to the subsidiary as genuine payments for flight charter services rendered, it added.

Transmile was once a star of the local equity market whose investors included business tycoon Robert Kuok and Pos Malaysia Bhd, but the company fell from grace in 2007 when it was revealed that its stellar results were due to massive accounting irregularities.

The board of Transmile, led by the Kuok Group, then appointed Moores Rowland Risk Management to conduct a special audit, which uncovered huge discrepancies in the receivables.

The auditors concluded that the results for the financial years ended December 2005 and 2006 were grossly overstated.

Transmile suffered losses of RM126.3 million instead of making a profit of RM157.5 million in 2006; in 2005, it chalked up losses totalling RM369.6 million instead of the RM84.4 million profit that was reported.

After a tumultuous chain of events, the chartered air-freight service company was categorised as a Practice Note 17 company in 2010, and was eventually suspended and delisted from Bursa Malaysia in 2011.

Edited by Lam Jian Wyn