Published in Business Times, March 13, 2013

Mak Yuen Teen

IN August 2010, I published the first of two commentaries on JLJ Holdings, a Catalist company which was embroiled in a bribery scandal (“Apple case throws spotlight on corruption”, BT Aug 26, 2010). The scandal involved Andrew Ang, a former business development manager of JLJ’s wholly owned subsidiary, Jin Li Mould Manufacturing, who was accused of bribing an Apple global supply manager, Paul Devine. Ang has since disappeared and Devine has been indicted in the United States.

JLJ

Getting smaller: It appears that Apple – Jubilee’s largest customer by far – is reducing its business with the Singapore company- PHOTO: BLOOMBERG

I pointed out that even though the actions at that time were directed against Devine and Ang, and not against the companies involved, there was a real risk that JLJ could lose not only Apple as a major customer, but other companies as well, because Apple and other global companies are focusing on ethics and compliance of their suppliers. I was hoping that the company would be forthcoming about the potential impact of the case on its relationship with Apple and other companies. I feared the worst was yet to come for JLJ’s shareholders, even though the stock price had already been halved.

The company maintained through its announcements that “neither (JLJ) nor Jin Li Mould nor any other member of the group is a party to any suit by Apple or the subject of any indictment whatsoever” and “neither Jin Li Mould Manufacturing Pte Ltd nor any of the company’s subsidiaries had, at any point, made payments to Devine personally and/or Devine’s ‘vehicles’ referred to in Apple Inc’s civil suit”.

In April last year, JLJ called for an EGM to be held on April 26 to change its name from JLJ Holdings Ltd to Jubilee Industries Holdings Ltd.

I published the second commentary the day before the EGM, where I described how court documents in the US had revealed that after Ang left the company, Devine and Jacky Chua, the then executive chairman of JLJ, allegedly continued the bribery scheme. Devine allegedly e-mailed Chua and Andric Ng Boon Leng (JLJ’s CEO) pricing information from a Jin Li Mould competitor.

I also mentioned that, at around the time of the arrest of Devine and just days before JLJ’s announcement linking the alleged bribery to the company’s staff, Chua sold 10 million shares. Further, on Aug 16, 2010, the day of this announcement, Tan Soon Liang, a non-executive director of JLJ, also reduced his shareholdings in JLJ from 2 per cent to 1.19 per cent.

In its announcement, JLJ said that there was “no clear adverse impact on JLJ’s business with Apple”. In other words, the key officers were selling shares while the company was reassuring investors.

Chua resigned shortly after, but the CEO, Ng, did not. JLJ said “there has been no evidence to suggest that (he) had knowledge of or was involved in the alleged payments related to Apple’s civil suit”. This is despite US court documents showing that Ng was copied in an e-mail from Devine which provided pricing information from one of Jin Li Mould’s competitors. Even if Ng did not know of the bribe, surely he would have known that an Apple manager sending pricing information from JLJ’s competitor to JLJ is highly irregular and unethical.

The company did not explain the basis for its statement about Ng, given the evidence which was produced in the US court. One would have expected the steering committee and the legal advisers it had appointed to look into the case to have uncovered this evidence – if my students writing a case study on the company could find it on the Internet! The company’s continued retention of the CEO under such circumstances raises serious questions about the tone at the top and whether any lessons have been learnt.

On April 30, 2012, JLJ (now called Jubilee) issued an announcement responding to my commentary and to another BT report and maintained that “the company has, in fact, kept shareholders and other stakeholders updated on this matter”.

Well, get ready for the concluding chapter to this messy saga. On Jan 28, 2013, Jubilee issued a profit warning that it was expected to report a net loss for the year ended Dec 31, 2012, due mainly to lower revenues.

On Feb 27, it announced that its annual revenues had declined by 28.5 per cent compared with the previous year, with a net loss of $1.819 million against a $142,000 profit.

It finally disclosed the “Apple” impact on its business, with a loss of $16 million in revenues from Apple – greater than its total drop in revenues of $15.9 million. Although Apple missed analysts’ revenue estimates last year, its revenues still increased from 2011.

It appears that Apple – Jubilee’s largest customer by far – is reducing its business with Jubilee.

On March 7, Jubilee announced that Ng was resigning “on his own accord to pursue personal interest”.

Although the company’s share price has in recent days recovered to as high as 16 cents after falling to a low of 9 cents – with Chua disposing of a further 13 million shares through married trades on March 8 – and it may be difficult to imagine that things can get any worse, they just might.

The company has, in my view, failed to take serious proactive steps to really get to the bottom of the scandal from the outset – its failure to explain its retention of the CEO despite the evidence presented being a case in point.

I believe that the disclosures by the company throughout the entire episode were defensive and left a lot to be desired. There are questions as to whether listing rules and securities legislation have been breached. Whether the company will survive should be a real concern to shareholders.

It may also be time to ask whether the sponsor-based regime for Catalist companies is serving much purpose in protecting shareholders’ interest. As required under this regime, all announcements by JLJ/Jubilee have been accompanied by the following statement: “This announcement has been reviewed by the company’s sponsor, PrimePartners Corporate Finance Pte Ltd … for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited … The sponsor has not independently verified the contents of this announcement.”

In my view, such boilerplate statements serve little purpose and may give shareholders a false sense of assurance. In recent discussions with some directors and senior management of Catalist companies, their feedback was that the sponsor may be helpful in the first year or two, but thereafter is more of an additional cost if the company has put in place proper systems and people.

Perhaps it is time for SGX to review this regime, particularly if sponsors are only helping companies to comply with the letter, but not the spirit, of its rules.

The writer is associate professor of accounting at the NUS Business School, where he teaches corporate governance and ethics