THE Securities Commission (SC) has fined Serba Dinamik Holdings Bhd and four individuals, including its CEO and senior managers, the maximum RM3 milion each for charges of submitting a false statement to Bursa Malaysia Securities Bhd.

In a statement issued yesterday, the regulator said the Attorney-General’s Chambers had accepted the representation made by the oil and gas firm and the individuals involved regarding the charges pending in court.

The charge by the SC against the CEO of the company, under section 369(a)(B) of the Capital Markets and Services Act 2007, was for submitting a false statement in declaring RM6 billion revenue in the quarterly report on the consolidated results for the quarter and year ending December 31, 2020.

Long feared or admired, the decision to issue compounds will probably send the capital market regulators back scrambling to revise, amend or insert new clauses into legislation to tighten the rules.

It now appears that the supervisory landscape for the regulators of the local capital market has been altered.

Probably, the market will see greater and stringent oversight and regulation, and expanded liability of those who vouch for the accuracy for disclosures in the near future.

With a compound proffered, for sure a certain section of the capital market participants will be cheering while maintaining an elegant silence for fear of reprisals in the future.

Charlatans or pretenders of fair play and transparency on the other hand – professing to manage their companies diligently and professionally in full compliance with securities laws and listing requirements – will heave a false sigh of disappointment with such a decision.

Would this decision open up a floodgate of cases with the defendants now similarly rushing to the AGC offering to pay a compound instead of taking up precious public resources?

Potentially, it will also `encourage’ those capital market participants, whose financials are now tethering on the edge of falling into PN17 status to `amend’ their accounts so that they don’t fall into the scope for the definition of a PN17 status company. With the time ’bought’, it is their hope that operations and profitability will return and its financial position restored to normalcy.

The temptations to do that will be huge as they know that if `discovered’ later, any charges proffered against them by the market regulators can be compounded instead of jail time. It is a great motivator that can tempt some of those capital market participants, who, no doubt, could be having a tough time resuming and returning to normalcy post the pandemic, to pursue this route when the possibility of jail time is completely removed from the equation.

Based on the public reports, where representatives from the AGC apparently argued that prosecutorial powers are contained in article 145(3) of the Federal Constitution – whereby the attorney-general at his discretion may institute, conduct or discontinue any proceedings for an offence – effectively, it appears that SC is effectively defanged by this decision.

Would this argument hold for other cases already filed by SC against individuals or companies currently pending before the courts?

Or would the AGC see a flood of written representations coming in for those cases that are still pending after a long period?

Would the investing public continue to trust and rely on the integrity of the financial statements of companies listed on Bursa Malaysia subsequent to this? What about people who have invested in Serba Dinamik Holdings?

Who and where do they seek ‘rectification’ for the losses they suffered?

Life will go on for the company, its executives and directors, the SC and the AGC.

It is worth noting that in the Capital Market Masterplan 2, the guiding principle set out for an efficient framework for fund-raising and product innovation states that there shall be no regulatory vacuum and the main tool for the protection of investors must mainly rest on the quality and reliability of information disclosures.

In this instance, there appears to be a vacuum where no one seems to be concerned or care about the fate of those thousands of individual shareholders who invested into the company and are now left with large losses and possibly worthless shares. Some could possibly be saddled with huge margin loans and are bankrupted because of this investment. – April 14, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.