Accounting Scandal in Transmile

Posted on 27 August 2020

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Photo Credit: Getty Images

“Transmile”, is a household name (for a wrong reason) during my tutorial class for corporate governance. 

Its former chief executive officer, Gan Boon Aun, was found guilty of furnishing misleading statements to Bursa Malaysia in February 2007, today (27 August 2020) by the Kuala Lumpur Session Court. Gan was proven for being responsible for the grossly overstated Transmile unaudited financial earnings for the financial year ended 31 December 2006 or failed to exercise his diligence to prevent the commission of such offence.

Gan resigned as a non-independent executive director on 2 August 2007 from the company.

Then Transmile’s Board of Director appointed Moores Rowland Risk Management to conduct a special audit and found out that the company has suffered a loss of RM 369.6 million and RM 126.3 million instead of an initial report of profit of RM 84.4 million and RM 157.5 million for the financial years 2005 and 2006, respectively. There were massive accounting irregularities. Deloitte & Touche was the auditor at the material time.

At the time of writing, it is unknown either party intends to appeal the decision.

Gan was prosecuted under section 122B(a)(bb) Securities Industry Act 1983, which furnished a misleading financial statement to Bursa with intent to deceive. The other two independent directors, Shukri Sheik Abdul Tawab and Jimmy Chin Keem Feung were prosecuted under section 122B(b)(bb) of the same Act, which knowingly authorised the furnishing of the misleading financial statement to Bursa. All of them were members of the audit committee.

122B. False reports to Commission, stock exchange or recognized clearing house.
A person who–
(a) with intent to deceive, makes or furnishes; or
(b) knowingly authorises or permits the making or furnishing of, any false or misleading statement or report to the Commission, a stock exchange or a recognized clearing house relating to–
(aa) dealings in securities;
(bb) the affairs of a listed corporation;
(cc) any matter or thing required by the Commission for the due administration of this Act; or
(dd) the enforcement of the rules of a stock exchange or the rules of a recognized clearing house,
commits an offence and is liable on conviction to a fine not exceeding RM3 million or to imprisonment for a term not exceeding 10 years or to both.

Both Shukri and Jimmy were sentenced in 2011, where both were fined RM 300,000 and imprisoned one year individually. And today, Gan was fined RM 2.5 million and imprisoned one day (yes, one day only). 

Transmile was delisted from Bursa in 2011.

Clement Ong is a part-time lecturer on corporate governance and law of a private university. This short article was published on LinkedIn and was written for educational purpose.