The Monetary Authority of Singapore (MAS) has imposed a civil penalty of $12.6 million on former high-flying commodities Hong Kong-based, Singapore-listed Noble Group for publishing misleading financial statements, thereby breaching the Securities and Futures Act (SFA).
The SFA allows for MAS to enter into an agreement with any person for that person to pay, with or without admission of liability, a civil penalty for contravening any provision of the act.
According to MAS, the $12.6 million fine was the largest amount imposed to date. "The purpose of this significant civil penalty amount is to send a clear signal to listed issuers to ensure the accuracy of the information they release to the public," says MAS in response to queries.
In addition, the Accounting and Corporate Regulatory Authority, in consultation with the Attorney-General’s Chambers (AGC), has issued “stern warnings” to two former directors of Noble Resources International, Noble’s Singapore subsidiary, for failing to prepare and table annual financial statements in compliance with the Companies Act.
These two directors were not named.
In addition, the Public Accountants Oversight Committee (PAOC) has also issued "orders" against Ernst and Young. The accounting firm audited Noble Resources International, Noble's wholly-owned Singapore subsidiary, in relation to the financial statements for the financial years ended December 31 2012 to December 31 2016.
See also: Sembcorp issues $350 mil of guaranteed notes due 2036 at 3.65%
When asked to elaborate, ACRA says the Public Accountants Oversight Committee (PAOC) determined that it was appropriate for the auditors involved to be subject to a peer review on three audit engagements, attend specific courses, and submit a remediation plan to ACRA.
Back in April, MAS had in its enforcement report updated that the probe, which involves various agencies since Nov 2018, was already at an “advanced stage” and likely to “reach a conclusion” in the third quarter of the year.
Up till 2015, Noble was a fast-growing commodities player poised to join the likes of Glencore in the big leagues. It rode the commodities boom of the mid-2000s to become a company with a multi-billion market cap.
When the downturn came, questions mounted over the valuation of its assets and it came under heavy short-selling attacks, notably by Iceberg Research, which tweeted "a minor fine for a major fraud" in response to the $12.6 million penalty, equivalent to less than 1% of Noble's last reported revenue.
By the time Noble caved and defaulted, its share price had collapsed by 99%. In 2018, it was delisted from the SGX, leaving a mark on founder and chairman, 82-year-old Richard Elman (picture), famous for starting as a scrapyard worker.
Noble tried to restructure its remaining assets into another entity and list the new entity elsewhere but the move was blocked by SGX and MAS.
On Aug 24, Noble's liquidator says in an SGX announcement that it plans to apply for Noble to be delisted, given how the company is insolvent and its debts far exceed its
realisable assets.
In addition, the company "is not in a position to make any distribution to shareholders or make an exit offer to shareholders."
The liquidator intends to complete the liquidation of the Company by end of the year.
According ot MAS, an entity within the post-restructuring Noble Group is paying the civil penalty, "on a voluntary basis". Half of this amount, $6.3 million has been paid and the balance will be paid by Sept 26.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Inflated earnings and asset value
In the joint statement on Aug 24, the authorities found that Noble entered into long term marketing agreements with mine owners and coal producers to either assist them to build a brand name for their mines, or act as a salesperson for the commodities produced from the mines.
Under these marketing agreements, Noble would not take delivery of the commodities produced but would earn fees based on a pre-determined percentage of the counterparty’s sales value.
Based on the investigations, Noble had applied an incorrect accounting treatment to these marketing agreements by classifying them as financial instruments instead of service contracts, and by recognising future fees from these agreements before rendering the services.
As a result, this inflated the reported earnings and net assets of both Noble and NRI, the subsidiary.
“Noble’s publication of materially misleading financial statements from 2016 to 2018 were likely to have induced the sale or purchase by investors of Noble’s securities listed on SGX," the statement reads.
Kuldip Gill, ACRA's assistant chief executive, calls quality financial information "crucial for a trusted and vibrant business environment in Singapore.
"ACRA expects financial statements to reflect a true and fair view of the financial position and performance of the company as market participants rely on the financial statements to obtain an accurate picture of the value the business generates, and the risks involved.
"ACRA will continue to enforce accounting standards and take those involved in the financial reporting chain to task for unreliable information and/or non-compliance with the prescribed accounting and auditing standards," she adds.
Loo Siew Yee, MAS' assistant managing director (policy, payments & financial crime), says that materially false or misleading statements by listed entities have no place in Singapore’s capital markets.
"If left unchecked, they will erode investors’ trust in the quality of information released by issuers, and have an adverse impact on the integrity of our capital markets.
"The present action demonstrates that MAS takes breaches of disclosure obligations seriously and will take firm action against persons found to have fallen short," she adds.
“Based on presently available facts, the actions announced today marks the closure of the investigations against Noble Group and Noble Resources International in relation to the matters set out in the joint statement by the SPF, MAS and ACRA published on 20 November 2018.”
