SINGAPORE (June 3): When news broke that Jeffrey Ong, managing partner of law firm JLC Advisors, had disappeared with $33 million from an escrow account maintained by Allied Technologies at JLC, it seemed like an all too familiar story.
In 1997, lawyer Geoffrey Heng went missing with $3.2 million; in 2004, Sivakolunthu Thirunavukarasu disappeared with $2.4 million. In 2006, David Rasif, the father of DJ Jade Rasif, absconded with $11 million of his clients’ monies. The following year, Zulkifli Amin took $6 million of clients’ monies.
For more than a decade, Rasif was the record holder among these rogue lawyers. Tighter checks that were put in place have worked — until now.
Since the recent discovery of the missing funds and lawyer, a police report has been made, and the Law Society of Singapore, the fraternity’s self-governing body, and Singapore Exchange Regulation (SGX RegCo) have commenced their respective probes. Kenneth Low Si Ren, an executive director of Allied Technologies, has been called in for questioning, following which his handphone and laptop were seized and passport impounded. A special audit of the company has also been ordered.
Cash, liabilities
From what can be discerned from Allied Technologies’ reported statements thus far, there are already some interesting questions for auditors to answer: how the company accounted for the $33 million figure carried on its books. As at December 2017, Allied Technologies accounted for a sum of $45.6 million in an escrow account. This sum was the combination of a placement done in October 2017 and proceeds of an asset sale.
However, the company chose to place that amount in the cash and cash equivalents line, as the amount is non-interest bearing and there is no restriction on its utilisation.
Since then, the company has spent $3.5 million as a deposit in acquiring a 51% stake in Asia Box Office, an e-commerce ticketing solutions platform, in January 2018, before agreeing to shell out $30 million for the stake. Allied Technologies paid the $30 million in cash, according to an announcement in April 2018, using proceeds from the October 2017 placement. This would mean that the escrow account would have seen a withdrawal of $30 million, leaving just $15.6 million in the account.
However, looking at the cash and cash equivalents line on the balance sheet, only $10.7 million was moved out of the cash and cash equivalents amount, according to Allied Technologies’ 2QFY2018 ended June 30 results, rather than the $30 million supposedly withdrawn to pay for the Asia Box Office stake.
Even in the 3QFY2018 results ended Sept 30, only $2.7 million was withdrawn from the cash and cash equivalents amount. For 4QFY2018, only $449,000 was withdrawn from cash and cash equivalents. In its results statements, the figure of $30 million for Asia Box Office appeared nowhere on the balance sheet.
‘Crystal clear’
While Allied Technologies has hired its own lawyers to demand the repayment of the missing funds from JLC, shareholders now question the company’s acquisition of a 51% stake in an entity called Activpass.
Recently, Allied Technologies announced an extraordinary general meeting (EGM) for shareholders to ratify the acquisition of Activpass, a software service provider.
In an anonymous letter sent to The Edge Singapore purportedly from a group of minority shareholders of Allied Technologies, they questioned why there was no valuation provided for the disposal of two subsidiaries — Allied Machinery (Shanghai) and Allied Technologies (Suzhou). They asked whether the disposal could be substantially below market value or to interested parties.
In a circular sent to shareholders on May 17, the company said it had been directed by SGX to combine the Asia Box Office and Activpass acquisitions. Shareholder approval was sought for a diversification of business in the last annual general meeting and, as a consequence, Asia Box Office was acquired. Now, the aggregation of the two acquisitions means that the Activpass acquisition constitutes a major transaction that requires shareholders’ approval.
After consulting SGX, Allied Technologies announced that it would postpone its EGM until the special audit required by the stock market regulator could be completed. The scope of the special audit will include transactions between Asia Box Office and an event financier, classifications of investments, the acquisitions of Asia Box Office and Activpass as well as the funds held in escrow by JLC.
The same anonymous shareholders sent a letter to SGX RegCo, highlighting that Asia Box Office and Activpass were loss-making, with no justification for Allied Technologies to be paying $30 million and $25.2 million respectively for a 51% stake in either of them. The shareholders called on SGX RegCo to “query and review” the independent directors’ integrity for consenting to these transactions. It is “crystal clear that both ABO and Activpass are scam acquisitions”, the anonymous shareholders assert in their letter.
Is there recourse?
While investigations and audits are carried out, can Allied Technologies and its shareholders recover the money? According to legal experts, little to no recourse seems to be available for such a case.
Stefanie Yuen-Thio, managing partner at TSMP Law Corp, notes that Allied Technologies has the right to demand payment from JLC, given that the money was placed in escrow with the law firm. “If the money has disappeared, then the question is whether the firm’s insurance covers this loss. Typically, professional indemnity insurance does not cover fraud and it may not be possible for the firm to claim it under the firm’s insurance,” she says.
Ushan Premaratne, partner at Withers KhattarWong, notes that law firms are usually limited liability corporations or partnerships, which means the firm and the partner who committed the wrongful act would be liable for any claims against it or him or her. “Thus, the other partners of the LLP are not personally liable, directly or indirectly, by way of indemnification or contribution for the liability. In other words, instituting a claim against the LLP itself might not assist in recovering the money if the LLP does not have the assets to meet the claim,” he says.
While making a claim against both the lawyer and the firm is the most attractive and straightforward option, Premaratne believes this would be challenging, as the whereabouts of Ong are unknown. “In addition, it must be considered whether the said legal practitioner has the assets to meet the claim brought against him; if not, a judgment obtained would not be beneficial to the victim,” he says.
As for shareholders, Yuen-Thio notes that there is still too little public information for now that Allied Technologies’ minority shareholders can use to decide on what they can do next.
Premaratne highlights that there is a compensation fund administered by the Law Society of Singapore that provides a discretionary grant, paid out of a fund, to reduce or mitigate loss suffered by a victim of an act of dishonesty by a lawyer or the employees of a legal practice. Each practising lawyer contributes $100 a year to this fund.
“However, to qualify for compensation under this fund, the victim will need to show that he or she has exhausted all civil remedies against the lawyer in question, and he or she must make a complaint to the Law Society of Singapore and/or the police,” he says.
While the dust has yet to settle on this case, are there likely to be new changes for escrow protocols at law firms? Premaratne believes there will not be, as there are no specific rules or legislation governing how escrow accounts are operated.
“The operation of an escrow account is governed solely by the terms and conditions of the escrow agreement. In this regard, the provision of escrow services is available from law firms as well as professional organisations. Furthermore, the provision of escrow services is not usually a core part of a law firm’s business and most law firms in Singapore do not provide such services. The parties agreeing to an escrow arrangement should ensure that an established escrow agent is appointed and sufficient safeguards are put in place to minimise the risk involved,” he says.
Without making direct reference to Rasif’s case, Yuen-Thio highlights that there has not been a major misappropriation of client’s funds by a lawyer in 12 years. She takes this as a sign that the current rules are working. The last incident involving conveyancing monies in 2011 appears to have been largely addressed, she says, and is not related to this case.
“There are also other Solicitors’ Accounts rules in place that govern the holding of clients’ monies that are not conveyancing funds. Such monies must be kept in a separate bank account and cheques of more than $5,000 must be signed by two solicitors. But no matter how stringent your safeguards, nothing is foolproof against fraud or deliberate dishonesty,” says Yuen-Thio. “In this instance, it would be good to understand why the monies had to be deposited with the law firm, and why this law firm was chosen, given the potential conflict of interest with directors on the board of the firm itself.”
As more information and facts become available from Allied Technologies and JLC, it appears that the former will continue to face scrutiny as it explains its past decisions to its shareholders and regulators.
Jeffrey Ong: One of many links to the penny stock saga
The shocking news involving Allied Technologies came to light just as the first part of the trial of John Soh Chee Wen and Quah Su-Ling came to an end after five weeks.
The two co-accused in the 2013 penny stock crash case are alleged to have built a web consisting of a dozen listed companies and many of their directors and senior executives. The three stocks allegedly manipulated — Blumont Group, LionGold Corp and Asiasons Capital (renamed Attilan Group) — make up the shorter list.
On top of his managing partner role at JLC Advisors, Jeffrey Ong is a long-time director of Annica Holdings — one of the companies in the web. He was appointed in 2008 and became chairman in 2017. Ong resigned abruptly through an email on May 20, citing “personal reasons”, Annica said on May 22. Besides Annica, Ong was an independent director at Attilan as well.
Besides Ong, there are several other individuals with links to the penny stock saga. Nicholas Jeyaraj Narayanan, an independent director of Annica, was the lawyer for Goh Hin Calm, former interim CEO of IPCO International (renamed Renaissance United). In November 2016, Goh was charged with Soh and Quah before he pleaded guilty in March this year, just before the trial began. Incidentally, Goh was a director of Annica as well. He was appointed in July 2008 and resigned in April 2015.
Roger Poh Wee Chiow, who used to manage investor relations for LionGold, was an executive director of Allied Technologies between March and September 2018. He did not respond to requests for comments.
