Midas, a Chinese railway parts maker which has a primary listing on the mainboard of the Singapore Exchange and a secondary listing in Hong Kong, is being investigated in Singapore and China for fraud.

Founded in 2000 by Patrick Chew, a Singaporean businessman with a rags-to-riches story, and a Chinese partner, Chen Wei Ping, trading in Midas shares has been suspended since Feb 8. Midas has been slapped with lawsuits filed in China over unauthorised loans by its ex-chairman, Mr Chen, and guarantees involving its Chinese units.

“Acra is closely monitoring this case and will assess if any further action is warranted,” a spokesman told The Business Times.

The move by the auditing ombudsman – a statutory board under the Ministry of Finance – comes after Mazars said in April that in light of the findings in the course of its audit work for the financial year ended Dec 31, 2017, and recent developments in Midas, its auditors’ reports issued for 2012 to 2016 could no longer be relied upon.

What shocked investors was that Midas’ cash holdings now stand at about S$700,000 (before legal fees and salaries due) compared to the one billion yuan (S$209 million) reflected in the audited results for the year ended Dec 31, 2016.

Midas blamed the sorry state of affairs on the lack of control over its operations in China, while Mazars said their audits were based on required audit procedures, but they, too, had been deceived.

May 25, 2018

THE Singapore Exchange said on Friday that its regulation unit, SGX RegCo, has been in engagement with the Chinese Embassy in Singapore in relation to communications with the relevant authorities in China on developments at Midas Holdings.

“Relevant authorities in China, Hong Kong and Singapore are already investigating the case and SGX RegCo understands this process will require due deliberation and time. We are taking every step possible within our powers, and will extend full cooperation to the relevant investigating authorities,” said SGX RegCo.

Jul 5, 2018

THE board of troubled railway parts maker Midas Holdings has raised suspicions over the way in which an alleged board resolution that had been used to provide liability guarantees for 400 million yuan (S$82.3 million) in loans was signed.

The debt-laden Chinese firm, which is embroiled in round-tripping scandals and management dispute, had been called to the court under civil suits filed by Chinese moneylender Jilin Provincial Micro Refinancing Corporation.

In the first hearing held on June 26, it was found that the loan-guarantee document was sealed with a rubber seal meant for parcel deliveries, and not with the company’s common seal, the Midas board said in a regulatory filing on Wednesday.

According to the board resolution, directors Chan Soo Sen and Tong Din Eu had abstained from voting on it. But they were unaware of the board meeting convened at the company as stated in the board resolution, nor were they informed of such board meeting or resolution, Midas said.

“Both Mr Chan and Mr Tong were absent at the signing and no effort to ratify the resolution was made.”

As a result, the chief financial officer of the company has no record of the three loans made by Midas’ unit Jilin Midas or the board resolution that approved the 400 million yuan guarantee.

Aug 17, 2018

MIDAS Holdings has received a letter dated Aug 17 from CRRC (Hong Kong) Co and a copy of a final judgement filed on Aug 9 by Hong Kong’s high court, the company said in a Singapore Exchange filing on Friday evening.

According to the judgement, Midas is to pay a sum of approximately US$7.3 million to CRRC.

Midas said: “The board will issue further announcements as appropriate, as and when there are any material developments in the matter.”

Aug 21, 2018

EMBATTLED railway parts maker Midas Holdings and its directors have received a writ of summons from the State Courts over alleged defamation, the board disclosed on Tuesday.

The writ of summons, which was dated the previous day, pertains to a suit brought by former executive chairman Chen Wei Ping.

Mr Chen has alleged that 16 announcements filed by Midas between March 22 and July 4 “contained defamatory words”, the company’s board said. Midas previously announced in May that it had received a letter from Mr Chen through law firm Drew & Napier.

Mazars LLP

Previously part of Moores Rowland International network of firms, Mazars in Singapore has over 25 years of providing audit and advisory services to local and international firms. It merged with Moores Rowland in 2007 to become Mazars Moores Rowland, before becoming Mazars LLP in 2009.

To date, Midas is facing seven legal suits amounting to 520 million yuan in claims. Apart from bank balance shortfalls, it has also uncovered debt and liabilities amounting to 696 million yuan. Midas has said it can no longer operate as a going concern as its cash position will not be able to satisfy the claims made if the courts should rule in the claimant’s favour.

If Mazars’ audit was found to be deficient, the Public Accountants Oversight Committee (PAOC), which advises Acra, can mete out a range of orders on the individual accountants responsible, depending on the severity of the audit deficiencies.

These can range from a “hot review” where a certain number of its audit engagements will be reviewed by another public accountant, to a suspension of not more than two years, or a cancellation of its registration as a public accountant in extremely serious and repetitive breach.

Mazars, however, could face sanctions as a firm from if a complaint was lodged against Mazars and a disciplinary inquiry found that the firm failed to exercise adequate professional competence and due care in carrying out an audit. In that case, PAOC could order sanctions against a firm based on the findings and recommendations of the inquiry. (see amendment note)

Associate Professor Lawrence Loh, who is a director at the Centre for Governance, Institutions and Organisations (CGIO) at NUS Business School, said it must be a very serious development for a company’s auditor to say its audited reports for the past five consecutive years can no longer be relied upon.

“While investigations are ongoing, the signs may point to issues as momentous as frauds or other grave misdeeds by the company. The auditor’s due diligence may also be called into question,” added Prof Loh.

When contacted by BT, Mazars head of audit and assurance Rick Chan explained that its audited reports for 2012, 2013 and 2014 have not been withdrawn, but could no longer be relied upon because Midas is being investigated by the Commercial Affairs Department (CAD) of Singapore, and it is unclear how far back this will go.

“Therefore, subject to the outcome of the investigation or other investigations that may be subsequently carried out by the board, the auditors’ reports issued by Mazars for the financial years ended Dec 31, 2012, 2013 and 2014 could also no longer be relied upon,” Mr Chan said.

As for its audited 2015 and 2016 reports, these have officially been withdrawn and may not be relied on.

Mr Chan said Mazars has yet to complete audit work for 2017 after it found certain irregularities.

It has not resigned as auditors but work has been halted pending investigations by CAD.

“As statutory auditors, Mazars are required to conduct an audit in accordance with Singapore Standards on Auditing (SSA) and are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error and forming an opinion thereof,” Mr Chan noted.

“However, reasonable assurance is not an absolute level of assurance, because there are inherent limitations in an audit process, including it being circumscribed by industry accepted assumptions.

“This results in auditors necessarily reviewing documents and information provided by management which are not forensically investigated and assumed not to have been deliberately falsified, doctored or forged.

“Because of the assumptions and acceptable standard of verification in an audit process, the result of an audit is necessarily persuasive but not conclusive.”

On Friday, Singapore Exchange Regulation (SGX RegCo) said it has been in engagement with the Chinese Embassy in Singapore in relation to communications with the relevant authorities in China on developments at Midas.

ZICO Insights Law LLC managing director Yap Lian Seng as well as counsel and deputy head of its China desk Qiu Yang welcomed SGX RegCo’s active intervention, believing it brings in a certain degree of assurance and comfort to minority shareholders of Midas that they won’t be left alone.

“This also shows a move towards ‘meaningful regulation’. SGX RegCo took one step further to actively reach out to the relevant regulatory authorities based in Midas’ home jurisdiction to help expedite the investigation,” they added.

“This is a proactive, positive development, which acknowledges the fact that private enforcement action by liquidators, judicial managers and independent directors in recalcitrant companies has so far been relatively ineffective.”

Amendment note: The story above has been amended to clarify that the Public Accountants Oversight Committee’s use of hot reviews and suspension of public accountant registration applies only to individual accountants, and to explain the circumstances when the Committee may sanction a firm.

Originally Reported by the Business Times on May 28, 2018
https://www.businesstimes.com.sg/companies-markets/acra-looking-into-mazars-role-in-midas-auditing

Originally Reported by the Business Times on Jul 05, 2018
https://www.businesstimes.com.sg/companies-markets/midas-board-flags-suspicion-over-seal-signings-in-loan-papers

Originally Reported by the Business Times on Aug 17, 2018
https://www.businesstimes.com.sg/companies-markets/midas-ordered-to-pay-us73m-to-crrc