2.

2 Market misconduct - Suremax Group Berhad

2.2.1 Company Background

Founded in 1995, the principal activities of the company are investment holding and provision of
management services. Suremax Group Berhad (hereafter Suremax) has several subsidiaries with
principal activity of building construction and property development. The subsidiaries also engages in
the trading and distribution of general building and construction materials comprising cement, steel,
ceramic wall and floor tiles, mesh, concrete roofing tiles, ceiling sheet, sanitary products, ironmongery products, metal roofing, and clay-based products, as well as supplies ready-mix concrete for
construction and other industries. In addition, the company provides property management services
(Bloomberg Businessweeks, 2014).
2.2.2 Issue and chronology of the case
Manipulation of shares is a serious problem and this company involve in this issue. The price rally on
Suremax shares began on 17 November 2004 from a low of RM0.58 and ending in a high of RM1.68
on 14 March 2005. The price of the share plummeted to RM0.59 following a limit down starting on 22
March 2005 (Securities Commission, 2006). The price movements of Suremax shares at that material
time are depicted in chart below.

Figure 2.2: Share Price Performance of Suremax (Nov 2004 Mar 2005
- Sources: Securities Commission Malaysia (2006)

The event of price rally was due to the market manipulation by Impetus Consolidated Sdn. Bhd.
(hereafter Impetus) former group executive director Dato Philip Wong Chee Kheong, 43 years old and
Impetus group chairman Ivan Ng Chong Yeng, 39 years old and Impetus executive director Francis
Bun Lit Chun, 35 years old at that time of conviction, by creating misleading appearance with respect
to the price of Suremax shares on the Main Board of Bursa Malaysia through the sale and purchase of
its shares via 153 Central Depository Securities (CDS) accounts, which caused the stock price to rise.
The offence took place at Bursa Malaysia Securities Berhad in Exchange Square, Bukit Kewangan,
between 24 November 2004 and 22 March 2005. The trio also charged by creating a misleading
appearance of active trading of Suremax shares by being indirectly involved in the sale and purchase
of Suremax stock that did not cause any change in the beneficial ownership of the said shares,
executed through the same CDS accounts (Mageswari, M, 2005). The chronology of the case can be
referred in Figure 2.0.

Figure 2.3: Chronology of the case due to issue of shares manipulation in Suremax Group
Berhad

2.2.3 The Proceeding

On 18 March 2014, The Kuala Lumpur High Court dismissed the appeal by Dato Phillip Wong Chee
Kheong and Francis Bun Lit Chun and affirmed their conviction for their involvement in the
manipulation of Suremax shares.

Dato Phillip and Francis Bun Lit Chun were found guilty under Section 84 of the Securities Industry
Act 1983 for the manipulation of Suremax Group Berhad shares between 24 November 2004 and 22
March 2005. They had committed the offence by executing trades in nine accounts that did not involve
any change in the beneficial ownership of the said shares, thus creating a misleading appearance of
active trading in Suremax shares on Bursa Malaysia. They were charged on 25 October 2005 with 38
witnesses being called by the prosecution. Both accused testified when the defense was called.
Justice Haji Kamardin bin Hashim in upholding the conviction by the Sessions Court in January 2011,
stated that the trial judge did not err when he found that the witnesses called by the prosecution were
credible. He reiterated that the trial was conducted fairly and that there was no prejudice to both
appellants during the conduct of the trial.
The High Court will determine the sentence to be imposed on Thursday, 27 March 2014 as counsel for
the appellants had asked for submissions be heard by the court before the appeal against sentence is
finally decided. The High Court ordered that bail be increased to RM500,000 for each appellant whilst
awaiting the outcome on the appeal against their respective sentences. The two appellants face a jail
term of up to 10 years. The Sessions Court had, in 2011, sentenced Dato Phillip Wong to 24 months
jail and a fine of RM3 million whilst Francis Bun was sentenced to 3 months jail and a fine of RM2
million (Security Commission Malaysia, 2014)

2.2.4 Law and Act Involved

Section 84 Security Industry Act 1983 (SIA 1983) - False Trading and Market Rigging Transactions. In
the Part IX bearing the title trading in Securities Division 1 (Prohibited Conduct) in the Section 84
explains the details of false trading and market rigging transactions. In Section 84(1) outlined the
creation or involved in creation of misleading appearance of active trading in securities or false or
misleading appearance with respect to the market for, or the price of the securities.
In Section 84(2) further explains the prohibition of any involvement in purchase or sales of securities
that not involve a change in the beneficial ownership of the securities, or by any fictitious transactions
or devices, maintain, inflate, depress, or cause fluctuations in, the market price of any securities
(Security Industry Act 1983, 2006).
RECOMMENDATION
4.1

Improve policy and Transparency

Bursa Malaysia Listing Requirements (BMLR) as well as Malaysia Code of Corporate Governance
2012 (MCCG 2012) has outlined the methods to ensure transparency and policy to be followed by
corporation. However, the corporation itself needs to be transparent to public scrutiny and
continuously promoting and enforcing their policy to their internal staff. A good practice requires
policy to be reviewed regularly and the employees are updated with existing or amended policy. Such
policies must be tailored to all level in the organization, and also it need to be communicated to all
level in the organization. Most company in opinion that implementation of good corporate governance
does not do any good, neither improve their performance nor effective to promote good governance
practices. Based on research done by Nazli Anum (2010), the results of the research showed weak
evidence to indicate that companies which adopted good governance practices perform better than
others. Compliance by most companies only to fulfil BMLR and Malaysian Code of Corporate
Governance (MCCG) 2012 requirements which is still non mandatory. However, there are no severe
punishment for any noncompliance. Therefore, the company itself should be more proactive in
practicing good governance and prove that the efforts done will result in higher performance of the
company and increase reputation of the company.

Transparency in disclosing activity of the company or the employees is also crucial to ensure that good
governance practices is implemented. Statutory declaration of directors may not enough to represent
the current intention and activities done by the directors as it was made only on appointment and other
related activities which occurs on the specific time. By supporting transparency on the board level,
other stakeholders will satisfy for every action done by Board of Directors (BOD) as those decision
made by BOD was made for benefit of the company, not for self-interest.
4.2

Provide Channel to Report Allegation

The Whistleblower Protection Act 2010 is a law of Malaysia to combat corruption and other wrong
doings by encouraging and facilitating disclosures of improper conduct in the public and private sector,
to protect persons making those disclosures from detrimental action, to provide for the matter
disclosed to be investigated and dealt with and to provide for the remedies connected therewith.
The act was passed by Parliament of Malaysia in June 2010, and was brought into force on 15
December 2010. The objective of this act is to give protection to the whistleblower in the form of
confidentiality of their information, immunity from civil and criminal action and protection from
detrimental action being taken against them. Whistleblower protection is one of the Malaysian
Governments efforts towards tackling corruption and promoting good governance under Government
Transformation Programme (GTP).
Corporation should be more proactive in promoting whistleblowing and embed the policy into their
internal regulations to ensure that the policy are properly communicated throughout all level. Based on
research by Rachagan & Kuppusamy (2013), the nature and structure of Malaysian Public Listed
Companies, the strength of the regulators and the Malaysian culture all do not seem to encourage
whistleblowing. This is because, employee in opinion that the action of whistleblowing only put their
career at the end of the line and it will jeopardize their career in future. Being sacked from the
company, accusation of revealing company secret and wrongdoings that will continue to happen in
other company which whistle blower will be employed is a nightmare for those who are not understand
that their identity will kept anonymous and their testimony will be protected in the court of law.
Company has to provide secure and trustworthy channel for whistleblower to report any misconduct,
malpractice and non-compliance to curb the incidents before intervention of external regulatory body.
However the degree of offences done by officers of the company also will determine whether it
requires intervention from regulatory body such as Malaysia Anti-Corruption Commission (MACC).

4.3

Mitigate Risk of Fraud and Improve Internal Control

Fraud is broad legal concept generally refers to intentional act committed to secure an unfair or
unlawful gain (KPMG Forensic, 2006). There are three main categories of fraud that usually affect
organizations. The first of these is asset misappropriations, which involves the theft or misuse of an
organizations assets. Examples include theft of plant, inventory or cash, false invoicing, accounts
receivable fraud, and payroll fraud. The second category of fraud is fraudulent statements. This is
usually in the form of falsification of financial statements in order to obtain some form of improper
benefit. It also includes falsifying documents such as employee credentials. The final of the three fraud
categories is corruption. This includes activities such as the use of bribes or acceptance of kickbacks,
improper use of confidential information, conflicts of interest and collusive tendering (Doody, 2008).
To mitigate risk of fraud, organization should be embark in the journey of sound ethical culture.
Attitudes within an organization often lay the foundation for a high or low fraud risk environment.
Where minor unethical practices may be overlooked (e.g. petty theft, expenses frauds), larger frauds
committed by higher levels of management may also be treated in a similar lenient fashion. In this
environment there may be a risk of total collapse of the organization either through a single
catastrophic fraud or through the combined weight of many smaller frauds.
Organizations which have taken the time to consider where they stand on ethical issues have come to
realize that high ethical standards bring long term benefit as customers, suppliers, employees and the
community realizes that they are dealing with a trustworthy organization. They have also realized that
dubious ethical or fraudulent practices would cause serious adverse consequences to the people and
organizations concerned when exposed.
To establish a sound ethical culture, organizations should have a mission statement that refers to
quality or, more unusually, to ethics and defines how the organization wants to be regarded externally.
Organizations also recommended to have clear policy statements on business ethics and anti-fraud,
with explanations about acceptable behavior in risk prone circumstances. Besides, a route through
which suspected fraud can be reported, a process of reminders about ethical and fraud policies for
example annual letter and/or declarations also can be established to ensure that the communication of
fraud activities and its prevention does not stop half way. Organizations also encouraged having an
aggressive audit process which concentrates on areas of risk. For the benefits of employees generally,

organizations also encourage to have management who are seen to be committed through their actions
(Doody, 2008).

4.4

Commitment of Corporate Governance of Corporate Participants.

Corporate governance is most often viewed as both the structure and the relationships which determine
corporate direction and performance. The board of directors is typically central to corporate
governance. Its relationship to the other primary participants, typically shareholders and management,
is critical. Additional participants include employees, customers, suppliers, and creditors. The
corporate governance framework also depends on the legal, regulatory, institutional and ethical
environment of the community. Generally, corporate governance refers to the host of legal and nonlegal principles and practices affecting control of publicly held business corporations. Most broadly,
corporate governance affects not only who controls publicly traded corporations and for what purpose
but also the allocation of risks and returns from the firms activities among the various participants in
the firm, including stockholders and managers as well as creditors, employees, customers, and even
communities.
In order to achieve high commitment of good governance, involvement from all employees from all
level are required to ensure that the objective in practicing good corporate governance can be attained.
Transparency and integrity should be promoted from the top level and by the effort and commitment
from top management, other employees will automatically seeing the action as a good example for
them to follow. The impact and result from this, the organization or company will earned high
reputation and the stakeholders will be more confident to invest or involved in the company activities.

APPENDIXES
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Mohamed Zawawi, S., & Abdul Rahman, R. (2006). Fraud Awareness Among Corporate Members. Malaysia:
Institute of Research, Development and Commercialisation (IRDC).

Books:
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Security Industry Act 1983. (2006). Securities Industry Act 1983 - Incorporating All Amendments Up to 1
January 2006. Malaysia: Percetakan Nasianal Malaysia Berhad.
Zainal Abidin , Z., & Hashim, A. (2014). Corporate Governance Practice of the Company Secretary. Kuala
Lumpur, Malaysia: Uitm Press.