Sat, Jul 17, 2004 - Page 10 News List

FSC says Procomp manipulated stock

FINANCIAL SCANDAL The head of the Securities and Futures Bureau said the firm's top executives apparently worked with its Hong Kong sales agents to cook its books

By Joyce Huang  /  STAFF REPORTER

Procomp Informatics Ltd's (博達 科技) top management was found to have illegally manipulated the company's stock while leveraging NT$6.3 billion in frozen assets to raise more capital, financial authorities said yesterday after a month-long investigation.

Procomp, which makes chips used in communications and networking equipment, filed a restructuring application to the court in a surprise move on the eve of a NT$2.98 billion bond payment default last month in a bid to avoid the seizure of its machinery and assets.

The Financial Supervisory Commission (SFC) found that Procomp had been faking a surplus on paper to boost stock prices, Wu Tang-chieh (吳當傑), head of the commission's Securities and Futures Bureau, said yesterday at a press conference.

Procomp's stock rose as high as NT$360 a share after it became a listed company on the local bourse in 2000.

But trading in the shares was halted by regulators on June 23.

Wu said that Procomp had worked with five of its Hong Kong-based sales agents, which the bureau now suspects are paper companies, to increase its account

receivables.

He said four of the five agents have never registered in Hong Kong and the other had been making deals with Procomp two years before it became a Hong Kong-registered company last year.

Even though Procomp's chairwoman Sophia Yeh (葉素菲) claims the company still has NT$6.3 billion (US$180 million) worth of financial derivatives in its foreign accounts, the bureau said those funds were frozen as a result of four illegal financial actions.

Wu said that Procomp had used part of the funds as collateral for bank loans granted to its foreign associates, which agreed to buy euro convertible bonds issued by the company.

Procomp had also authorized these banks to use the funds to buy financial derivatives while selling fake account receivables to banks, Wu said. The banks later froze Procomp's savings since its receivables could not be realized, according to Wu.

Therefore, Yeh and her top management may have violated article 171 and 174 of the Securities Transaction Law (證交法), which carry a maximum penalty of 10 years and seven years, respectively, as well as civil and criminal laws.

The bureau also alleged that Procomp's top management was involved in insider trading since it found that false domestic and foreign accounts were used to manipulate the company's stock liquidity.

The commission, however, has refused to name the people or person it believes was involved with Yeh in financial irregularities. It said it will soon submit its report to investigators.

"[The court] will come up with appropriate punishments to related parties with verified evidence," commission member Lu Tung-ying (呂東英) said.

Comparing the Procomp scandal to that of the bankrupted US energy giant Enron, commission Chairman Kong Jaw-sheng (龔照勝) said yesterday that he hoped investors' confidence would soon be restored after the commission adopts new regulatory measures designed to reinforce market self-discipline and corporate governance principles.

On Thursday the commission announced new punishments for accountants who neglect their duties in certifying financial papers. It also said it would issue a thorough report to help accelerate the court's investigation of Procomp.

"An early-warning system, which the commission will try to facilitate, is important to prevent similar financial irregularities from happening again," Kong said.

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