Sat, Jul 03, 2004 - Page 8 News List

Editorial: Reform should be Procomp's legacy

Procomp Informatics Ltd, which used to be known as the king of the stock market, has filed a restructuring request with the Shihlin District Court. No one knows what has happened to NT$6.3 billion in cash that was on the company's books, and the firm's chairwoman, Yeh Su-fei (葉素菲), remains in police custody.

In little more than a week, Procomp shares owned by nearly 40,000 investors were turned into so much waste paper, and several bank creditors have been left with huge bad loans. The Procomp scandal is almost a Taiwanese version of the Enron case.

Procomp has provided many negative examples of corporate governance from which we can learn. It neglected its core business; it paid excessive attention to manipulating its financial leverage; it overstated accounts receivable and frequently raised huge amounts of capital; it traded in derivatives through foreign banks using company cash funds without previous announcement; and it frequently changed its chief financial officers and accountants.

Is Procomp alone in behaving like this? We worry that this is just the tip of the iceberg, because judging by the transparency of domestic corporations' internal financial affairs, almost no company passes the corporate governance test.

This incident has proved a serious test for the external audit mechanisms meant to provide certification of a company's financial affairs. Procomp investors and CitiBank, the underwriter of Procomp's overseas depository receipts, invested in Procomp on the strength of the accountants' certified audit report that Procomp had NT$6.3 billion. Now these funds have disappeared. Is the reason that the audit was fraudulent, or were the accountants also victims? Over the past six months, Procomp has not only frequently changed accountants, it has also changed accounting firms. The last accountants to take over responsibility for certifying the company's financial reports completed the assessment in only seven working days. Shouldn't this make us suspicious? If financial reports already certified by accountants remain problematic, how can anyone trust the financial reports of Taiwan's listed and OTC companies?

The Procomp case highlights the helplessness of supervisory agencies in the face of this kind of scandal. The Securities and Futures Commission (SFC) and the Taiwan Stock Exchange can only demand that Procomp make a formal report and terminate trading in the company's shares. If nothing can be discovered through this process, then the case is passed to the courts. There is no possibility of warning the public before such a case, and after the case has emerged there is still no way of demanding that Procomp reveal the location of the missing funds. Investors, creditors and banks have no way of recouping their losses. Even now, as investigative agencies begin the judicial process, what are the chances that justice will be the result? Even if we do not consider Yeh's political and financial connections, if billions of dollars already have been sucked out of the company, what are the chances that a remedy will be found?

Of the many companies traded on the stock exchange and the OTC market, just one company has been delisted. The savings of tens of thousands of investors are gone because they trusted industry information, accountants' guarantees and the government's supervisory and management functions. But which of these is going to protect innocent investors?

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