Two local business scandals have been in the headlines recently. One is the Sinovision Technology Corp (
The two scandals have a number of things in common, including cronyism between government officials and businesses and dereliction of duty on the part of auditors and securities brokers. They have also highlighted the weakness of Taiwan's legal system and business regulations, especially the Sinovision imbroglio.
Sinovision was an unlisted company and a fraud from start to finish. Because its shares were traded privately, share prices were controlled by a number of vendors and brokers. Through a combination of good packaging and public relations, it was easy to pump up the stock and mislead investors.
A company like this should send regular financial reports to the Securities and Futures Commission. Sinovision was also required to present financial statements twice, when it applied for capital expansion in 1999 and again in 2000.
Both the accounting firm KPMG LLP and SinoPac Securities had Sinovision as a client and have been taking pains to distance themselves from the scandal. KPMG LLP, which audited Sinovision's statements in 2000, has said that it initially expressed reservations about the 2000 statement. It also noted that the company had not been its client since last year. SinoPac Securities, which had an IPO assistance contract with Sinovision, has said that it terminated that contract in July last year.
But a securities company assisting an unlisted company with its IPO must file reports every two months with the Taiwan Securities Exchange or the Taisdaq exchange. Neither the accounting firm nor the securities house should be able to wash their hands of the scandal quite so quickly.
The operations, financial status and share holdings by board members of companies such as Sinovision need to be made transparent, but Taiwan's laws lack the teeth needed to enforce regulations. Even if the Securities and Futures Commission had discovered Sinovision's violations earlier, it could only impose a NT$60,000 fine, which is hardly a sum that would deter people who stood to gain NT$4 billion.
Sinovision's violations of Taiwan's laws are no less serious than those of Enron in the US. In the Enron case, its accounting firm was accused of helping to hide the company's financial losses. While the Sinovision case was outright fraud from beginning to end, the apparent dereliction on the part of its accounting firm and securities broker are as grievous as Arthur Anderson's missteps with Enron. One would hope that Taiwan's financial authorities and regulatory bodies have paid close attention to the impact that recent business scandals have had on the US economy and move quickly to prevent a similar hit on Taiwan's economy. The Ministry of Finance needs to amend the securities trading regulations and increase the penalties to deter other would-be fraudsters. It must also close the loopholes in the accounting and auditing regulations in order to restore investor confidence.
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