Carrian Scandal

10
Sonu S D27 Dony Joseph C52 Harsha Tandure C55 Shiva Charan Reddy A57 Vivek Atmakuri C23 Ajay Nalawade C37

description

An insight into one of the largest scandals that rocked Hong Kong... A corporate governance angle to the same.

Transcript of Carrian Scandal

Page 1: Carrian Scandal

Sonu S D27Dony Joseph C52

Harsha Tandure C55Shiva Charan Reddy A57

Vivek Atmakuri C23Ajay Nalawade C37

Page 2: Carrian Scandal

Synopsis

The Carrian Case is the longest criminal case in Hong Kong judiciary history spanning over 17 years at a cost of HK$210 million and with over 4 million pages of exhibit

Page 3: Carrian Scandal

1972

•An engineer from Singapore arrives in Hong Kong to work as a project manager for a land developer.

1977

•The engineer starts his own company to engage initially in the pest-control business and later establishes the Carrian Group

1978

•He purchases land in the New Territories and begins his foray into the property market; he sets up more companies to engage in a variety of businesses under the umbrella of Carrian Holdings Ltd. (Carrian Group/Carrian), with himself as the group chairman (Carrian chairman).

1979

•A Carrian subsidiary acquires a listed company at a price of HK$6 per share. The company is later renamed Carrian Investments Ltd. for trade on the Hong Kong Stock Exchange.

Jan 1980

•Another Carrian subsidiary purchases Gammon House for around HK$1 billion. By October, it announces the sale of Gammon House for over HK$1.6 billion.

Nov 1980

•The Carrian Group expands rapidly. Its share price skyrockets to a record high of HK$17.90 per share.

Oct

1982

•The property market in Hong Kong slumps and property prices drop sharply. The Carrian Group is also hit and announces a cash-flow problem. Its share price tumbles and bank creditors apply for the company's liquidation.

Jan

1983

•The Stock Exchange suspends trading in Carrian shares.

20 Sept 1983

•The Police discover that fraud was probably committed in the acquisition and sale of the Gammon House. Several prosecutions are made. However, all the accused are acquitted due to duplication of charges and insufficient evidence.

Oct

1983

•Carrian is liquidated resulting in the biggest corporate collapse in Hong Kong.

Rise and Fall of Carrian Group

Page 4: Carrian Scandal

The Carrian & Bumiputra Affair

Bank Bumiputra Malaysia Berhad (BBMB) was originally set up by the Malaysian government to provide banking services and professional business advice to Malaysian farmers of various ethnic groups. Soon it extended its business to overseas markets. Banking regulations in Hong Kong, however, did not permit BBMB to set up a branch in the territory.

BBMB therefore set up a subsidiary company, Bumiputra Malaysia Finance Limited (BMFL), which was to be managed and operated in Hong Kong by several of its senior executives.

As a new lending house, BMFL had to be aggressive in building up a strong clientele. Carrian meanwhile badly needed money to finance its many business expansion programmes. The two companies were a perfect fit. In mid-1979, BMFL released its first HK$5 million loan to Carrian. The Carrian chairman initially dealt only with the general manager of BMFL, but contacts were later established with other BMFL senior executives including its chairman, director and alternate director.

As revealed in the investigations, although the credits Carrian obtained from BMFL were all substantial, most were approved without adequate guarantees or supporting documentation, nor was there evidence to suggest that the loans had been subjected to the prescribed credit procedures.

Page 5: Carrian Scandal

The Banker who knew too much…..

As early as 1982, BBMB headquarters was suspicious about its Hong Kong subsidiary's credit-approval procedures. The bank therefore dispatched an internal auditor from its Kuala Lumpur headquarters to act as assistant general manager supervising BMFL accounting and credit matters, and with an unspoken task to examine BMFL's books from the inside. At the same time, BBMB also issued an order to BMFL halting any further loans to the Carrian Group of companies without prior headquarters' approval. 

On 18 July 1983, the internal auditor was reported missing. Two days later he was found dead inside a banana grove in Tai Po, New Territories

Jalil Ibrahim

Page 6: Carrian Scandal

Hall of Shame

George Tan Soon- gin, (Then Chairman)

Mak Fook ThanLorrain Esme Osman(Former Chairman)

Bumiputera Malaysia Finance

(BMF)

Page 7: Carrian Scandal
Page 8: Carrian Scandal

The costs that resulted…..

Page 9: Carrian Scandal

Observations & Leanings from the Scandal

Proper credit analysis should have been carried out before issuing such substantial funds

There was no proper monitoring of such a rapidly growing company until it went bust; shows the shortcomings in proper governance of companies and stock market regulation.

Supporting documentation & Guarantee requirements were not sought for, procedures skipped, by the loan issuing party.

Lack of proper communication and poor monitoring of the subsidiary in Hong Kong , probably in haste of pursuing overseas expansion.

There was neither compliance nor transparency in the operations of Carrian Group.

Senior management, who are supposed to set the example, persistently resorted to corruption and deception.

Financials were tampered with to present a rosy picture to the investors. Again, a lack of proper regulation.

The Hong Kong economy, stock market, Judiciary, investors , and all the stakeholders were made to pay dearly for the above, and a promising life lost. This example pretty much explains the need for proper ethical behaviour and corporate governance.

Page 10: Carrian Scandal