Allied Tech misappropriation case: Auditors find lawyer Jeffrey Ong's account 'plausible'

A SPECIAL audit of developments surrounding missing funds at Catalist-listed Allied Technologies has found that the version of events told by Jeffrey Ong, the lawyer charged with cheating and other offences in the case, appear to be "plausible explanations" for the gaps in the story told by those involved in the company.

The auditors also found failure on the part of the independent directors in safeguarding the interest of the company on several counts.

Ong was managing partner of law firm JLC Advisors. Over two years ago, Allied Tech reported to the police that over S$33 million held in escrow by the firm had gone missing and that Ong had become uncontactable.

Special auditor PricewaterhouseCoopers Risk Services was engaged to look into, among other things, the disposal of Allied Tech's two China subsidiaries in connection with the missing funds.

In Ong's interview with PwC, he accused former Allied Tech executive director Kenneth Low, former chief executive Hsu Ching Yuh and substantial shareholder Lim Tah Hwa of participating in deals engineered to their benefit.

Low was arrested last April and named as the co-accused in five of the charges that Ong, who is in remand, is facing.

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Ong alleged that Hsu wanted to leave Allied Tech but wished to retain control and ownership of the two China entities, PwC said in a summary report made public by Allied Tech in a bourse filing on Wednesday evening.

He further alleged that Low and Lim wanted to take control of a listed company "at the lowest cost possible or with minimum or no cash outlay".

PwC found that Ong's version of events - where the transactions were prearranged instead of standalone deals - could explain the gaps in the stories of the other parties interviewed by PwC.

However, it cautioned that there is no independent corroborative evidence to validate one version of events over another.

PwC found several issues with how the disposal of subsidiaries Allied Machineries (Shanghai) (AMSH) and Allied Technologies (Suzhou) (ATSU) were carried out.

For instance, it did not find any documentation, discussion or due-diligence assessment of the financial standing of Carapace Daybreak, the buyer of AMSH, nor its ability to pay the significant purchase consideration of S$16.7 million.

There was also no evidence that the board of directors had discussed the rationale for disposing of AMSH, or for obtaining a third-party valuation, PwC said.

The auditor also flagged concerns over a possible conflict of interest in the deal, in relation to the conduct of Low Yew Shen from Elitaire Law, the broker of the deal.

PwC said there was "minimal input" from independent directors on both the AMSH and ATSU transactions. For instance, there was no justification for or deliberation over why the board found net tangible assets acceptable as the basis for valuing ATSU.

The board had also fully relied on Hsu to carry out the negotiations with buyer Hong Siou-Jhu, despite Hong having been referred to the company by Hsu. The sale transaction was finalised within a month.

None of the independent directors asked why transaction monies were channelled through the escrow account with JLC, despite the account being for the specific purpose of a placement exercise.

The sale proceeds for the disposal of both AMSH and ATSU were settled by the purported purchasers in a similar manner. This was based on the series of events as recounted to the auditor by Hsu, Low Yew Shen and Kenneth Low.

In both cases, the buyers - introduced to the company by Hsu - appeared to experience difficulties in fulfilling the purchase consideration.

Low then stepped in to assist. Transactions involving Lim, Hsu, Low Yew Shen and Lam Yee Kee (owner of Allied Tech's first acquired company Asia Box Office) followed in subsequent events.

Allied Tech had earlier said it would await the conclusion of the PwC audit or further information before taking further steps to recover the escrow funds placed with JLC.

On Wednesday, the company said it is reviewing the contents of the executive summary to assess the findings and determine its next course of action.

READ MORE:

• Shareholder approval was needed for Allied Tech's China subsidiaries' disposal: SGX RegCo
• SGX queries Allied Tech over executive director; company to respond by April 14
• Allied Tech confirms arrest of executive director Kenneth Low
• Allied Tech executive director Kenneth Low arrested, named as co-accused of Jeffrey Ong in 5 charges
• JLC Advisors former managing partner's acts spawn lawsuits
• JLC Advisors Jeffrey Ong implicates Allied Tech executive director and investor in misappropriation case
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