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Special auditor finds missing money, backdated invoices at Oriental

MISSING money, inaccurate disclosures and backdated invoices were among numerous potential legal and regulatory breaches at Oriental Group from 2013 to 2015, the steel trader's special auditor and independent directors reported on Wednesday.

In its report, RSM Corporate Advisory highlighted a number of potential violations of the Companies Act, Securities and Futures Act, the Penal Code, Singapore Exchange rules, the Income Tax Act, the Code of Corporate Governance and common law on directors' fiduciary duties. RSM also noted the involvement of former key directors and officers of the company in the potential breaches. Those individuals are former chief executive Lee Wan Sing, former chief financial controller Lee Ong, former chairman Wu Dingrong, former executive director Sun Lu and Wu Dingrong's brother, Wu Dingcheng, who is the legal representative of a China unit.

The auditor found that stock placements in 2013 and 2015 and a convertible note offering in 2015 were each reported as completed even though not all of the deal proceeds had been paid. In the case of the convertible deal, S$500,000 was untraceable as at the time of the announcement while another S$250,000 was still owed.

The company also bought S$650,000 of steel-related good from one GL Engineering without board approval. Goods amounting to S$250,000 were subsequently returned, while another portion of goods were sold back at a loss of S$7,500. RSM raised concerns over the rationale, non-delivery and existence of the goods, including its inability to verify the existence of S$350,000 worth of goods that are supposed to still be in the ownership of Oriental.

The company also made claims under the Singapore government's Productivity and Innovation Credit (PIC) scheme using invoices that had been backdated and for IT equipment that were not yet delivered, missing, purchased in a different year or belonging to another entity.

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Both Mr Lees "had in many instances shown little or no regard towards the law, corporate governance, risk management as well as his fiduciary duties and obligations," RSM reported.

An independent review led by independent directors also found irregularities in Oriental's China operations.

The reviewers found that Oriental's China subsidiaries had been used to provide guarantees to personal companies of Wu Dingrong. There were also multiple unsupported fund transfers between the company's China units and Mr Wu's personal companies.

"These transactions do not appear to be trade in nature and thus do not fall within the scope of the interested party transaction mandate previously approved by the shareholders," the independent review noted. "The independent reviewer is unable to trace the purposes of such fund transfers as there were no supporting documents."

The reviewers also found that one Oriental subsidiary in China had prepaid 23.1 million yuan (S$4.8 million) of a 24.8 million yuan bill for machinery even though the subsidiary had stopped operations and was buying the machinery at above-market prices.

Oriental's board said that it is seeking legal advice on the next step.

Parties tied to Mr Wu, who remains a substantial shareholder of the company, are seeking to replace Oriental's independent directors with their own nominees. But that bid was blocked by Oriental's existing board, which said that proposed replacement directors had not served notice early enough of their willingness to be appointed.

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