IPCO former CFO Smith says not aware how share trading works

Smith, also a former executive director of IPCO, was among the latest prosecution witnesses to take the stand in the long-running trial of Soh and Quah, who was Smith’s CEO at IPCO.

Soh and Quah are accused of masterminding a massive share manipulation operation centred on three counters, which were collectively known as BAL. The share prices of the three penny stocks had surged spectacularly in 2013 before suddenly crashing in October that year, destroying some $8 billion in market value. LionGold is now known as Shen Yao Holdings while Asiasons has been delisted.

Between 2003 and 2011, both Smith and Quah were authorised signatories for seven trading accounts under IPCO and its subsidiaries, in brokerages such as UOB Kay Hian, OCBC Securities, Maybank Kim Eng and Saxo.

“I do not remember the circumstances leading up to the opening of each of the accounts, or how I came to be appointed as an authorised signatory for these accounts. I do not believe I met any trading representatives or went to the offices of the above firms to open these trading accounts,” said Smith in his conditioned statement dated Dec 23, 2020.

“I did not have any prior experience trading in shares. I do not know why there needed to be more than one authorised signatory for each trading account. I assumed that as CFO of IPCO, my signature was needed to authorise the opening of the trading accounts of IPCO’s subsidiaries. I never expected that I would actually operate the accounts after they were opened, and indeed did not give any trading instructions for the accounts at all thereafter,” he added.

From consultant to CFO

Smith, an American citizen, joined IPCO as a consultant back in 2002 after being introduced by Richard Chan Sing En. Like Smith, Quah also joined IPCO as a consultant before they rose to be CFO and CEO of IPCO respectively.

Between 2005 and 2013, Smith was spending a third of his time in China to better manage the company’s natural gas subsidiary there. He was hardly in the office too, as he worked odd hours to liaise with parties in the US, where IPCO runs another subsidiary dealing in real estate.

Despite years being CFO to Quah, Smith said he was not clear as to the details of what her day-to-day activities were. Whenever they met to discuss business matters, it was often at the Tower Club. Smith also met Soh back in 2002 and over several occasions thereafter, always with Quah present.

“On those occasions, we mostly spoke about the real estate business under IPCO’s subsidiary in the US. My impression was that Soh and Quah were close to each other. Apart from these meetings with Soh, I did not have a direct personal relationship with Soh,” said Smith.

Sometime around 2011 or 2012, Quah brought Smith to open accounts at Saxo Bank which she said could “extend a line of credit”, although he could not recall what purpose the credit was for. Smith, in his conditioned statement, said he had no trading experience and was not aware of what a trading instruction should comprise.

There were company accounts belonging to several of IPCO’s subsidiaries but until October 2013, Smith said he was not involved in the activities of those accounts and neither did he, as CFO, see any statements of those accounts. Rather, he would receive a quarterly summary of IPCO’s shareholdings prepared by Goh Hin Calm, who was the company’s senior finance manager at that time, that would later be presented at the board meetings.

According to Smith, the shareholdings were mainly that of Blumont, Asiasons, LionGold, Chaswood Resources, Inno-Pacific Holdings and Malaysian company Kuantan Flour Mills (now known as Lotus KFM). Goh, who was earlier charged together with Soh and Quah, had earlier taken the stand as a prosecution witness.

‘Angmoh is scared’

Smith told the court that there were several occasions when he and several directors of IPCO raised concerns over the sum total of the shares of these companies held by IPCO. “My view was that the monies used for trading activities could instead be used to expand the operating businesses in China and the US. However, the matter was never put to a vote or a formal resolution. The management of the shareholdings of IPCO and its subsidiaries continued to be managed by Quah, and nothing seemed to change,” said Smith.

In addition to the corporate trading accounts, Smith was asked by Quah to open an account with AmFraser under his own name, which was handled by broker Gabriel Gan. Smith told the court he did not know her reason behind it. “We had a good working relationship at the time so even though I did not understand the implications of this, I just went along with her request,” he said.

According to Smith, he did not give any trading instructions to anybody. Yet, he soon noticed unexpected deposits in his HSBC bank account. He then received statements from AmFraser showing he had some $200,000 worth of Think Environmental Co (LionGold’s former name) shares in his account.

Smith told the court he thought that the deposits in his HSBC bank account came from profits of these trades, which he assumed were made on his behalf by Quah as she was the only person other than Gan who knew about the AmFraser account.

“I called Quah and told her to stop using my account for share trading. I was uncomfortable with the arrangement and did not have the money to hold such a large value of shares. She agreed to stop using my account,” said Smith. This fear was separately confirmed by Gan in his conditioned statement earlier. “The angmoh is scared”, Gan recalled Quah telling him.

To distance himself from the trading activities, Smith wrote Quah cheques to repay the money. The court heard there were six cheques totalling about $82,000. “As can be seen from my bank account statement, Quah did not decline these cheques. I stopped receiving such deposits in my bank account thereafter,” said Smith.

In his cross-examination of Smith, Soh’s lawyer N Sreenivasan put it to Smith that he had failed to perform his duties as CFO. Among others, Smith should have raised concerns on matters such as the activities and amount of money invested in shares in those trading accounts with the audit committee of the board, said Sreenivasan.

In response, Smith agreed he should have. “I believe I would have said things that we had and how we should reply to Singapore Exchange which had raised some questions. But I don’t believe I raised a formal concern to the chairman of the audit committee,” he said, adding he did not raise the matter with the board either.

However, Smith rejected Sreenivasan’s repeated suggestions on what he could have or should have done as a responsible CFO.

“The nub of your evidence is that you as CFO were not kept informed of various matters. My question is: Would you agree that you did not see it as your role to monitor or to be kept informed of these matters?” asked Sreenivasan.

“I don’t believe that it was my role as defined by the board of directors, no,” replied Smith.

Sreenivasan also got Smith to agree that Goh, who would later on become IPCO’s interim CEO, did not deliberately conceal details of the investments made via the various company accounts from Smith, even after he was queried by SGX.

“Well, I believe he could have told me more about the background of it, but from when he replied, the reply seemed adequate for what I needed to do to reply to SGX. I had a lot of other things that I was working on at the time, and it seemed that my reply was accepted by SGX as well. They didn’t ask a follow-up about that,” said Smith.

Sreenivasan then asked Smith if what Goh replied to him was “adequate” or “inadequate”.

“To me, it seemed adequate at that time. In retrospect, I believe he could have told me more,” said Smith.

“In retrospect, could you have asked him for more details?” asked Sreenivasan.

“Should I?” retorted Smith.

“Could you have asked for more details?” asked Sreenivasan.

“I could have, but I ...”

“Should you have?”

“Well, with 20/20 hindsight, I probably should have, but I didn’t have any reason to at that time,” said Smith.

Cornell graduate

Sreenivasan also questioned Smith’s words in the conditioned statement, where he claimed he did not understand the implications of opening a trading account and that he was going along with Quah’s request as he just wanted to do her a favour.

“You are a graduate of ... oh, you got your masters from Cornell, which is one of the top US universities. Agreed?” asked Sreenivasan.

“Yes,” said Smith.

“So when you went to open the account, you are not somebody to be easily led by the nose, am I right?”

“I guess I was,” said Smith.

“But, Cornell, CFO, years of experience, grown-up children,” pointed out Sreenivasan.

“I had no experience with stock market trading,” said Smith.

Sreenivasan put it to Smith that he knew all along his account was going to be used for trading and that he had authorised that. Smith disagreed, saying he did not know what was going to happen.

“Ms Quah did not, at any time, at the point of opening the account or subsequent to that, have any arrangements with you that you’re not supposed to keep the profits, you’re supposed to give the profits to her. Right?”

“No one mentioned any profits,” said Smith.

Phillip Fong, defence lawyer for Quah, similarly took issue with Smith’s claims that he did not know how share trading actually works except from a “theoretical standpoint”.

“I never got involved myself in any trading. Just as I would imagine in the legal profession, there are people with JD (Juris Doctor) degrees who specialise in certain things but don’t know a lot about other areas of law. That’s the case with me in share trading. It’s not something I ever was involved in,” said Smith.

Unconvinced, Fong continued to press Smith. “I’m taking issue with or really focusing on what you said here. You do not know what a trading instruction should comprise. Are you saying that even on a theoretical basis, you do not know what a trading instruction should comprise?”

“What I meant to say is that trading instruction is not a theoretical term. Trading instruction is more of a technical term of how you give instructions to make a trade. I wouldn’t have the slightest idea about how to do that, except I might be able to say something like ‘I want to buy so-and-so many shares of a stock’, but I’ve never even used those words myself,” said Smith.

Despite repeated questioning, Smith maintained he was not aware of how trading is done.

“What I’m trying to say is there’s some terminology that I wasn’t aware of. For instance, I didn’t even know what ‘contra trading’ was. I still don’t think I know what it is,” he said.

“No, that’s not what you said. You said you don’t know what a trading instruction should comprise,” pointed out Fong.

“Right, I don’t know the jargon,” said Smith.