KUALA LUMPUR (April 13): Serba Dinamik Holdings Bhd and four top executives have been compounded RM3 million each by the Securities Commission Malaysia (SC) for submitting a false statement involving a revenue of RM6.01 billion for its financial period ended Dec 31, 2020 (FY20), which was previously red-flagged by the company's external auditor, KPMG.

The four individuals were chief executive officer and group managing director Datuk Dr Mohd Abdul Karim Abdullah, executive director Datuk Syed Nazim Syed Faisal who was chief financial officer (CFO) from June 2016 until mid-2020, its current group CFO Azhan Azmi, and vice president of accounts and finance Muhammad Hafiz Othman.

Datuk Dr Mohd Abdul Karim Abdullah

Datuk Syed Nazim Syed Faisal

Azhan Azmi

Muhammad Hafiz Othman (Photo by Zahid Izzani Mohd Said/The Edge)

The compounds settled the criminal charges they face for submitting a false statement of the RM6.01 billion revenue for FY20 to Bursa Malaysia Securities Bhd on Feb 26, 2021.

Muhammad Hafiz was also compounded an additional RM1 million for falsifying the accounting records of Serba Dinamik's subsidiary, the SC said in a statement.

The compounds follow the public prosecutor's decision to accept the representation made to the Attorney General's Chambers by Serba Dinamik and the individuals involved regarding the charges pending in court, the SC said. A representation letter is typically sent either to reduce a charge or have the charges dropped.

The compounds were issued under Section 373(1) of the Capital Markets and Services Act (CMSA) with written consent of the public prosecutor.

"This (RM3 million) is the maximum amount of compound permissible under Section 369(a)(B) of the CMSA for submission of false information in the company's financial statement," the SC said.

Muhammad Hafiz's additional RM1 million compound is also the maximum amount permissible under Section 368(1)(b)(i) of the CMSA, for falsifying Serba Dinamik Sdn Bhd's accounting records.

For perspective, Mohd Abdul Karim's CEO and directorship in Serba Dinamik entitled him to a RM4.96 million remuneration package in the 18 months ended June 30, 2021, comprising salary, fees and other emoluments, while Syed Nazim took home RM1.23 million, according to the company's latest annual report.

Serba Dinamik's criminal charges for the falsification of revenue were framed under Section 369(a)(B) of the CMSA, while the four individuals were charged under Section 369(a)(B), read together with Section 367(1) of the same Act, which would have brought a maximum jail term of 10 years and a maximum fine of RM3 million if one is convicted for the offence.

Section 369(a)(B) of the CMSA stipulates that a person who, with the intent to deceive, makes or furnishes any false or misleading statement or report to the commission, a stock exchange, a derivatives exchange or an approved clearing house relating to the affairs of a listed corporation, commits an offence.

The issue with the FY20 revenue was first raised by KPMG to the Serba Dinamik board in May 2021. At the time, KPMG also flagged Serba Dinamik’s sales transactions, trade receivables and payables, material on site balances, as well as how it was unable to verify the counterparties involved. 

Following the revelation, KPMG refused to resign off on the FY20 accounts as Serba Dinamik’s external auditor, which resulted in Serba Dinamik suing KPMG for alleged negligence and for breaching its contractual and statutory duties as the external auditor. This led KPMG to resign from its post, citing the lawsuit hindred its ability to continue to discharge its duties as the company's auditor.

Subsequently, Bursa Securities ordered Serba Dinamik to conduct a special independent review on KPMG's claims, for which Serba Dinamik appointed Ersnt & Young Consulting Sdn Bhd to do.

However, Serba Dinamik then sued Bursa for acting “in excess of power” when instructing that the SIR be conducted. It also sued EY Consulting to restrain the latter from making its findings or opinions on the company public.

While the SC’s criminal charges against Serba Dinamik have now been settled with the compounds, Serba Dinamik is still facing Bursa in court, after the latter filed a civil suit against the group for failing to comply with its directive to release the factual finding update (FFU) of the SIR by EY Consulting. The High Court had ruled in Bursa's favour to compel Serba Dinamik to reveal the findings, a ruling which Serba Dinamik has failed to obtain leave from the Court of Appeal on Monday to stay, while it appeals the High Court's decision.

Meanwhile, it is understood that the SC is considering bringing proceedings to bar the four individuals charged from being directors of the company.

It has been almost six months since the shares of Serba Dinamik were first suspended from trading on Oct 22, 2021. The counter last settled at 35 sen – down 78.26% since the audit issue first came to light – giving the oil and gas engineering group a market capitalisation of RM1.3 billion.