In an attempt to show the “sham” nature of the Firna bonds, the prosecution grills defendant John Lam about the apparent lack of due diligence and his “anxious” efforts to minimize impairment in the church’s accounts.
CN PHOTO: Daniel Poh.
This afternoon, the prosecution again took defendant John Lam to task for not having carried out due diligence in his role as chairman of the church’s investment committee before agreeing to the church’s investments—this time, into the Firna bonds.
As with the Xtron bonds, the prosecution alleges that the Firna bonds amounting to $11 million dollar were sham and a “mere conduit” to channel CHC’s building fund monies to the Crossover Project.
When asked why he did not do a check into the company that CHC would be investing millions into when the idea was proposed by Chew Eng Han, Lam said he had no reason not to believe Chew. On top of that, Lam knew that Firna belonged to Wahju Hanafi, a long-time church member who was a successful businessman with a high net worth.
“I trust Wahju very much,” Lam told the court.
Chionh, however, insisted that Lam did not do any due diligence because he knew Firna was just a vehicle for passing the church’s money through.
After bringing the court through emails in which several of the accused discussed various strategies to overcome Xtron’s cash flow problem, Chionh asked why they had to resort to such “convoluted” plans instead of telling the auditors straight up that the church’s bond investments were not doing well—if it was indeed true that the Xtron bond agreement was a “genuine, arm’s length investment.”
For example, the court saw an email exchange among the defendants exploring the idea of CHC allowing its other bond investments to be held as collateral in order to help its fund manager, AMAC Capital Partners, secure more funds for Xtron.
As the chairman of the church’s investment committee, didn’t Lam feel it was his responsibility to express his reservations about this apparently risky idea?
Lam explained to the court that those emails were simply scenario planning discussions to help resolve Xtron’s fund shortage at that time. In the end, plans were finalized for an amended bond to redeem the first Xtron bond, and the auditors were made aware of all the pertinent details. Yes, the auditors had questions, but the church had provided the information and furnished them with all the key facts, Lam added.
Chionh persisted, questioning why the accused seemed more concerned about helping Xtron resolve its funds shortage for the Crossover Project instead of ensuring that CHC was able to get good returns on its investments.
The prosecution also attempted to cast a sinister light on Lam’s decision to use a “friendly” third party valuation firm to carry out an asset impairment exercise as opposed to using the church’s own auditors.
Taking the court to an email which showed the accused talking about “fixing things” and “avoiding a surprise,” Chionh put to Lam that he was “anxious” to avoid impairment because he did not want the auditors to see the poor financial state Xtron was in, and therefore wanted to engage a third party that would be more easily influenced by his views.
Lam replied that it was common practice for companies to try to minimize impairment in their books, because it would indicate a decrease of value in its balance sheet. It does not mean there was anything “untoward” going on, he said.
Eventually, an impairment loss of $2.5m was recorded in the church’s books in order to accurately reflect Xtron’s financial status at the pertinent time, added Lam.
Court resumes at 9.15am tomorrow.
中文报道 – CHC审讯：检方质问被告所做的“情景规划”
