Allegations of insider trading surface at MGRC

TheEdge Tue, Jan 30, 2024 04:00pm - 3 months View Original


This article first appeared in The Edge Malaysia Weekly on January 22, 2024 - January 28, 2024

THERE have been allegations of insider trading against Malaysian Genomics Resource Centre Bhd (MGRC) executive chairman Noor Azri Noor Azerai and financial controller Ang Jia Yee. The allegations are part of a larger course of actions undertaken by independent non-executive director Aswath Ramakrishnan against the company.

In an announcement to Bursa Malaysia, MGRC says the originating summons filed by Aswath is pursuant to Sections 347 and 348 of the Companies Act 2016 for the alleged breach of fiduciary duties in connection with the trading of shares executed by MGRC Trading Sdn Bhd, a wholly-owned unit of MGRC, which resulted in losses.

Aswath is looking to appoint an independent auditor to conduct an independent review and investigation of the alleged insider trading. In the court documents sighted by The Edge, Aswath alleges “misconduct, abuse of power, misuse of the defendant’s (MGRC) assets for self-interest, violation of fiduciary responsibility, as well as involvement in in-house trading/insider trading [by Noor Azri and Ang]”.

When contacted by The Edge, Noor Azri says, “Despite the allegations, as the chairman, I will call for a board meeting, for an independent committee consisting of the board to look into this matter seriously. That’s the right thing to do.”

Aswath alleges that Noor Azri and Ang had “sole control of the CDS (Central Depository System) accounts of the defendant’s subsidiary, MGRC Trading”. “Due to the alleged insider trading, the defendant’s company has suffered a loss of approximately RM694,895,” read the court documents.

A check with the Companies Commission of Malaysia shows that MGRC Trading’s sole director is Noor Azri.

When asked about the case, Bursa Malaysia says, “To our understanding, the ‘insider trading’ termed in the court documents were related to trades undertaken by the subsidiary of MGRC in counters which have common directors with MGRC. Insider trading is an offence under the Capital Markets and Services Act (CMSA).

“While we are not able to comment further, we wish to assure the investing public that Bursa Malaysia has in place a dedicated team of analysts and a surveillance system to detect and address manipulative trading in real time. We will not hesitate to take appropriate action if there is any evidence of market manipulation.”

In an email reply to The Edge, the Securities Commission Malaysia (SC) says, “As a matter of policy and towards ensuring integrity in the Securities Commission Malaysia’s discharge of its statutory duty, the SC is unable to disclose any information pertaining to any specific case/on whether it is investigating an individual or a public-listed company. In conducting our surveillance, investigation and enforcement, if a breach of securities laws is determined after due process, appropriate actions will be taken.”

Meanwhile, in its announcement to the local bourse on the allegations, MGRC says it “will be obtaining the necessary legal advice from solicitors with regards to the Originating Summons filed by the applicant as well as to appoint an independent committee to review the matter before deciding on the next course of action to be taken”.

Court documents sighted by The Edge indicate that MGRC Trading had acquired shares in several companies, including SNS Network Technology Bhd, Reneuco Bhd, Opcom Holdings Bhd (now known as Hextar Capital Bhd), Engtex Group Bhd, Iconic Worldwide Bhd, XL Holdings Bhd, CYL Corp Bhd, Bintai Kinden Corp Bhd, Sarawak Consolidated Industries Bhd (SCIB) and Chin Hin Group Bhd, between end-September 2022 and end-March 2023. Bintai Kinden Corp and SCIB are linked to MGRC.

Noor Azri, 25, was executive director of MGRC from February 2022 to May 2023, and then redesignated as executive chairman on May 24, 2023. He was an executive director at Bintai Kinden Corp from February 2022 to May 2023. Prior to the appointment, he was deputy CEO of the company. At SCIB, Noor Azri was an independent director from March 2022 to June 2023.

Noor Azri and MGRC have 21 days from the date the affidavits were filed on Jan 11 to respond to the allegations.

The allegations of insider trading come on the back of another case filed late last year, when Aswath sued his fellow directors and key management personnel at MGRC for allegedly breaching their fiduciary duties in at least four transactions. In the first transaction, MGRC’s wholly-owned MGRC Healthcare Sdn Bhd had inked a one-year collaboration agreement with privately held Rinani Renal Bhd in August 2022, appointing the latter as a consultant in obtaining the exclusive right to operate a haemodialysis centre in Gombak, Selangor.

Towards this end, MGRC Healthcare made an advance payment of RM5 million to Dynamic Prestige Consultancy Sdn Bhd as a stakeholder, according to court documents. (The RM5 million constituted 13.5% of the net assets of MGRC as at June 30, 2022.)

However, the due diligence undertaken found that Dynamic Prestige is the ultimate shareholder and decision-maker at Rinani Renal. To cut a long story short, Rinani Renal is a wholly-owned subsidiary of Rinani Care Sdn Bhd, which in turn is a wholly-owned subsidiary of Dynamic Prestige.

MGRC Healthcare also entered into a collaboration with Dynamic Prestige to jointly set up 50 dialysis centres in November 2022, with an advance payment of RM4 million.

MGRC’s board of directors was not aware of the agreements as the management deemed these to be at an early stage of negotiations and within the ordinary course of business, which means there was no need for board approval.

Aswath, the plaintiff, is alleging a violation of fiduciary duties by the board and management in at least four transactions involving MGRC and its subsidiaries with Rinani Renal, Dynamic Prestige and Rinani Genotec Sdn Bhd (now known as Genotec Sdn Bhd), implicating Noor Azri, Ang, independent non-executive directors Mohd Shakir Shahim, Syed Zulkifli Syed Ismail, Chih Yi May, Mohamad Ruzaini Hamzah, Muhammad Badri Hussin and company secretary Ng Lai Yee.

MGRC’s external auditor HLB Ler Lum Chew PLT’s audit summary report for the financial year ended June 30, 2023, allegedly revealed a number of related-party transactions that should have raised red flags.

In the lawsuit, it was alleged as well that MGRC had sought to change the financial year end instead of resolving the audit issues highlighted.

Also, MGRC subscribed for shares in biomedical technology firm Rinani Genotec in December 2022. The company paid a deposit of RM3.5 million to Rinani Genotec without any formal subscription agreements being inked.

According to the court documents, MGRC’s management made a presentation to the board that Rinani Genotec had a service agreement with Kuala Lumpur City Football Club (KL City FC) to provide its players with cell therapy treatments. The management had also carried out a fund flow analysis to support its acceptance of the offer to subscribe for shares in Rinani Genotec. Note that Rinani Genotec is not linked to Rinani Renal despite the similarity in their names.

Another issue was Dynamic Prestige being appointed a project management consultant and being paid RM2.97 million by Aquahealth Sdn Bhd, a 51%-owned unit of MGRC. The RM2.97 million was paid the month after the letter of engagement was accepted.

As a result of all the above, the audit committee of MGRC, of which Aswath was a member, appointed auditor Ecovis Malaysia PLT and law firm Cheang & Ariff to review HLB’s summary report. Despite the opinions of Ecovis, which were submitted to the board of MGRC in October last year, the management went ahead and extended the contracts with Dynamic Prestige without the approval of the board.

Cheang & Ariff’s findings were also not in MGRC’s favour.

Meanwhile, Noor Azri says Aswath’s action against the defendants is in bad faith, against the best interests of MGRC and is motivated by a personal grudge brought about by a lawsuit filed by Bintai Gemilang Petroleum Engineering Sdn Bhd against Magnalogic Sdn Bhd, where Noor Azri had suggested that Ahmad Deniel, Ruben & Co, a firm in which Aswath is a partner, be discharged and replaced with another outfit.

“I state that the applicant (Aswath) acted in bad faith because I and/or (Ang) Jia Yee (who is a director of Magnalogic) have exposed the ‘serious misconduct’ of Ahmad Deniel, Ruben & Co,” Noor Azri claimed in his affidavit.

MGRC’s largest shareholders are Rinani Group Bhd with 11.21% equity interest, Pixelvest Sdn Bhd (7.54%), Bintai Kinden Corp (5.23%) and Datin Seri Jacqueline Ngu Hia Kee (5.13%).

For the 15 months ended September 2023 — as MGRC changed its financial year end from June 30 to Dec 30 — the company suffered a net loss of RM15.69 million from RM10.63 million in revenue. At end-September 2023, MGRC had cash and bank balances of RM3.68 million, with no borrowings.

At end-June 2022, MGRC had cash and bank balances of RM20.52 million. From June 2022 to September 2023, its trade and other receivables ballooned to RM19.45 million from RM8.84 million.

Last Friday, MGRC’s shares ended trading at 45 sen each, translating into a market capitalisation of RM61.7 million. Over the past year, the stock had shed more than 40% of its value. 

 

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