The Singapore Exchange (SGX) is, for the first time, seeking the cooperation of the Chinese authorities to deal with an errant Singapore-listed Chinese company, or S-chip. The SGX has filed complaints with both the authorities here and in China against China Fibretech chief executive Wu Xinhua for alleged offences under the Chinese Penal Code.
Last September, Mr Wu directed the fabric treatment company to pay 466 million yuan (S$94.3 million) to three customers that had filed suspicious-looking compensation claims against it. The cash transfers were made without board approval, and in bald disregard for earlier guidance to company boards from the SGX.
The guidance said company boards should appoint reputable third-party valuers to review customer claims that are far bigger than the value of the original item that is the subject of the claim. The claims arose from sales totalling just four million yuan.
SGX said its complaint was filed through lawyers appointed in Singapore and China. Regulators worldwide have struggled to bring Chinese companies accused of stock fraud to heel, because of limits to their jurisdiction.
Singapore, for instance, has no extradition treaty with China to secure the China-based accused's attendance in Singapore to face legal action, and the Commercial Affairs Department would need the help of the Chinese authorities to gather evidence in China.
But Mr Robson Lee, partner at law firm Gibson Dunn, is hopeful. "The SGX has obviously obtained definitive legal advice from Chinese lawyers and has also received a clear indication from the Chinese authorities they will respond to an official complaint lodged by the SGX through its lawyers."
A Singapore Police Force spokesman confirmed that a report had been lodged, adding: "We will be engaging the Chinese authorities on this matter."
Securities Investors Association of Singapore president David Gerald applauded the SGX for its initiative. "Officers of foreign listings on SGX must know that if they commit offences, the Singapore authorities will be pursuing them no matter where they are."
China Fibretech shares have been suspended from trading since November 2015.