From the ST archives: Citiraya report details ‘fraudulent activities’ of huge proportions

This article was first published in The Straits print edition on Sept 5, 2006.

Citirayas Industries carried out “fraudulent activities...of extensive proportions”, according to a report out yesterday that catalogues the firm’s descent into disgrace and near collapse.

The report, from investigators nTan Corporate Advisory, details how the firm understated costs and grossly inflated revenue through recording sales of worthless materials.

nTan estimated that the electronic waste recycler notched up 1,554 dodgy transactions in 2004, with about $161 million of fake sales created between 2003 and last year. Its report forms part of the documents meant for Citiraya shareholders and investors of Heshe Holdings.

Heshe is proposing to invest $16.1 million for a 42.86 per cent stake of Citiraya. Businessman Oei Hong Leong is investing a similar amount.

Heshe shareholders will vote on the proposal at a meeting on Sept 26, one day after Citiraya investors vote on the same proposal. If it gets the green light as expected, Citiraya – now in judicial management – may get back on its feet.

Approval will also mean changing Citiraya’s name to Centillion Environment & Recycling and Heshe’s to Equation Corp.

Much of the nature of the Citiraya scam has been revealed in the several court cases that have occurred since the firm had its shares suspended in January last year, after the Corrupt Practices Investigation Bureau started an investigation.

Former chief executive Ng Teck Lee has disappeared while 11 people, including his brother Teck Boon, have been jailed so far.

But the nTan report gives for the first time, an overall picture of the problems at the firm, which processed and recycled electronic parts that it had bought. Precious metals obtained were then sold.

nTan says that “fraudulent activities were both pervasive and of extensive proportions”.

It cited the example where Citiraya booked sales of the adhesive epoxy at $230 per kg, when it in fact has no commercial value.

Other signs that the transactions were not genuine: The customer could not be found at the address on the invoice; or the same materials were bought repeatedly.

nTan said the results for the nine months ended Sept 30, 2004, in which the firm claimed profit before tax of $22.7 million, were “almost entirely inaccurate”.

Boosting sales was just one part of the deception; understating costs was also prevalent.

When Citiraya bought electronic parts for recycling, suppliers were paid based on an assayer’s estimate of the precious metal component. But Citiraya would tamper with the result, or add non-precious metal to the sample to reduce that precious metal component.

Suppliers were likely underpaid to the tune of $9 million between 2003 and last year.

As well, two investments in GES and P-Com Systems in 2004, totalling $53.1 million, are now “well below the purchase price paid”.

Citiraya was also in the business of crushing electronic chips and extracting the precious metals.

But nTan found that between 2003 and last year, 473,281 kg of these electronic metals were “diverted” – that is, not crushed at all.

Ng Teck Boon has been jailed over his role in bribing ex-Citiraya employees and suppliers so as to divert these chips for sale in the black market overseas.

nTan said the people behind the scam “were obviously in a hurry to show substantial and rapid growth in turnover and profits”. One result was the “rapid and spectacular increase in...Citiraya’s shares”.

The report also slammed the lack of internal controls at Citiraya, where accounting records were unreliable. It recommended a corporate governance committee to establish internal controls and proper whistle-blowing procedures.