Kingsmen Creatives

[Share Investor]

As a long time investor for kingsmen,I still believe in kingsmen. Yet how the whole things panned out is quite puzzling. There is mere 3 pages of announcement after 4 days of trading halt for the matter of fraud.
Whether you are bullish or running away from this counter, I think we all need better explanation. Just as a suggestion, why don't we gather our queries, concern and questions and bring up to management or investor relation direct?

Probably they cant tell you much more than what was announced with investigation going on. Now that CAD is in, it is out of their hands.

[CityFarmer]

[quote='cif5000' pid='40434' dateline='1358492362']

The Audit Committee of the Company (the “AC”) appointed E&Y to independently investigate certain
alleged irregularities, which have been brought to the attention of the AC, involving KE, a whollyowned
subsidiary of the Company.


This is less clear. If I guess correctly, Kingsmen owned up for the first case and subsequently, E&Y decided to do a thorough auditing from 2009 to 2011 and uncovered the 2nd one.

"Brought to the attention" could also have been done by a whistle-blower, perhaps someone internal.

It is sad that discussion has turned from a fair GO price to how far will this fraud investigation will go.

The case isn't clear on how the "fraud" was discovered.
But, a few points...

1) the two employees were not suspended from work(at least, it was not mentioned in the announcement).
2) It was not apparent that the two employees had benefitted since the amount were transferred to subcontractor A and B.
3) Kingsmen was withholding the payment to subcontractor B and was deemed to underpay the work done. In most fraud, the company payment is normally siphoned away.
4) The subcontractor B had done all the work but did not receive the payment and not complaining which is strange.

So, who is the fraudster??
KE Employees? but why are they not suspended if the case is outright???
Subcontractor B? they did the work but were not paid.
Kingsmen? They got the work done but they were not paying.

I think the hinge in this case is the personal guarantees which are not orthodox.

There was a fraud in KBJ, while it was no fraud in KE IMO

The most is the non-compliance to company procedure and guideline. That explains no suspension on KE employees IMO

[wee]

As a value investor, I am keen to know what is the rationale behind the entire "pre-payment" scheme with the sub-contractors; whether senior management is involve; and why the employees allowed to authorise payments of $180k and $100 to subcontractor B when top management can claim not knowing about the "personal guarantee". If the payments are unauthorised, then a police report should be made by the management and the staff suspended. If it is authorised, senior management should be in position to explain. IMO if it is at worst merely a non-compliance with company's internal procedure/guideline, the management should have easily explained it away and the external auditors would not have to report to MOF (external auditors do not take any such reporting to MOF lightly). Similarly, if the "pre-payment" scheme is approved by the management, management is well capable to explaining the rationale. If its not approved, management should have made a police report. I note that the AC has reported the case to CAD but I am not sure if its the same since E&Y has reported to MOF already.

It appears to me that the audit committee has hit a brickwall in terms of getting a better explanation from management. I wouldn't normally expect the audit committee to have difficulty with the management, since they are afterall installed by them and are generally friendly.

Since we are not getting much details from the management beyond the 3 cryptic pages by the audit committee, and no police reports made (earlier), I am inclined to imagine its a more serious situation. If so, we can expect more dirt to be uncovered in the coming days.

Of course, some might say I am painting a very bleak picture and that it may just be a tempest in a teapot. But I think as value investor, one should constantly invert and think "where we are going to die" (to quote Charlie Munger), and try to avoid going there.

Please feel free to point out if my analysis is weak.

[2V.]

Of all the issues highlighted by E&Y, I believe the key concern is how do these "issues" relates to MOF's jurisdiction....

As a value investor, I am keen to know what is the rationale behind the entire "pre-payment" scheme with the sub-contractors; whether senior management is involve; and why the employees allowed to authorise payments of $180k and $100 to subcontractor B when top management can claim not knowing about the "personal guarantee". If the payments are unauthorised, then a police report should be made by the management and the staff suspended. If it is authorised, senior management should be in position to explain. IMO if it is at worst merely a non-compliance with company's internal procedure/guideline, the management should have easily explained it away and the external auditors would not have to report to MOF (external auditors do not take any such reporting to MOF lightly). Similarly, if the "pre-payment" scheme is approved by the management, management is well capable to explaining the rationale. If its not approved, management should have made a police report. I note that the AC has reported the case to CAD but I am not sure if its the same since E&Y has reported to MOF already.

It appears to me that the audit committee has hit a brickwall in terms of getting a better explanation from management. I wouldn't normally expect the audit committee to have difficulty with the management, since they are afterall installed by them and are generally friendly.

Since we are not getting much details from the management beyond the 3 cryptic pages by the audit committee, and no police reports made (earlier), I am inclined to imagine its a more serious situation. If so, we can expect more dirt to be uncovered in the coming days.

Of course, some might say I am painting a very bleak picture and that it may just be a tempest in a teapot. But I think as value investor, one should constantly invert and think "where we are going to die" (to quote Charlie Munger), and try to avoid going there.

Please feel free to point out if my analysis is weak.

[corydorus]

"Management has estimated the financial impact in relation to the aforesaid matter
concerning KE as follows:

Total amount charged to profit and loss and equity * 1,456,097.85"

What do this means to the coming 4Q ?

[sahara]

Of all the issues highlighted by E&Y, I believe the key concern is how do these "issues" relates to MOF's jurisdiction....

Because Kingsmen's employees approved the payment of money to subcontractor B which was used to pay the bribe that those same employees received. The employees stole from the company for their own financial gain.

The pertinent quote in the release is this:

"E&Y has reasons to believe that serious offences involving fraud or dishonesty have been committed against two subsidiaries of the Company"

Note the word against. I do not believe Kingsmen is indicted in this. It is the employees who have commited the crime in stealing from their employer. Obvioulsy the fact that this could happen doesn't reflect well on Kingsmen though.

---

"Management has estimated the financial impact in relation to the aforesaid matter
concerning KE as follows:

Total amount charged to profit and loss and equity * 1,456,097.85"

What do this means to the coming 4Q ?

I imagine there will be a cash cost of $765k and a non cash charge of $691k. However, it is unclear which quarters these costs will be allocated to. This quarter's cash flow statement should reflect the $765k. I would assume that previous statements will have to be restated for the rest, in addition to the FY10 results in which Kingsmen wrote off the $1.3m.

[chialc]

Today threads on King's Men capture the Greed and Fear and turn valuebuddies into tikam tikam. (ok, I might be wrong, some says dollar averaging.)

At one point in time ( 7:50am ), was tempted to tikam tikam but decided that there are too many excellent counter to bet my money.

9:35am - no panic selling confirmed my decision. Ignore this stock for today. Wait till newspaper report and then and decide again next week.

<not vested>

[CityFarmer]

"Management has estimated the financial impact in relation to the aforesaid matter
concerning KE as follows:

Total amount charged to profit and loss and equity * 1,456,097.85"

What do this means to the coming 4Q ?

I assume you miss-out the following paragraph, which might mean no impact on coming end year result.

"As the audit of KE is in progress, management is reviewing KE’s legal obligations together with the business rationale of the transaction to determine the appropriate period to record the charge."

[corydorus]

I did miss-out ...

The impression i have is the internal audit that startled the exercise. And follow by the hiring of E&Y to do a thorough checks. It doesn't seem to be a regular audit. The notification of CAD seems directed by the company itself since E&Y were specifically hired to investigate.

[l0nEr]

lol. on a side note.... China New Town also just lifted its trading halt. so coincidental.

Btw, can someone explain the 2nd "fraud" case ?

I dont get why the loss is so big, when Kingsmen claims that the services of value equivalent to the Prepaid Amount (SGD2.7m) had in fact been rendered.
- when a firm makes a prepayment, it either gets back in SERVICES (recognise as operating expenses) or cash (paid back) or WRITE OFF (Impairment)
- since Kingsmen got the SERVICES, it should be recongised as operating expenses AS PER NORMAL, and not some impairment to scare all the investors away...
- why are they insisting Party B pay back the money, when Party A/B completed the project for them..
- why isnt Kingsmen suing party A and party B to get the money back, bankrupting them or something... Instead of making impairments... and wasting shareholder money....