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Governance lapses, missing millions in E3 Auditors could not trace at least half of $26m investments By CHEW XIANG11 February 2010An investigation by special auditors into Catalist-listed E3 Holdings found evidence of numerous lapses in corporate governance and millions of dollars still unaccounted for, including large sums paid to the brother of its former chairman and still missing. The report from Deloitte & Touche also found no evidence of board oversight of the company’s labyrinthine dealings while at least half of $26 million channelled to support its investments in China could not be traced or recovered. In January 2008, E3 announced an ambitious project to invest in an oil refinery and a related property development project in North-east China. E3 was then controlled by businessman Anthony Soh, who brought in as a co-investor another listed company he controlled, Jade Technologies. As a result, a sum of $22.2 million, E3’s share of the investment was funnelled by E3 to China through Orientus, a separate company controlled by Kenneth Ngo, brother of E3’s former chairman Peter Ngo.The deals subsequently stalled and finally broke down after Dr Soh quit both Jade and E3 when his takeover of the former collapsed under acrimonious circumstances. His financial and legal advisors had backed out after they discovered a fake letter of credit had been used to support the takeover bid. E3 subsequently said the joint venture with Jade was terminated and tried but failed to find another partner.But when the deal collapsed, the company was unable to provide documentation to prove transfer of a sum of $12.2 million to the Chinese target, and could provide only a bank statement that $3 million remained in Orientus’ bank accounts in November 2008. That was over a year ago and still leaves at least $9.2 million unaccounted for, the auditors said. The investigators also said they could not substantiate the validity of $1.09 million in consultancy fees paid to Mr. Kenneth Ngo and a company called Asia Consortium Management.A further sum of $4 million was also invested in Chinese property deals from December 2007 to February 2008 but there have been no developments on the projects for over a year and only $1 million has since been recovered, the auditors said. Among the corporate governance lapses the investigators found was the startling fact that E3’s board of directors seemed to be unaware of many of the deals. The auditors did not find evidence that the investments were at all discussed by the board. And while E3’s dealings with Mr. Kenneth Ngo clearly constituted an interested party transaction, the board did not get the necessary approvals. Money was also paid out even before due diligence was completed, the investigators said. The probe was ordered in October 2008 by the company’s board of directors after it received poison pen letters alleging irregularities in the company’s investments in China.The same month, E3 fired co-founder Liau Beng Chye, after evidence of the poison pen letters being found in his computer. Mr. Liau has denied that he was involved.In a statement yesterday, the company said it would be tightening up its internal controls. Mr. Peter Ngo quit as chairman last November, initially citing ill health but later angrily claimed he was ‘not comfortable with the happenings in the company’s operations’.Last week, E3 said it was winding down its last operating business, a small education provider and would turn its attentions to pushing through a reverse takeover with a China-based water treatment and hydropower company. For its first-half financial results ended Dec 31 released last night, E3 sank deeper into the red with a net loss of $14.2 million, compared to $1.6 million loss a year earlier, as it took a hit from a significant impairment of $14.3 million receivables from its investments in China. The stock closed unchanged at 1.5 cent yesterday.
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