We could go to jail for this

Equity capital markets (ECM)

“We could go to jail for this,” I half-jokingly told my team members.

As I briefed them on a corporate finance exercise, I wanted to make sure that they understand their responsibilities.

It is an offence under the Capital Markets and Services Act 2017 to submit any information that is false, misleading or from which there is a material omission in submissions to the Securities Commission for corporate exercises which require the SC’s approval under the CMSA.

The penalty is imprisonment not more than 10 years and a fine not more than RM 3 million.

There is a due diligence defence under the CMSA.

It is a defence to any proceeding to prove that the defendant, after making enquiries as were reasonable in the circumstances, had reasonable grounds to believe and did believe until the time of the provision of the information that-
(i) the information was true and not misleading;
(ii) the omission was not material; or
(iii) there was no material omission.

The due diligence involves substantial grind work. For example, in IPO exercise, we request directors and senior management of the company undertaking the IPO to provide documents to verify their profiles disclosed in prospectus such as their employment contracts and education certificates which may have been obtained a few decades ago. This in turn requires them to dig into their record to provide us with the supporting documents. When they unable to provide the documents requested, we then discuss what other documents they may have as supporting documents.

The senior management in some corporate exercises went through this process so many rounds that they adopted similar thought process. When they called their staff during prospectus drafting meetings to clarify certain information, they asked their staff for supporting documents even before the lawyers asked.

The gratifying part is always when the corporate exercise is completed.


This post was first posted on Linkedin on 24 July 2022.

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