EVERY now and then, capital markets everywhere face challenges posed by participants who attempt to sidestep the law.

       Regulations related to capital markets have been crafted over the years and they keep getting refined to suit current times.

       The idea is simple: to ensure trust and confidence in the markets, regulators have to enforce their regulations and securities laws to ensure that the markets operate fairly and orderly.

       A well-regulated market has the prospective to boost additional investors to participate, and contribute in promoting the development of the economy.

       Capital markets that fall short of high standards of regulation and transparency will struggle to achieve those goals.

       The highly-publicised case of Serba Dinamik Holdings Bhd is relevant in this regard.

       The case entails allegations of false statements relating to financial results.

       This is a critical matter because if published numbers cannot be relied on, then investors have little else to base their decisions on.

       In Serba Dinamik’s case, it entails a myriad of legal suits.

       A critical one related to a charge filed by the Securities Commission (SC) last December against a director and officers of Serba Dinamik for submitting to Bursa Malaysia a false statement involving a revenue of RM6.01bil for its financial period ended Dec 31, 2020 (FY20).

       However, this week, the SC imposed a compound on the four executives of RM3mil each for the alleged offence.

       Under Section 375 of the Capital Markets and Services Act 2007, the SC cannot institute any prosecution of any offence under securities laws without written consent of the Attorney General’s (AG) Chambers.

       Under Section 373(1) of the same Act, the SC needs the written consent of the public prosecutor to offer a compound too.

       The SC said that the compounds follow the public prosecutor’s decision to accept the representation made to the AG by Serba Dinamik and the individuals involved regarding the charges pending in court.

       A representation letter is typically sent either to reduce a charge or have the charges dropped.

       In seeking to fully pursue its role as the frontline regulator of the Malaysian capital market, Bursa Malaysia this week filed contempt proceedings against Serba Dinamik and its directors for their failure to reveal the details of the fact finding update that had been conducted earlier by Ernst & Young Consulting Sdn Bhd (EY Consulting).Serba Dinamik, through legal means, has been seeking to stop this report from being made public.

       Recall that the appointment of EY Consulting as a special auditor was made under the directive of Bursa Malaysia.

       EY Consulting’s appointment was made after Serba Dinamik’s previous auditor, KPMG, highlighted questionable transactions worth some RM4.54bil.

       The issue with the FY20 revenue was first raised by KPMG to the Serba Dinamik board in May 2021.

       At the time, KPMG also flagged Serba Dinamik’s sales transactions, trade receivables and payables, material on site balances, as well as how it was unable to verify the counterparties involved, it has been reported.

       In the latest action against Serba Dinamik and its directors, Bursa Malaysia is seeking leave from the court to proceed with committal proceedings stemming from Serba Dinamik’s failure to comply with an earlier High Court order that had required the oil and gas company to reveal the EY Consulting report.

       This week also, Serba Dinamik failed to secure a stay of the earlier High Court decision.

       An earlier attempt by Serba Dinamik to secure an injunction to bar Bursa Malaysia from forcing the company to reveal the EY Consulting report had also been dismissed by the High Court.

       In another matter that relates to Bursa Malaysia, Serba Dinamik was classified as a Practice Note 17 (PN17) company by the exchange in January.

       This was after its external auditor expressed a disclaimer of opinion on its audited financial statements for the 18-month financial period ended June 30, 2021.

       It has the usual 12 months to regularise its financial condition or face a delisting.

       Notably, Serba Dinamik’s external auditor, Nexia SSY PLT, had said a number of factors had constrained its completion of the group’s audit, including the non-availability of the report on the independent review conducted by EY Consulting.

       It does seem as if one thing would be good for all concerned, especially for the integrity of the capital market – that the EY Consulting report be made public.

       Visitors observe Non-Fungible Token (NFT) works at an exhibition entitled Indo NFT Festiverse at the RJ Katamsi Gallery, Indonesian Art University which combines art and technology in Yogyakarta on April 13, 2022. (Photo by DEVI RAHMAN / AFP)

       Fact checking the value of NFTs

       THE digitalisation of the world has seen the creation of “assets.”

       From bitcoin to non-fungible tokens (NFTs), a lot of discussion has taken place on the direction these new “fiat-money” is going to take.

       Bitcoin, and its other electronic iterations, has captured the imagination of the younger set of investors.

       There is great willingness to believe in the storage value bitcoin possesses by the post Generation-X and the gush of liquidity that was splashed to counter the economic downside of the Covid-19 pandemic also gave birth to NFTs.

       Again, the new-age economic preachers were wax lyrical over the prospects of NFTs.

       While it was hard to accept the economic and financial justification of bitcoins, believing in the long-term prospects of NFTs took yet another leap of faith.

       It was reported recently that the trading volume in NFTs show that most of the activity is actually users selling tokens to themselves to help earn rewards in the form of more coins.

       Called wash trading, such trading masks and clouds what some might consider to be the true value of NFTs.

       But if anyone needed to guess what the value of NFTs are, look no further than what was also reported this past week.

       The person who bought the first-ever tweet by Jack Dorsey, the founder of Twitter, for US$2.9mil (RM12mil) had hoped to sell it for a reported US$46mil (RM195mil). That is hoping for a huge return for a digital “asset” bought about a year ago.

       The NFT was listed on NFT-marketplace Opensea and only managed to attract a paltry top bid of US$280 (RM1,185).

       Hopes of a multi-bagger was soon extinguished by possibly the realisation that such a digital asset might need to be harnessed for much longer than a year before there is strong appetite for such digital assets.

       The problem with NFTs is that it is not the Mona Lisa.

       If anyone wants to see what Jack Dorsey’s first tweet is from 2006, they can easily find it on the Internet.

       To see the Mona Lisa, you would have to fly to the Lourve Museum in Paris.

       There lies the basic intrinsic difference between the two forms of art.