5 Feb 2015 – Chew cross-examined by DPP – Part 1 (MrsLightnFriends: 6 Feb 2015)

On 5 Feb 2015(morning) and 4 Feb 2015(afternoon), many questions were asked, just to find out whether bank loan was mentioned to the board. During Sharon’s cross-examination she did testify that bank loan must have been mentioned to the board but she did not have a recollection of it. The DPP argued that neither her hand written notes nor her minutes of board meeting mention the loan. Chew confirmed with the DPP that he could not remember whether bank loan was mentioned during the meeting. DPP went on to referred to another exhibit, the investment committee meeting minutes dated 29 Jul 08.

1. DPP said that the investment committee is supposed to have considered the recoverability of the Xtron bonds.

2. The minutes did not mention of any loan. But there is recoverability analysis attached to the minutes. But the analysis report shows Xtron bond could be able to recover over a period of ten years.

DPP said that the documentary evidence of the investment committee meeting minutes, CHC board minutes, as well as Sharon Tan’s handwritten notes, did not mention the loan.  [Chew said, "Yes"]

Then the DPP pointed back to the meeting that Chew had with Mr Foong in 2007 regarding the Xtron bonds and the alternative plan to loan money through UEPL to Xtron.

DPP: You mentioned that your focus in this discussion was really on what the disclosure implications of either option would be. Correct?

Chew: No, your Honour. The focus was on the Xtron bonds itself. The secondary topic was on disclosure. On the Xtron bonds, as in the plan for Xtron to issue bonds to the church, your Honour.

[On 4 February in the afternoon, there were many questions related to this meeting with Foong were asked. Perhaps too many questions, I don’t remember Chew said that his focus in the meeting with Foong was really on disclosure issues. 

DPP: But, from your account of the discussion, it would seem that the determinative issue that you were consulting him on was disclosure. Correct? Which of these two options would lead to, or might lead to having to have disclosure of the transaction from CHC’s point of view.

Chew: No, your Honour, disclosure was only one of the issues. The other issue, which what Kong Hee wanted me to check with Foong, was whether it’s okay for the church to purchase Xtron bonds. I think that was of primary importance. And secondary is, of course, once you purchase the bonds, Kong Hee doesn’t want the bonds to be known to the whole world, so I have to check on the disclosure as well. ]

DPP referred back to email exhibit (E-1 dated 3 Jul 2007), that Chew was being cross-examined yesterday. I shall call this 200,000 CDs exhibit.

In this email Serina wrote to Eng Han discussing about the period of the bond. This is a 5 pages long email.

Serina Wrote:Initial proposal of the bond period was one and a half year, then 2 years then final discussion is 10 years.On page two of the email, Serina said “And Xtron will take 10 years to pay back UEPL the $13m.
Eng Han asked: Do we really need 10 years for Xtron to pay back .. can’t the sales of album cover back the majority of the loan?
Serina Wee replied: We based our projection on 200,00 copies of English Album sole which will only yield us $2.17m, hardly enough to pay off the $13m.

[Just to recap what was cross-examined on 4 Feb 2015.

DPP asked whether two-year bond would actually take ten years to pay back was shared with the auditors. Chew was not sure because he didn’t deal with the auditors on this.

DPP: So wouldn’t you agree that information that a 2 years bond can only be repaid in ten years’ time would have been relevant information to valuing the bond? 

Chew: My personal view, your Honour, is that what’s more relevant is whether Xtron is able to pay back the money eventually. Whether it’s able to pay back in 2 or 3 or 5 or 7 or 10 years is not the main point for the auditor. …..Charles Schwab for instance, had bonds that was going to be due soon and he re-issued new papers that extended the maturity. In other words, what’s relevant for valuing the bonds, really is whether the issuer has the ability to repay. Not so much the timing, but ultimately does it have the sources of income to pay it. That’s my view.

….. 

DPP: From an investment perspective, one would not go into an investment, into a bond, thinking, “I know this bond I’m buying, the firm will actually not be able to redeem it when it becomes due, but somehow I know that they will just issue a new bond and drag it out”. That wouldn’t be the normal way to approach an investment. Correct?

Chew: You’re saying that someone wouldn’t go into a bond knowing that it wouldn’t be repaid on time? 

DPP: Yes

Chew: Not true, you Honour. There are about $18 trillion of US Treasuries out there right now held by investors and most of these investors know that when the bonds come due, they will not be repaid, but they will be rolled over.]

With regards to this email, Chew in his EIC said, “he didn’t take it seriously”.

DPP: If you had taken it seriously when you received it on 3 July 2007, it’s probably safe to say that you would have brought it up with Mr Foong subsequently. Correct?

Chew: Your Honour, if I thought that this 200,000 CDs was more than a 50per cent chance, I think this whole bond wouldn’t have taken off in the first place. I wouldn’t even dare to go back to Mr Foong and ask him, “Is it okay to issue a bond?”, knowing that money’s not going to be recouped. This whole thing wouldn’t have taken off, at least not with me.

DPP: Okay, because you have said in evidence earlier that because it was 200,000 copies, then, for sure, this bond is a sham. Correct? That’s what you’re saying that you would not have gone into this bond, if you had taken that seriously.

Chew: Yes, and when I said “seriously”, I’m talking about probability, your Honour. Investment is really about odds as well. It’s not gambling. When every investment, we have to weigh and assess the probability of making money at different levels of revenue. And so it’s really a judgment. And when I say, “I don’t take it seriously”, I mean 200,000 copies is like, probably maybe a 5 per cent chance, your Honour.

DPP referred to 1 email exhibit written by Serina to Foong. (Chew not in the loop.) DPP uses this email to get Chew to confirm the following points

1. Foong wasn’t told in 2007 that there would be a need to re-issue new bonds upon expiration of the first Xtron BSA in 2009. Chew said, “Yes”.

2. There was no mention to Foong about Xtron being an insolvent company. (Chew said, “I don’t understand why Serina would call it “insolvent” because I understand “insolvent” to be a state of a business or company where it has no more source of funds to continue. If it does continue to having funding, whether from CHC or otherwise, it is not insolent”.)

DPP referred to another email exhibit written by Tan Ye Peng to Foong. (E-269)
<…questions related to this email exhibit…>

DPP Put Statement

DPP: I put it to you that, in fact, at this meeting (the 2007 meeting with Foong), you merely asked Mr Foong generally about the consequences of CHC investing its Building Fund into the bonds of a private limited company.

Chew: Without mentioning Xtron or the purpose of the bonds?

DPP: You may have mentioned Xtron, but you didn’t go into details of the bonds.

Chew: In other words, your proposition is that the main agenda was to find out the consequences, the accounting consequences?

DPP: Yes

Chew: No, I disagree.

DPP: I put it to you that at the meeting you and the other participants from CHC deliberately hid critical information (refers to Kong Hee and Tan Ye Peng had control over Xtron in relation to Sun Ho’s music career) from Foong about the proposed Xtron bonds.

Chew: I disagree, your Honour, because, at that point in time, I didn’t know the extent of control of Kong Hee and Tan Ye Peng.

DPP: I put it to you that you deliberately concealed this information about control to avoid the auditors’ requiring disclosure in CHC’s financial statements.

Chew: I disagree.

DPP: I put it to you that you also concealed the fact that the Xtron bonds would not be repayable upon maturity.

Chew: In 2007

DPP: Yes

Chew: I disagree. Your Honour, if there was intention to conceal the inability of Xtron bonds to be repaid, then why would Serina or Sharon then tell the auditors in 2008 that it may not be repaid on time?

DPP: I put it to you that you hid all this critical information because, ultimately, you wanted to conceal the fact that the Xtron bonds were actually a sham.

Chew: I disagree.

DPP: I put it to you that Mr Foong was in no position to give you good advice about these bonds because you had hid this critical information from him.

Chew: I disagree.

DPP: I put it to you that Foong was not asked whether the bonds were acceptable either legally or from a governance perspective because this was only asked in E-269.

Chew: I disagree.

DPP: I put it to you that, in any case, when you met Mr Foong in 2007, you know that he was not the right person to seek advice on the legality of the bonds.

Chew: I knew I had to seek advice on legality from the lawyers, your Honour. But Mr Foong’s input was in relation to acceptable practice for charities. It was important from that angle.

DPP: I put it to you that the whole purpose of this meeting with Brother Foong on 1 August was to test your compromise statement of Mr Foong to confirm that it would not trigger consolidation.”

DPP: What I’m putting to you now is that in the same way, when you went to see Mr Foong on 25 June 2007, what you were actually doing was, without his knowledge, using him to test out your plans to see how you could go about avoiding disclosure of the use of CHC’s Building Fund to finance Sun Ho’s music career.

DPP: I put it to you that it was after this meeting with Foong in 2007 that you and the others involved in planning the first Xtron Bonds, Ye Peng, Serina, Kong Hee and John Lam, concluded that the Xtron bonds was the best way to avoid such disclosure.

Chew disagreed and for the last put statement Chew gave explanation that bond was the only option they approached Foong in 2007.