The last cross-examination by DPP
Christopher Ong, he completed the topic on the first Xtron Bond
Subscription Agreement. This morning, DPP cross-examined Chew on the
Amended Bond Subscription Agreement (ABSA) and the Riverwalk(RW)
property purchase. In the afternoon the topics were related to the Firna
Bonds and the execution of the Firna Bonds.
Below is the recount of the cross-examination by DPP on 16 March 2015.
Chew agreed with DPP that he did not indicate to the board at any time
in the period up to the middle of 2008 that there might be difficulties
in Xtron repaying the first Xtron BSA upon maturity.
How did the ABSA come about?
Chew’s evidence is that the ABSA came about as a result of the need to finance the purchase of Riverwalk.
Chew: Your Honour, actually, the
original intention was not to have the ABSA. If we look at E-100, which
we don’t have to refer to right now. The plan that I wrote to Kong Hee
really was for CHC to pay seven years of advance rental to Xtron to
enable Xtron to purchase Riverwalk. It was subsequent to that that the
director of Xtron, Choong Kar Weng, was not for the idea of advance
rental and that’s how we had to revert to the idea of Xtron issuing more
bonds to enable the purchase of Riverwalk. And as that idea then came
about, we then merged the existing $13m of Xtron bonds that was used for
the Crossover, we merged that with the additional amount of $5m,
rather, of the $8m that was required to purchase Riverwalk. And that’s
how the BSA came about. The original intention was not to have Xtron
bonds issued. It was to have advance rental.
DPP referred to the email exhibit E-100 that Chew mentioned.
In this email Chew was proposing to Kong and Tan Ye Peng the option to lease and buy Riverwalk.
Chew wrote in the email dated 9 July 2008
Dear Pastor,
…..Assuming we drawdown total maximum $22m there will be a deficit in
2009 of $3.5m. All the other years till 2014 are ok. To solve the
cashflow deficit, as well as a way to transfer GF to Xtron, I thought of
a way whereby Xtron buys Riverwalk and collects rent from CHC. Please
see the attached and let me know how you feel..
Chew wrote in the attachment:
Xtron purchases Riverwalk space at $17.5m and proposes to rent to CHC.
The purchase will be funded via 7 years upfront rental from CHC,
equivalent to about $11.76m. Xtron will use $5m from this as downpayment
for the property and the balance can be used for its working capital
needs which faces a shortage of $3.5m in 2009. Xtron will borrow $12.5m
from a bank to finance the remainder balance for the property. The
monthly bank repayment will be about $140,000 and this will be taken
care of by the monthly rental of which will be about the same quantum.
DPP position is that this email E-100 is
really in the context of suggesting a solution to transfer General fund
to Xtron to meet Xtron’s cashflow deficit. And Chew disagreed.
DPP: No, Mr Chew. Before you explain,
looking at the email itself, that appears to be what you’re saying from
the words there “to solve the cashflow deficit as well as a way to
transfer GF to Xtron, I thought of a way whereby Xtron buys Riverwalk”
So those are your words. If you now want to give an explanation that you
actually meant something else, by all means go ahead.
Chew: …. I understand where the
prosecutor is coming from, that he is saying that the purchase of RW the
main motivation was to take care of the Crossover cashflow deficit. But
that’s not the case, your Honour. There are really two decisions… the
purchase of RW was the first decision, and the second decision was who
was to purchase RW, whether it’s the church or Xtron. The first decision
was motivated by the fact that the church was already paying rental for
RW, $50,000 a month, and subsequently the landlord wanted to increase
it to $120,000 a month. So, really, the purchase of the RW was motived
based on a lease or buy financial decision, and that is why in the
wite-up that I gave to Kong Hee, it was about how it’s better to save
the expense of rental and to purchase it and use the monies that would
have been paid for rental to pay the bank instalment instead. So the
first decision was really all about what makes financial sense. Now,
when I wrote this email, what I’m saying is that now, instead of CHC
buying RW, I suggest that Xtron buys RW, and that would ba a way of
solving Xtron’s cashflow deficit, but at the same time, there will be
mutal benefits for the church as well, because Xtron will be taking the
risk of the property price falling. But Xtron at the same time gave an
option to the church to buy over RW at cost, if the property price were
to go up. So that’s my answer, your Honour.
DPP referred to another email exhibit dated 18 Jul 2008. This is the follow-up email from E100.
Eng Han wrotes:
Dear Pastor,
….
Currently CHEC and RUL rental is already about $100k. If we go look for a
new place to rent for both combined, it will also be about that amount.
If we purchase Riverwalk, the monthly repayment is about $140 to $150k.
So for additional $30 to $40k a month, we get to own the building
instead of paying expenses every month. It is financially sound to
purchase.
The additional benefit of buying Riverwalk is that Xtron as the owner
will earn rental income from CHEC and RUL. This is one of the ways we
transfer surplus GF from CHC to Xtron.
DPP: But if you look at your email, the
financial benefits that you refer to are actually from the perspective
of the church, correct? You are saying that I makes more financial sense
for the church if Xtron purchases Riverwalk.
Chew: It makes sense for both the church and for Xtron, your Honour.
DPP: So where is the benefit to Xtron?
DPP: And this would be profits from the church. Correct?
Chew: …. if you really want to go into
the substance of it, your Honour, the one that loses out is the
third-party landlord, because, as far as I see this, this whole
exercise, if we were to do nothing and the church continues to rent,
then the church would have the expense of $120,000 a month and that
expense, that amount would go to a third-party landlord. With this
exercise, the church now pays to Xtron instead of a third-party
landlord, and, therefore, Xtron gains the third-party landlord loses,
actually. That’s how I see it.
DPP: But to go back to my question, the
profit that you say Xtron will be ale to make from this arrangement,
that money is coming from the church. Correct? You can talk about a
hypothetical third-party landlord not getting rental, but, as far as
what is actually happening, Xtron is making money from the church
through this arrangement. Correct?
Chew: Yes, your Honour. The money comes from the church but the
church will still have to pay this rental regardless. There’s no loss to
the church.
DPP: In order for this plan to work,
instead of paying $110,000 or $120,000 a month for retnal, the church
would have to pay slightly more, as you say, about $140,000 and $150,000
to enable Xtron to be able to service the loan. Correct? Xtron is not
going to be making that money from somewhere else to service the loan.
Right?
Chew: You’re saying that the church would pay extra rental, above $120k?
DPP: Yes
Chew: No, actually, the plan wasn’t for
the church to pay $140,000 to $150,000 the plan was for the church to
continue to pay $120,000 a month, but, in fact, later on, it was reduced
to $100,000 a month. Xtron was to go and get the money itself,
actually, the extra money to pay the bank installments. So, in a sense,
it put Xtron in a tighter position, cashflow-wise, but, in terms of the
capital position of Xtron, it was beneficial for Xtron.
DPP: Can you tell us, in your own words, what was the reason CHC or “We” needed to transfer surplus GF from CHC to Xtron?
Chew: The reason was that Xtron was
experiencing a cashflow issue as a result of the album delay and that’s
why I suggested that, instead of the church paying GF, a rental expense
to a third-party landlord, let’s pay it to Xtron instead. That’s what I
meant by transferring GF from CHC to Xtron. It was not an additional
expense for the church, your Honour, it was an expense that would have
gone on regardless whether this exercise took place or not.
Were the Church Board told about the purpose of this ABSA?
DPP: Were the board told that part of the purpose of this Xtron
purchasing Riverwalk was to enable surplus GF to be transferred from CHC
to Xtron?
Chew: I’m not sure if it was told to the
board in such specific terms, your Honour, but the board would know
that CHC was already paying rental. The board would have been told that
the rental was going up to $120,000 a month. The board would have been
told that the plan is for Xtron to earn the rental instead of the
third-party landlord. But I don’t think we used those words so
specifically and told about that we want to transfer surplus general
fund from CHC to Xtron.
DPP referred to another email. He asked,
“I think we covered this briefly in the previous tranche. Essentially,
Kong Hee was the one who gave the go-ahdead for Xtron to purchase
Riverwalk. Correct?
Chew: Yes, your Honour.
DPP moved on to another exhibit. EGM dated on 10 August 2008.
This is the EGM where the members were told about Xtron’s purchase of
Riverwalk and about the church investing in bonds to enable Xtron to
make this purchase.
Through the past tranches evidence, the mortgage loan was not mentioned to the executive members.
Chew explained to the court that one of the reasons was at that time the
bank loan was not secure, not sure whether for sure Xtron will get the
bank loan and Xtron only gotten the loan around November or late
October.
Another reason Chew said, “Your Honour,
right from the beginning, when the Xtron bonds was issued, the $13m, it
was really clear that Kong Hee and Tan Ye Peng doesn’t want this
disclosed to the EMs, because, like what Kong Hee testified, what goes
to the EMs quickly goes out to the public. So the fact that this $13m
was used by Xtron for the Crossover was something that we knew that Kong
Hee wouldn’t want the whole world to know. So that was the other reason
as well, I believe.”
DPP: To you, it was okay for the EMs to
be misled in order to preserve the project? When I say “misled”, I mean
misled into believing that Xtron was being given $18m through the bonds,
and that would be used to pay for Riverwalk?
Chew: Your Honour, this is a difficult
question for me. Okay for EMs to be misled? I think there are two
opposite objectives. One objective is to keept the Crossover discreet,
so that the Crossover can come to pass. On the other hand, there’s a
conflicting objective, which is let’s be transparent to the EMs. Your
Honour, I’ve already shown evidence on several occasions where my
preference is to explain toe the EMs. But I think I’ve said also before
that I’m just a fund manager. I’m also executive member, but I’m not a
board member. I’m not a senior pastor or a deputy senior pastor. I have
no authority. I have no ability to force the leadership to disclose to
the EMs, but I do believe or rather if I was the senior pastor, I would
have disclosed. I would have disclosed to the EMs and I will take the
risk that the Crossover then is being derailed. But, really, it’s a
judgment call, your Honour between being more open and transparent and
then risking the Crossover, or the other way around.
DPP: In 2008, or at the 10 August EGM,
the choice that was made was to hide the mortgage from the members and
you went along with that choice. Correct?
Chew: Yes, your Honour, I had to go
along with it. I can’t stop it. There’s no way for me to stop it. I can
try but I don’t think it will be stopped.
Counsel Chan who is representing Kong Hee stood up.
Chan: …I think it needs to be clarified…
If the learned prosecutor is saying it is not that there is a choice,
it’s just the same as earlier, that there is a general mindset, a
general practice, I take the clarification as well. I do think it needs
to be clarified.
Chew: I would like to add on that I
agree with the counsel. It’s not really a choice; it is something that
is ongoing already, it’s a general strategy that started from 2007. So
it’s understood, actually. That’s why I said I wasn’t shocked that this
mortgage loan is not being revealed, because from 2007 onwards or
rather, even from 2003 onwards, we never wanted the members to know that
Xtron was directly funding the Crossover. It was a strategy that
started because of Roland Poon and he set the course for the rest of the
years in the way we did things.
DPP referred to another email exhibit from Kong Hee dated 28 July 2008.
In this email Kong Hee is summarizing what the plan that Eng Han came up with for Xtron to purchase Riverwalk.
<…. questions and answers ….>
DPP: Yet two weeks later, as we will see
Kong Hee goes to the EGM and tells the EMs that CHC is going to
purchase $18m in bonds and Xtron is going to use that to finance the
purchase of Riverwalk. As we will see, the same thing is told to the
board members, that there’s going to be this $18m in bonds issued and
Xtron is going to use the proceeds to buy Riverwalk. Are you saying
that, if you could not secure a bank mortgage subsequently, you would
have had to go back to the EMs and to the board and say, “Acutally,
scrap all that because we weren’t able to secure a mortgage loan?
Chew: Yes, we may have to go back to the
EMs and tell them what actually happened. But for the board, your
Honour, because I see this line where the prosecutor says, “…… go back
to the EMs and to the board and say…” Your Honour, we don’t need to go
back to the board already because the board already knows that there’s
going to be a bank loan in this whole thing and that we are trying to
get a bank loan. It is more to the EMs that we need to explain what
happened.
<…. questions and answers ….>
What was told in the board meeting?
The DPP referred to one of the Board minutes of meeting recorded by Sharon Tan.
Paragraph 4.1 says
Xtron’s directors brought up to the CHC Board that the Riverwalk
premise’s landlords have expressed interest to sell Riverwalk for
$17.55m.
Chew agreed with the DPP that it was not Xtron’s directors who came up with the idea to purchase Riverwalk.
DPP: Was this what the board was told during the board meeting on 3 August 2008, that it was a proposal from Xtron’s directors?
Chew: I cannot recall, your Honour, but I
doubt this would have been brought up this way because the board knows
that this can’t be an Xtron decision. It has to be a church decision,
because the church is the user for Riverwalk.
<…. questions and answers ….>
DPP: So, despite your evidence that the
board did know about this loan, if you take this as the record of what
happened at the meeting, they were not informed of that. Correct?
Chew: Based on the record, that’s right.
<…. questions and answers ….>
Chew: …my evidence is that, your Honour,
I’m quite sure that the plan to get the bank loan for Riverwalk was
told to the board. It’s just impossible for the board to be so blur and
to think that we’re just going to buy $18m property and then they were
not going to ask any question about how we’re going to finance it. They
would definitely there has to be talk about bank loan, your Honour. It’s
just that it’s not minuted down and that’s it.
After morning break cross-examination questions were related to what was told in the Investment Committee meeting.
DPP: You’re saying that you chose the option of subsuming because that avoided disclosure of the original $13m.
Chew: Yes.
DPP: Was the Investment Committee aware of this consideration when you proposed to them the funding of the RW property?
Chew: The consideration not to disclose?
DPP: The preference to go by subsuming the original $13m under the ABSA, so as not to have to disclose the original $13m.
Chew: I’m not sure if they were specifically told.
DPP: Was the Investment Committee told,
but for the ABSA, which extended the maturity of the original $13m for
anther eight years, that the $13m would otherwise not have been
repayable upon maturity in 2009?
Chew: I’m not sure if they were told.
DPP: Did you tell them during this IC meeting?
Chew: No, I don’t recall telling them specifically.
DPP: Essentially, you avoided having to
disclose this to the Investment Committee by extending the maturity of
the original bonds under the ABSA. Correct?
Chew: No your Honour. To me, the
Investment Comm or the Board knew all along that the Xtron bonds was
funding the Crossover. There was nothing to avoid or to hide.
<…. questions and answers ….>
DPP: All right. Mr Chew, we have been
through this many times. You’ve just told us moments ago that the reason
why the option of just subsuming the $13m into the ABSA $18m was in
order to avoid disclosure of the original $13m, first Xtron BSA that had
been used to finance Sun Ho’s music career.
Chew: Yes
DPP: Now you’re saying that you weren’t trying to avoid disclosure of the original $13m.
Chew: Your Honour, I think we need to
clarify. Earlier, when I said we wanted to avoid disclosure of the
original $13m, it was to avoid disclosure in the financial statements,
which goes to the EMs, and then there’s a risk of it going out to the
public.
Now I’m talking about the board, the investment comm. To me, all along,
the board knows the purpose of the bonds and it’s being spent. They are
totally aware of this. I’m saying there’s no conscious need to avoid
disclosure to the board or the investment comm.
<…. questions and answers ….>
DPP: Mr Chew, this is the same board
that we saw, at the end of the last tranche, you never told that the
$13m bonds would not be redeemable upon maturity in 2009. Correct?
Chew: Yes, because sitting there in the
board is Tan Ye Peng, at times Kong Hee, John Lam to me, these are the
board, already. They already know that there’s this delay in the album.
Why is the onus placed on the fund manager to go and tell the whole
board that, “Hey, there’s this album delay and the bonds may not be paid
on time”? I’ve got three key board members there, sitting there. They
are supporting it. I’m just an adviser. Why is the onus on me?
And in my state of mind at that time, if these three key board members
know about it, then there’s no alarm. There’s no need to trigger any
alarm bell, because these three board members would take care of this.
This is an official audit issue, and they will take the necessary steps
to address this issue.
Your Honour, I think the problem with all these questions is that the
prosecution and myself are going along with different assumptions, you
see. My assumption, right from the beginning is that the board knows
about Xtron bonds. So now all these questions are put to me as if the
board didn’t know from the beginning. And that’s why it’s getting
difficult for me to answer these questions because my honest state of
mind is that all along I thought the board knew from 2007. And that’s
why now, when you asked me why I didn’t tell the board it’s being
delayed that it’s not going to be paid on time, because the board
already knew, the three key members knew, and I thought that the key
board members would told the rest of the board. And I wasn’t there
during Xtron bonds meeting because I’d stepped down already. I’ve
stopped attending board meetings for a long time.
<…. questions and answers ….>
What was told to the EMs?
<…. questions and answers ….>
DPP: Clearly, at least to the EMs, the ABSA was portrayed as the
purchase of $18.2m in ten-year convertible bonds as advised by AMAC.
Correct?
Chew: Yes
<…. questions and answers ….>
DPP Put Statements
DPP: I put it to you that in August 2008 you and the other sham bond
accused person except Sharon Tan deceived the board and the EMs by
telling them that the whole $18m bonds under the ABSA was for the
purchase of Riverwalk.
Chew: I disagree.
<…..>
DPP: I’m putting it to you that you and
your sham bond co-accused persons deceived the EMs by telling them that
the whole $18million bonds under the ABSA were for the purpose of
Riverwalk. So, if you don’t agree with the word “deceived”, you can
disagree with the put.
Chew: I disagree.
DPP: I put it to you that you and your
sham bond co-accused persons also intentionally hid from the board that
$13 million of the bonds had, in fact, already been spent on Sun Ho’s
music career.
Chew: I disagree, your Honour, because
the bonds were being drawn down in tranches. Why would Xtron keep on
drawing down if it had not already spent the previous proceeds?
DPP: I put it to you that you also
intentionally hid this fact, that the $13m bonds had been already spent
on Sun Ho’s music career from the EMs.
Chew: You Honour, I agree that the fact
was hidden from the members, but I disagree that this was my intention,
because, again, it goes back to what I’ve said: I’m deferring to the
wisdom of Kong Hee and Tan Ye Peng. If I had a choice, I would have got
the church to fund it openly, your Honour. So this can’t be my
intention. Right from the start, it was not my intention.
DPP: I put it to you that these
deceptions were because you wanted to hide the fact that the $13m first
Xtron BSA was a sham to disguise the use of church funds to finance Sun
Ho’s music career.
Chew: I disagree.
