Authorities in Singapore have issued a S$12.6mn (US$9mn) fine to disgraced commodity trader Noble Group, bringing an end to a near-four-year investigation into the one-time blue chip company.
Noble was found to have published “misleading information in its financial statements”, according to a joint statement issued today by the Monetary Authority of Singapore (MAS), the Accounting and Corporate Regulatory Authority (ACRA) and the city-state’s police force.
Once one of the world’s largest metals and energy traders, Noble posted losses of US$1.7bn in early 2016, effectively wiping out five years of previous profits. It was already facing allegations over aggressive accounting practices following a damning report penned by Iceberg Research, which later turned out to be the work of a former employee.
Noble then spent several years attempting to restructure debts and obtain fresh sources of financing, but was delisted by the Singapore Exchange after MAS and ACRA announced the launch of an investigation into the company in November 2018.
The “complex, international” probe focused on long-term marketing agreements Noble entered into with mine owners and coal producers to bring their commodities to market, authorities say today.
Noble “would not take delivery of the commodities produced but would earn fees based on a predetermined percentage of the counterparty’s sales value”, their statement says.
“The joint investigations revealed that [Noble] had applied an incorrect accounting treatment to these marketing agreements by classifying them as financial instruments instead of service contracts, and by recognising future fees from these agreements before rendering the services.”
Former employees quoted by the Financial Times in 2016 say that by recording gains from these agreements upfront on its balance sheet, Noble was taking unusually high risks. Commodity price volatility means the actual cash generated may end up being lower than reported profits.
In practice, this technique inflated reported profits and net assets, MAS and ACRA say, and are also likely to have prompted the sale or purchase of Noble securities on the Singapore Exchange.
“Materially false or misleading statements by listed entities have no place in Singapore’s capital markets,” says Loo Siew Yee, assistant managing director for financial crime at MAS.
“If left unchecked, they will erode investors’ trust in the quality of information released by issuers, and have an adverse impact on the integrity of our capital markets. The present action demonstrates that MAS takes breaches of disclosure obligations seriously and will take firm action against persons found to have fallen short.”
ACRA has also issued orders against Noble’s auditors from Ernst and Young in relation to financial statements filed between 2012 and 2016, and given “stern warnings” to two former group directors.
The regulator’s assistant chief executive, Kuldip Gill, says ACRA “will continue to enforce accounting standards and take those involved in the financial reporting chain to task for unreliable information and/or non-compliance with the prescribed accounting and auditing standards”.
Noble Resources, a commodity trading business that emerged from Noble Group’s restructuring and has no ties to the scandal, says it welcomes the conclusion of the MAS, ACRA and police investigation.
The company “has been under new ownership and management since December 20, 2018 and has focused on the highest standards of corporate governance, reporting and transparency since then”, says executive chairman Matt Hinds.
“Noble Resources today is a separate business, unrelated to Noble Group Ltd. Noble Resources has different owners, directors, senior management and external auditors. We are looking forward to continuing to work with our suppliers and serve our customers, building on the strong start to 2022.”
Half of the civil penalty has already been paid, with the rest due before the end of September. It is the largest such penalty in the city-state’s history, MAS tells Bloomberg.