Insider trading the focus of Datacraft probe

The investigation launched last week by Singapore’s Commercial Affairs Department (CAD) into system integrator Datacraft Asia Ltd. concerns allegations of insider trading at the time when the company was finding out about a bad debt problem in China, Datacraft has confirmed.

CAD is a division of the Singapore Police which deals with corporate wrongdoing.

Datacraft, a subsidiary of Johannesburg, South Africa-based Dimension Data Holdings plc, also admitted that the Singapore Stock Exchange (SGX) reprimanded the company privately in May over the way it handled disclosure of the bad debt matter.

“Whilst Dimension Data was uncertain as to the full scope of the investigation by the Commercial Affairs Department, or who in particular was being investigated, insider trading allegations was certainly being covered in their investigations,” the company said in an announcement to SGX late Friday.

On April 22, Datacraft made its first public announcement about a bad debt problem in China, saying “current indications are that a further increase in AR (accounts receivable) provisions may be necessary at that time but it is premature to quantify the figure.”

The next day, according to SGX investigations, Datacraft’s new China finance team indicated that there might be a total doubtful debt exposure in China of up to US$19.3 million.

After finishing its investigation, SGX replied in a letter to Datacraft: “In our view, the statement made on 22 April …. was not accurate. In relation to this, the Exchange (SGX) privately reprimands Datacraft for its failure to make an appropriate disclosure in relation to the AR provisions.”

Insider trading generally occurs when executives of a company are made aware of a situation which could materially affect the company’s stock price, but that situation is not made known to a wider audience. Buying or selling the company’s shares under those conditions is illegal in most countries, including Singapore.

In an initial response to suggestions last week that CAD was pursuing allegations of insider trading, Datacraft summed up the earlier SGX investigation as: “The exchange previously investigated the allegations, but nothing materialized.”

Datacraft later clarified this statement by saying: “We are informed that it is not the Exchange’s policy to disclose publicly or to listed companies whether matters have been referred to other authorities for investigation.”