More About Phison Chairman K.S Pua Sentenced to 2-Year Jail

Following yesterday’s article, Phison chairman Datuk Pua Khein Seng Sentenced to 2-Year Jail, Phison Electronics Corp. send us 2 statements, one from from the company and another from Datuk Pua Khein Seng himself:

Phison Electronics Announcement on October 29, 2021

Event Background
Taiwan Hsinchu District Court rendered judgment for Phison’s financial report case occurred in 2016. In accordance with the judgment, the court sentenced Pua to 1 year and 10 month imprisonment (which can be commuted into a fine) for causing public official to make false information in public document; the court further sentenced him to 2-year imprisonment for violating Article 171 Item 1 Sub-Item 1 of Securities and Exchange Act.

Phison’s Handling Process
Pua has not yet received authenticated copy of the court judgment, and has no knowledge about the court’s reason to make such judgment. Nevertheless, he presents his regret for the judgment, and will discuss with attorneys to determine corresponding matters and appeal this case to the court of second instance.

Impact on Phison
The court judgment does not influence Phison’s operation and finance.

Additional Explanation
Since the occurrence of this case, Pua voluntarily appeared in governmental authority and actively cooperated to the investigation. He explained to governmental authority that, the reason why he did such special business arrangements at issue was to respond to severe competition, and for Phison’s long-term development. He further told that he did not have the motive to damage Phison nor cheat the investors. And the company in reality was not damaged.
Nevertheless, this case taught it a lesson, and inspired it to turn a crisis to an opportunity. In recent years, Phison actively improved its corporate governance, systemized management, and established corporate social responsibility mechanism from environmental protection, social responsibility to corporate governance (ESG). And the achievements are, comparing to 2016, Phison’s 2020 corporate governance ranking among Taipei Exchange listed companies was jumped to the first 6%~20%; and its 2021 MSCI ESG Rating was also upgraded Phison Electronics Announcement

Those achievements reflect not only Phison’s giving weight to ESG, but also its promise to turn a crisis to an opportunity.

Other than that, the SSD controller manufacturer also created well business results in recent years. Its revenue increased from NTD43.8 billion in 2016 to NTD48.5 billion in 2020; and in the first 9 months of 2021, its revenue set a new high NTD45.7 billion. Its equity return is also considerable. The firm has cumulatively paid over NTD29.8 billion dividends to the investors, of which over NTD17.7 billion was paid from 2016 to 2021.

In addition, the vendor has invested nearly NT$39.2 billion in R&D expenditures in Taiwan since its establishment. It also purchased land to build corporate HQs and R&D buildings in Zhunan, Miaoli, with an investment of more than NT$7 billion, creating the world’s largest independent NAND controller and NAND storage solutions provider, with more than 3,000 employees worldwide, including 70% of Taiwan High-level R&D talents. Looking to the future, the firm will keep its original intention, bring Taiwan’s technology under a global spotlight, to continue investment in Taiwan and stably expand worldwide business.

Lettter from Phison Chairman Datuk Pua Khein

To whom it may concern,

I am writing to send my appreciations for your attention and care to the latest court judgment issued by Taiwan Hsinchu District Court dated October 29, 2021. The judgment arises from the same financial statement case occurred over 5 years ago.

As mentioned previously, when Taiwan Hsinchu District Prosecutors Office initiated investigation in 2016, I actively cooperated to the proceeding and explained to the prosecutor that, the reason why I did such special business arrangements at issue was to respond to severe competition, and for Phison’s long-term development. And it has been proven Phison’s interest was not damaged. The prosecutor once issued deferred prosecution order in 2017. Due to limitation of current law, although this case was indicted in 2019, the prosecutor in the indictment still mentioned that said special business arrangement was for Phison’s interest, and the prosecutor suggested the court considering commutation.

Following the prosecutor’s indictment, the Securities and Futures Investors Protection Center (SFIPC) in Taiwan filed 2 civil actions in 2019 end. SFIPC was a non-profit organization set up under the Securities Investors and Futures Traders Protection Act to provide mediation of disputes arising from the trading of securities and futures; and litigation services on behalf of investors. The first civil action filed by SFIPC is to ask to remove me from director of Phison’s board position, and the second one is to claim damage vs. me, Phison, its board of directors and other co-defendants on behalf of certain investors (class action).

Coming back to the judgment, as mentioned in Phison’s official announcement, the court sentenced me to 2-year imprisonment for violation of Securities and Exchange Act. From the judgment, it can be seen that the court has commuted sentence, since minimum prison time under the law for said violation is 3 years. Other than that, the court in the same judgment sentenced other co-defendants certain-year probation. Therefore, the court in the judgment reduced overall punishment to certain extent. It is reasonably believed that, the court in the judgment did not sentenced me probation is that, I have not settled the aforementioned civil action with SFIPC.

I ever approached SFIPC for settlement discussions. But the reason why we have not reached settlement is that, SFIPC does not produce any convincing evidence to prove that, the investors actually suffered any loss due to Phison’s previous financial report at issue. In addition, statute of limitations may have expired since SFIPC waited over three years until 2019 end to file litigation.

Nevertheless, Phison’s board members have had discussions to the judgment, and they all support and ask me to continue lead the company. Therefore, for the company’s overall interest, I will appeal the judgment to the court of second instance (i.e., Taiwan High Court), and will continue settlement discussions with SFIPC. It is foreseeable that Taiwan High Court will review this case and settlement discussions with SFIPC will be taken for certain period of time (might be 3 years from now). Looking to the future, I still will implement the board assigned duties as Phison’s CEO to lead the company in the coming period of time.

Once again, it is appreciated for your care and continuously support.

Sincerely yours,

K.S. Pua
October 30, 2021

Note:
A representative of the company added: “It is also important to know that he wasn’t actually sentenced to jail, it was part of the ongoing legal process. He is also not in jail. We expect the process to last 2 or 3 years and conclude with an additional fine.“