Orion Holdings Overseas - "Unauthorized" Trading and Corporate Governance "Shortcomings" Led to Collapse

A bit more information has come to light about the causes of the meltdown at OHO via an article in The National: at least US$20 million of unauthorized trades in gold and other commodities including oil.

That sounds familiar.

"It's hard to understand how this happened.  If OHO's main lines of activities were brokerage, fund management and technology, that is a great deal to lose in this period, even given the economic meltdown.  Was OHO taking proprietary positions that turned against it?  Was it trading in oil?  Or other commodities?  OHO was a member of the Dubai Mercantile Exchange."

However, a "mere" US$20 million in losses should not have caused the collapse of a company which  was valued at some US$263 million in February 2008.  The losses would have had to been more, a lot more.  Or it would have to be that the company had a lot of assets whose ultimate value proved to be much less than their carrying value. Or some combination of these and perhaps other factors.

That's not the only thing in the article that I'm having difficulty getting my head around.

1.  Shareholders' Blame Game - This seems to contradict the statement that "management was gambling with the firms' money".  Unless of course some shareholders felt that management was acting on the instructions or with the acquiescence of some of the other shareholders.  And were therefore asserting that that shareholder had a liability to make them whole.  Otherwise, it would seem the shareholders would have a very compelling shared interest to protect their dwindling investment by cleaning house of the culprits in management.  There is also the "testimony" from Shuaa that it was not involved in the management of the company.   Was no other shareholder?  Not even the largest? If so, what then is the basis for Shuaa's legal action against  the Chairman and Petra? 
   
2. Risk Management Report - The article seems to question whether the Board saw the report.  The Chairman says that he resigned in protest of the Board's failure to respond to the report.   It seems plausible that before resigning he would have raised the topic with the Board.   And then it would seem equally plausible that they would have asked to see the report if they had not.  One might also wonder if Sami Boujelben wouldn't have "rung up" the board members as part of the professional discharge of his duties.  Now, if at his resignation, the old Chairman did not agree to allow other parties to select his replacement, his resignation did not diminish his company's control over the number of seats on the Board and thus over OHO. It was then only a matter of changing a face.  Another set of questions regarding corporate governance and risk management focuses on the losses themselves.  Once they occurred, did the Board not receive and review financial reports?  Did the CEO or CFO brief the Board on the financials, including the losses?  If the Board wasn't getting periodic copies of and verbal reports on the financials, then there are some rather potentially difficult questions for the Board about how it implemented corporate governance.
   

What is presented raises more questions than it answers - at least for me.

The shareholders of OHO are primarily institutional investors.  They are not small unsophisticated retail investors hoping to turn a quick buck on their shares so they can buy a refrigerator (as one punter on the Dana Gas IPO told the press in Bahrain).  Thy had placed serious money on the table.  It was evaporating.  They did nothing? 

It seems there must be something more to the story.  Just as the US$20 million loss doesn't fully account for the financial distress the company now finds itself in, the corporate governance  related comments here don't seem to as well.

Another interesting bit from the article and that is the assessment that Shuaa over reached in its private equity investments and will be retrenching to focus on more core business of brokerage.

Finally, other investments as well as the general market trend are responsible as well for the decline in Shuaa's share price. It's not just OHO. When Shuaa issues its year end detailed audited financials, it will  hopefully be possible to quantify in part the relative contribution of each investment to the provisions and the loss.  No doubt,  the debacle involving the convertible and Dubai Group also played a role.