KPMG hit by Hong Kong High Court in $400m China Medical fraud
Borrelli Walsh, China Medical’s liquidator, arguing it would violate China’s national security laws.
Deputy High Court Judge Anthony To, in last week’s decision, wrote that KPMG’s refusal to hand over the papers made it “extremely difficult” for liquidators “to determine whether or not to commence proceedings against KPMG.”
KPMG in Hong Kong, which signed off the audits, has claimed it does not have the papers. KPMG Huazhen has allowed liquidators to examine some of China Medical’s papers on site under the supervision of the auditor’s personnel and attorneys, a situation Judge To characterized as “unworkable.”
KPMG did not respond to telephone calls and emails seeking comment. Borrelli declined to comment.
China Medical was placed into liquidation in 2012 by courts in the Cayman Islands, New York and Hong Kong, following accusations the NASDAQ-listed firm was a fraud.
Company liquidators have presented evidence showing the company’s former management had stolen at least $355 million through fake technology acquisitions. Reuters has been unable to contact the accused or their representatives for comment.
KPMG was China Medical’s auditor between 2005 to 2009, and provided unqualified audit opinions for financial statements of the firm and its subsidiaries during that period.
KPMG faces a myriad of legal and regulatory problems, said Paul Gillis, professor of practice at Peking University’s Guanghua School of Management.
“KPMG used its letterhead on the audit report and they didn’t do the work,” Gillis said, referring to KPMG signing off audit work by KPMG Huazhen. “By claiming they did the (sign-off) work, they made it impossible to argue they don’t have access to work papers.”
Judge To, in his judgment provided a stinging rebuke of KPMG’s refusal to cooperate with the liquidators.
“It is disingenuous for KPMG to argue that it cannot comply with the court orders because its associate KPMG Huazhen will not comply with KPMG’s request,” Judge To wrote. Walsh
KPMG is stuck in a legal quagmire in Hong Kong. (Reuters)