KPMG hit by Hong Kong High Court in $400m China Med­i­cal fraud

Arab News - - BUSINESS -

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)

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