Ex-chairman of firm linked to Caterpillar fraud ‘dismayed’

HONG KONG: The former chairman of a Chinese mining equipment firm bought by Caterpillar Inc said he was dismayed by allegations of accounting misconduct at a subsidiary that prompted the US firm to take a US$580mil writedown.

Emory Williams Jr said that Caterpillar had conducted extensive due diligence before its takeover of Hong Kong-listed ERA Mining Machinery Ltd last June, adding that he was seeking further details from the company, the world’s largest maker of tractors and excavators.

“We were shocked and dismayed to learn, from press reports, about the very significant goodwill impairment that Caterpillar is taking in relation to the acquisition of ERA’s subsidiary Siwei,” Williams said in a statement.

Caterpillar said on Jan 18 that it would write off most of the US$654mil it paid for ERA after uncovering “deliberate, multi-year, coordinated accounting misconduct” at its subsidiary Zhengzhou Siwei.

“We cooperated very closely with the Caterpillar team during their extensive due diligence,” Williams said, adding that he and John Lee – the English name used by fellow ERA director Li Rubo – had taken the company’s fiduciary and reporting responsibilities very seriously prior to its acquisition.

Announcing the writedown, Caterpillar said an internal investigation had uncovered improper accounting of inventories, revenue recognition and cost allocation at Siwei, designed to overstate the profitability of the business in the years before it bought it. —