Reply #12: The Inscrutable Orient: China suffers largest suspected bank fraud [View All]

http://www.ft.com/cms/s/0/82c175f6-81f2-11de-9c5e-00144feabdc0.html

By Jamil Anderlini in Beijing

Published: August 5 2009 20:30 | Last updated: August 5 2009 20:30

Details are emerging of China’s largest suspected bank fraud after the former chairman of a company listed on London’s Alternative Investment Market appeared in a Chinese court last week.

Prosecutors in the southern Chinese city of Guangzhou allege that Wang Sheng, former chairman of Canton Properties, a prominent developer in southern China, obtained about Rmb4.8bn ($702m) of illegal loans from Bank of Communications, a state-controlled lender 18.6 per cent owned by HSBC.

Mr Wang, also known as Keng Wong, was the main recipient of the illegal loans, which were arranged with the help of a senior BoComm executive and never made available to the company, prosecutors claim.

Liu Changming, former president of BoComm’s Guangzhou headquarters, fled the country soon after authorities launched an investigation in late 2007, according to state officials and people familiar with the case.

He is still on the run in spite of a global alert issued through Interpol to apprehend him.

According to people familiar with the case, the loans were channelled through subsidiary companies of Canton Properties without the knowledge of shareholders, who were told the company had no unpaid bank debt.

After Mr Wang disappeared in August 2008, Canton Properties suspended its shares and most of the company’s board members, including Sir David Brewer, former lord mayor of London, resigned.

The shares have yet to resume trading.

Tony Knight, chief executive of Canton Properties, who was appointed in February to try to recover investments of foreign shareholders, said: “We later discovered Mr Wang had been arrested but it wasn’t until recently that we discovered the true scale of the alleged fraud”.

Canton Property, which listed in August 2007, was the only Aim company invited to meet Gordon Brown, UK prime minister, at the opening of the London Stock Exchange Beijing representative office in 2008.

The trial is being conducted behind closed doors, according to the Chinese financial magazine Caijing, which says the case involves as much as Rmb9.8bn, three times as much as the largest previous reported bank fraud in China.

Half the money has been recovered, but about Rmb4.6bn is still classified by BoComm as non-performing loans.

BoComm said the investigation had been going on for more than two years but the bank could not comment on details because of the trial.

HSBC executives said they were unaware of the case.

Mr Knight said he had reason to believe Mr Liu, the former BoComm president who was also known as Richard Liu, is currently in Boston in the US.

After fleeing China, Mr Liu was a regular participant in meetings in London between Canton Property executives and shareholders and although he was never introduced formally he was always treated as the real head of the company by the rest of his delegation, according to people who attended some of those meetings.

In August last year, Canton Property’s assets, which include two shopping centres and a large exhibition centre in Guangzhou, were valued at $963m.

That same month the company announced it had no outstanding bank debt and Mr Wang was arrested in connection with the bank fraud.