China Billionaire Huang Faces Hong Kong Probe for Alleged Fraud

Aug. 8 (Bloomberg) -- Hong Kong’s securities regulator accused Huang Guangyu, China’s second-richest man, of committing stock-market fraud causing losses of about HK$1.6 billion ($206 million) for a company he founded and its shareholders.

The former chairman of Gome Electrical Appliances Holdings Ltd. and his wife Du Juan are accused of organizing a share repurchase by the company in January and February last year so Huang could use the proceeds to repay a HK$2.4 billion personal loan, the Hong Kong Securities and Futures Commission said.

“This transaction was a fraud or deception in a transaction involving securities,” the commission said in a statement on its Web site late yesterday. “The share repurchase had a negative impact on Gome’s financial position and was not in the best interests of the company and its shareholders.”

Huang, a peasant’s son who became China’s youngest self- made billionaire, was detained by Beijing police in November for “economic crimes” and has not made a public statement since. The police haven’t responded to a fax asking about his whereabouts. Du is also under investigation, Beijing police said in a faxed statement in January. Repeated calls to her Hong Kong mobile phone have been diverted to a voice mailbox.

Gome, China’s second-biggest electronics retailer, fell 7.8 percent to close at HK$2.37 in Hong Kong trading yesterday, the most in almost eight months. The stock resumed trading June 23 after a seven-month trading halt following the detention of Huang, Gome’s largest shareholder.

Hearing Date
Hong Kong’s High Court ordered Huang, Du and the two companies through which he holds his stake in Gome not to remove from the city assets worth as much as HK$1.66 billion, legal documents showed. The court will hear the commission’s case on Sept. 8, according to the Hong Kong judiciary’s Web site.

The securities commission is continuing investigations into the assets, it said. The injunction will ensure there are sufficient assets to satisfy any restoration or compensation orders, the statement said.

Gome, which had 859 stores in China at the end of last year, isn’t a defendant in the case, and its assets aren’t subject to the court order, it said in a statement. “The business of the company or its subsidiaries is not and will not be adversely affected by the Court Order,” it said.
The electronics retailer will report first-half earnings in about a week’s time. “We do not think this will affect the company’s operation,” Deutsche Bank AG analysts Anne Ling and Chen Feng said in a note to clients yesterday. They have a “hold” rating on Gome’s stock.
Earnings Growth

Gome posted a 7 percent decline in net income to 1.05 billion yuan ($154 million) last year, after at least three years of annual profit growth in excess of 33 percent.
The Hong Kong watchdog is seeking orders that Huang, Du and the two companies owned and controlled by them reimburse the parties who lost money in the buyback, in particular Gome, or pay damages to the retailer, according to its statement. The other two defendants named in the court order are Shinning Crown Holdings Inc. and Shine Group Ltd.

Huang, ranked by Forbes magazine as China’s second-richest man last year worth $2.7 billion, is also known as Wong Kwong Yu. He was Gome’s chairman until January. Nicknamed “China’s Sam Walton” after the Wal-Mart Stores Inc. founder, Huang dropped out of school at 16 and traveled to Beijing with his brother, Huang Junqin. They carried a bag of radios, batteries and other electronics devices from factories in their native Guangdong province, to sell in the capital.
Gome, founded in 1987, was China’s biggest electronics retailer until last year, when it was overtaken by Suning Appliance Co.