Private Investigators Tracking Fraud Face Risks in China

July 30, 2013, 7:30 p.m. ET

Private Investigators Face Risks in China

Detention of British Gumshoe Highlights Danger


SHANGHAI—The police detention this month of a British private investigator here amid a pharmaceutical bribery probe highlights the growing risks for private gumshoes tracking fraud in the world’s No. 2 economy. Shanghai police detained a prominent commercial sleuth, Briton Peter Humphrey of ChinaWhys Co., according to the British government. Authorities won’t say why he is being held, and he isn’t reachable. In China, a detained person isn’t necessarily a criminal suspect. Mr. Humphrey’s detention comes as Chinese officials investigate bribery allegations against U.K. drug maker GlaxoSmithKline PLC. GSK.LN -0.03% Glaxo is a longtime client of Mr. Humphrey, according to people familiar with the situation. It isn’t clear whether Glaxo is a current client. Glaxo has said Mr. Humphrey isn’t an employee and declined further comment.Known for his rumpled shirts and wry smile, Mr. Humphrey has faced police questioning before, according to people who have worked with him. He also isn’t the only foreign investigator being held. A Canadian researcher has been behind bars for more than a year without charges, his attorney says.

“It shows you what kind of poor outcomes are available to foreign nationals,” said Carson Block, an American who built an investment business called Muddy Waters Research focused on exposing alleged fraud by Chinese companies.

Providers of risk-mitigation solutions—as investigators often prefer to describe their services—are often registered as consultants. Partly due to the emergence of investor investigators like Mr. Block, the business model appears increasingly unwelcome in China. Business-ownership records have become more difficult to obtain following a number of financial-fraud accusations against Chinese companies and media coverage of the wealth of Chinese leaders.

Fraud in China, analysts say, is a consequence of nearly $890 billion in foreign direct investment that firms have pumped into it in the past decade.

ChinaWhys is among the better-known firms hired by multinational companies to investigate how kickbacks, embezzlement counterfeiting and other malfeasance may be affecting them. To expose fraud, some private investigators in China wear eyeglass cameras into saunas, stage-manage fake investor visits to factories and dole out hard cash to secretaries, say those in the business. But most often, insiders say, the job involves tedious accounting analysis and cross-checking contracts.

Since Mr. Humphrey was detained July 10, at least two people associated with his firm have become unreachable. Among them is Mr. Humphrey’s American wife and partner, accounting examiner Yu Yingzeng. A U.S. Embassy spokesman in Beijing confirmed that a U.S. citizen is being held by Shanghai police but won’t say who.

Co-workers and others familiar with his work say they assume police consider Mr. Humphrey to be only an information source. “He’s not the kind of person to break the law,” said a friend, Solomon Matzner.

Gumshoes walk a fine line in China. “It’s a gray area,” said a Hong Kong-based attorney who hires investigators to procure evidence his clients might use in court. “The Chinese government doesn’t really allow foreign investigation firms in China.”

Investigators for a job to prove counterfeiting, the attorney recalled, dispatched a group of Mexicans to pose as potential customers at a Chinese factory, where they took photos and grabbed production-line samples. For other assignments, the attorney said, his detectives counted a would-be partner’s mistresses as a measure of future potential risks.

“You always have lots of stories after the case is finished,” he said.

In the mid-2000s, accountant Frank Casey said he worked with Mr. Humphrey on a relatively routine internal due-diligence project for Glaxo. “We gave them a report on where their exposure was,” Mr. Casey said.

But Mr. Casey said Chinese assignments increasingly made him nervous, recalling late-night meetings in obscure parts of Beijing and attempts by his informants to blackmail him.

“There was a possibility of something going that I didn’t want to be part of… I felt vulnerable,” he said. Mr. Casey left China and now does his accounting work from Tampa, Fla., where he runs Vigilant Consulting Group.

Another investigator, 36-year-old Canadian citizen Huang Kun, was arrested last July by police in the northern city of Luoyang after first being detained in late 2011, according to his father, Huang Youcai. The man, who goes by the name Dino, was wearing an orange jumpsuit and appeared thin in a Luoyang jail on Friday morning, said his lawyer after meeting her client there briefly. The lawyer, Wang Yuehong, said in a telephone interview that Mr. Huang—who says he is innocent—is being held on suspicion he damaged the reputation of a business and illegally used cameras.

Vancouver-based investor Jon Carnes said in an interview that he used information gathered by Mr. Huang and other researchers to publish a negative report about Luoyang-based Silvercorp Metals Inc. SVM.T -2.08% Silvercorp, which didn’t respond to a request for comment, says in statements on its website that Mr. Huang’s activities slandered the mining company.

A Luoyang police spokesman said he didn’t immediately have information about the case.

“My son didn’t commit any crime in China,” the elder Mr. Huang said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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