China Metal Liquidators Sue Chairman Chun for Fraud

China Metal Liquidators Sue Chairman Chun for Fraud

The provisional liquidators of China Metal Recycling Holdings Ltd. (773) sued its founding chairman Chun Chi Wai and his wife for unspecified damages for fraud. Chun, Lai Wun-Yin and 10 companies orchestrated false trading schemes, disclosed false or misleading information to China Metal and paid dividends on inflated profits, according to a lawsuit filed on July 31 at Hong Kong’s High Court. China Metal, which called itself the nation’s biggest scrap-metal dealer, inflated the size of its business to gain a listing in Hong Kong in 2009, the Securities and Futures Commission said July 29 when it announced that it had won a court order appointing provisional liquidators for the company. The liquidators have obtained an injunction freezing more than HK$1.6 billion ($206.3 million) in assets of the defendants, a lawyer for the SFC told a court hearing today which agreed to continue their appointment.Chun’s company Wellrun Ltd. said July 29 as China Metal’s single largest shareholder it objected to the liquidators’ appointment. Alexander Lee, a lawyer for Chun and Wellrun, declined to comment on the lawsuit today.

Three people have been arrested in connection with the case and officers obtained documents after searching the company’s office and other locations last week, according to the police. It identified the three as a 46 year-old man surnamed Lam, a 42 year-old woman surnamed Lai, and a 37 year-old man surnamed Fung.

China Metal falsified a majority of purchases from its three major suppliers from 2007 to 2009, the regulator said.

Share Sale

The company raised HK$1.55 billion when it sold shares in June 2009. Wong Hok-leung, a former chief financial officer, resigned in November 2009 after saying he was denied proper access to the company’s financial information. China Metal called Wong’s allegations unfounded.

Short-seller Glaucus Research Group said in January the company was “a blatant fraud that has deceived the market about the size of its business.” China Metal suspended trading of its shares and called the allegations groundless, saying its chairman planned legal action against Glaucus.

The cases are China Metal Recyling Holdings Ltd. and Chun Chi Wai, HCA1412/2013 and Securities and Futures Commission and China Metal Recycling, HCCW 210/2013, both in Hong Kong’s Court of First Instance.

To contact the reporters on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net; Simon Lee in Hong Kong at slee936@bloomberg.net

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 (www.heroinnovator.com), 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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