The Market Misconduct Tribunal (MMT) has found that the former chairman and chief executive officer of Greencool Technology Holdings Limited (Greencool), Mr Gu Chujun, and four former senior executives (including its former financial controller) disclosed false or misleading information inducing transactions and so engaged in market misconduct under the Securities and Futures Ordinance (SFO) following proceedings brought by the Securities and Futures Commission (SFC).
The four ex-Greencool senior executives are former directors, Mr Zhang Xihan, Mr Hu Xiaohui, and Mr Xu Wanping, and former financial controller, Mr Henry Mok Wing Kai. Mok was also a qualified accountant appointed under the GEM Listing Rules and the company secretary of Greencool.
The SFC alleged that Gu and former senior executives of Greencool were involved in grossly overstating the company’s net asset value in its annual reports and results announcements released between 2001 and 2005 as a result of the overstatement of bank deposits and the non-disclosure of bank loans.
The MMT found that Gu, with the assistance of Zhang and Hu, had perpetrated a massive, systemic fraud and the fraud was known to Xu and several employees at Mainland subsidiaries who were ordered to participate in it.
Gu, Zhang and Hu were involved in gross overstatements of Greencool’s sales, profit, trade receivables and bank deposits, overstating the company’s net asset value for the financial years ended 31 December 2000 to 2004 by approximately RMB487 million, RMB653 million, RMB982 million, RMB1,062 million and RMB904 million respectively which represents 43% to 80% of Greencool’s total net assets in these years.
Mok, a qualified accountant/company secretary, was found culpable of market misconduct by providing materially false or misleading information to the public in circumstances in which he was negligent as to whether the information was false or misleading. He was negligent in performing his professional duties as a qualified accountant by failing to supervise the implementation of a sound internal control and financial reporting system, thereby enabling Gu, Zhang and Hu to provide false and misleading annual results of Greencool from 2001 to 2005 to defraud the investing public.
The MMT notes that although the responsibilities of a qualified accountant pursuant to Rule 5.11 of the GEM Listing Rules (Rule) is broad in nature and it only sets out the minimum responsibilities, the description of the Rule “does not limit the role of a qualified accountant to that of an adviser; a qualified accountant is to advise and assist the board of directors, that is, to take such steps as may be necessary to implement internal controls and other procedures that are necessary to provide the board with a reasonable basis for making sound commercial judgments” and such duties are “not limited to that of a holding company but extend to taking such steps as may be necessary to implement internal controls and other procedures in all the companies making up ‘the Group’”.
The SFC also commenced proceedings under section 213 of the SFO against Gu in the Court of First Instance in parallel with the MMT proceedings. The SFC successfully obtained an injunction on 18 July 2014 to freeze over a total of 107,290,000 shares in Hisense Kelon Electrical Holdings Limited up to a value of $1.2 billion. The SFC believes these shares are held by several people and overseas companies for the benefit of Gu.