Investigation uncovers suspected fraud by ex-boss of NVC Lighting

This comes after the board of Hong Kong-listed NVC removed Changjiang Wu as CEO of the company and legal representative of its mainland China subsidiary. The latter change allowed the company to obtain bank records, including copies of various guarantee and pledge agreement, and transfer slips.

According to a filing, approximately RMB230 million was withdrawn from the Chongqing branch of a Chinese bank around the end of August, after Wu entered into pledge agreements, supposedly on behalf of NVC but without the board's knowledge, between December 2013 and June 2014. A further RMB165 million was withdrawn from a second bank around the same time, also on the basis of pledge agreements.

NVC's account with a third bank has been frozen in relation to a guarantee agreement Wu allegedly concluded on behalf of the company for a loan of RMB80 million. NVC has also established that previously announced guarantee agreements allegedly entered into by Wu with Bank of China in Chongqing facilitated the withdrawal of RMB154 million from another bank account in October 2014.

The company said in September that it was purportedly the guarantor of three more bank loans - worth a collective RMB163.6 million - extended to companies associated with Wu.

The police have launched a criminal investigation of Wu in relation to potential misappropriation of assets. Donglei Wang, NVC's CEO, told a conference call on Monday that employees of Bank of China, China Minsheng Banking Corp, China Construction Bank and Industrial and Commercial Bank of China were also being investigated by police, Reuters reported.

In August, the NVC board said it would remove Wu as CEO and sack three vice presidents, one of whom is Wu's brother. The moves were linked to allegations that Wu signed licensing agreements on behalf of a subsidiary granting three companies the right to use the NVC brand for 20 years without first seeking board approval. Wu denied any allegations of wrongdoing via his Weibo microblog.

Hong Kong-listed NVC was suspended from trading on August 11. A week later, the board declared an emergency situation, appointing a three-member emergency committee to act on its behalf. This came after Wu refused to comply with the earlier resolution. Operations were suspended at NVC's main base in Chongqing and a temporary headquarters established in the company's Huizhou offices.

Wu was removed as a company director and relinquished of all committee positions at an emergency general meeting on August 29. NVC finally regained control of one of its factories in two weeks ago after a three-month suspension in operations due to Wu's refusal to relinquish control.

Wu has previously been accused of making-related transactions and presiding over a culture of weak corporate governance. He resigned in May 2012 and was replaced as chairman by Andrew Yan, SAIF's managing partner. A war of words duly broke out between the two on Weibo. NVC workers demanded Wu's reinstatement, three senior executives quit in the space of two days, and suppliers refused to do business with the company.

Following profit warnings and a struggling stock price, a compromise was reached four months later as Wu was appointed head of a temporary operations committee responsible for day-to-day management of NVC. He returned to the role of CEO in January 2013 and Yan resigned as chairman four months later.

At the time of the dispute, SAIF was NVC's second-largest shareholder. It invested $22 million in 2006 and took a 36% stake and then re-upped when Goldman invested $36 million in 2008. Schneider Electric bought a 9.2% interest in the company in 2011. As of December 2013, SAIF was still the second-largest shareholder with 18.5%, while Schneider held 9.22% and Goldman owned 5.99%.

In late 2012, Wu sold an 11.81% interest in NVC to Elec-Tech International, making the Shenzhen-listed electronics manufacturer the largest-shareholder with 20.05%. Elec-Tech bought another 6.86% from Wu in April of this year, leaving him with a 2.54% stake in the company.

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• Topics
• Regulation
• Greater China
• Industrials
• SAIF Partners
• Goldman Sachs
• China
• manufacturing
• regulation