Hontex auditor on trial for taking 'generous lai see'

PUBLISHED : Tuesday, 29 March, 2011, 12:00am
UPDATED : Tuesday, 29 March, 2011, 12:00am

Suspended KPMG senior manager Leung Sze-chit took HK$400,000 for himself and his assistant as a 'generous lai see' for last year's Lunar New Year, to overlook accounting errors in the listing prospectus of mainland company Hontex, the District Court heard yesterday.

The Independent Commission Against Corruption charged that Leung - who is pleading not guilty - had accepted the money from Fujian-based fabric maker Hontex International Holdings, which raised HK$1 billion in its initial public offering in Hong Kong in 2009.

Hontex, controlled by Taiwanese businessman Shao Ten-po, manufactures fabric for brands including Decathlon, Kappa and mainland sports chain Li Ning.

Leung was in the KPMG team auditing the firm for the prospectus.

Counsel for the prosecution Tam Sze-lok said, in the first day of trial yesterday, that Chan Chau-wan, a consultant engaged by Hontex for the listing, had met Leung's assistant Suki Lau Shuk-ting in July 2009 to prepare for the listing.

Chan is said to have told Lau at the time that there would be money for her when the company listed.

'I thought Chan was only joking and I did not take it seriously,' Lau said in the court yesterday.

Following Hontex's listing on Christmas Eve 2009, Chan proposed to meet Lau in February last year and allegedly tried to force her to accept a brown envelope at the lobby of the Prince's Building in Central.

Lau said that she refused to accept the envelope, which was stuffed with HK$500 banknotes.

But an hour later, Leung told Lau that he had taken HK$400,000 cash for both of them and asked her to take her part of the cut. 'It's the Lunar New Year - just take it as a generous lai see,' Leung allegedly told Lau.

'I told Leung that I could not take the money and I asked him to give it back to Chan,' Lau said. 'But he said it would not be possible to take all that money across the border, as Chan lived on the mainland.'

Lau said Leung eventually forced her to take the money.

She kept it at home and went to Fujian to audit the annual results of Hontex. A few days later, while on the mainland, she reported the matter to KPMG's risk management department as, she said, she no longer trusted her boss. She handed back the money to the department when she returned to Hong Kong.

After an internal investigation, Leung admitted to senior partners that he had accepted the HK$100,000 for Lau and he himself received HK$300,000 from Chan. He handed the money to KPMG.

KPMG reported the case to the ICAC, which arrested Leung in May. The accounting firm removed itself as auditor for Hontex that month.

In its listing prospectus, Hontex said it enjoyed strong profit growth in the three years leading up to its listing. But in September last year, the company said its audit committee had concluded that 'reliance cannot be placed upon the statement made in the company's IPO prospectus'.

Hontex stocks traded for only 64 days before the Securities and Futures Commission in March last year suspended their trading.

The SFC also secured a court order freezing its IPO proceeds to prepare for compensation to investors.

The hearing continues today.