Founder Securities denies related company embezzled 2.8 billion yuan

Mainland brokerage Founder Securities has denied reports its business was disrupted after a related company, Founder Finance, embezzled 2.8 billion yuan (HK$3.5 billion) from Founder Securities for “emergency” purposes, but said it would deposit an unspecified amount of money with Founder Finance.

Both companies share the same parent, Founder Group. On January 5, Founder Group chairman Wei Xin, chief executive Li You and president Yu Li were asked to assist in investigations by mainland authorities, Founder Group’s website said. Since then, Founder Group had replaced the three executives. Yu is also a director of Founder Securities, a Shanghai-listed financial firm, and chairwoman of Founder Finance, a financial institution. It is not clear whether she has relinquished those roles.

The authorities’ questioning of Wei, Li and Yu has been linked in media reports to the detention of Ma Jian, one of China’s top spy chiefs, and the investigation of Ling Jihua, a former aide to former president Hu Jintao.

“In 2014, Founder Securities’ related-party transactions with Founder Finance were legal. There is no case of Founder Finance embezzling 2.8 billion yuan of Founder Securities’ funds or Founder Securities sending [illegal] profits to its controlling shareholders,” Founder Securities said on the Shanghai Stock Exchange website yesterday.

Is said Founder Securities would deposit some funds with Founder Finance, but those funds would not exceed 5 per cent of Founder Securities’ gross assets or 50 per cent of Founder Securities’ bank deposits. Founder Securities would earn interest from its deposits with Founder Finance on commercial terms, it added.

Founder Securities will hold an extraordinary general meeting on January 20 in Changsha, the capital of Hunan province, to decide on a motion not to change its board of directors and board of supervisors before their terms end. Founder Securities’ second-biggest shareholder, Beijing Zenith, has been pushing for Founder Securities to change its boards, according to documents from Zenith’s arbitration proceedings against Founder Securities. Zenith, a mainland property developer, is suing Founder Securities for 3 billion yuan.