Investigators scour files detailing alleged phantom debtors Provisional liquidators of Moulin Global Eyecare Holdings - which once touted itself as the world's third-largest eyewear firm - say they have found detailed evidence of dubious transactions stashed in a secret room hidden behind hinged cupboards at the company's offices. John Batchelor, a director at restructuring firm Ferrier Hodgson, yesterday said members of an investigation team stumbled on the room when they tripped a latch in the cupboard while they were clearing out documents last year at its Telford House offices in Kowloon Bay. Investigators are examining the documents that they say include details of alleged phantom debtors - among them loan agreements involving 'substantial amounts' of money that were allegedly due to Moulin's subsidiary Oaktree. 'However, our inquiries to date have been unable to substantiate that these amounts are due to Oaktree as claimed,' said Rod Sutton, an executive director at Ferrier Hodgson, adding that the supposed borrowers denied ever owing such debt. Investigators believe the questionable transaction may be the tip of a dubious debt mountain worth hundreds of millions of dollars. Mr Sutton claimed that apparently non-existent debtors - allegedly aimed at inflating the company's revenues - might have accounted for up to 37 per cent of Moulin's debt in 2004 and a substantial amount of its revenue. The company booked revenue in the first half of 2004 worth $686 million. 'We visited most of the addresses of these North American debtors. They were houses in residential areas with no evidence of business operations,' Mr Sutton said. While Moulin vaunted itself as 'the largest eyewear manufacturer in Asia and the third largest worldwide' with production exceeding 15 million frames a year, liquidators believe the figure was much lower. 'From documents and discussions with Moulin management, the number of spectacles actually produced was probably closer to four million pairs per year.' The liquidators have been told by sources that 65 per cent of the spectacles United States optical retailer Eye Care Centers of America (ECCA) ordered from Moulin were produced by sub-contractors. The liquidators expressed concern over US$43.5 million of transaction costs incurred when Moulin and US venture capital firm Golden Gate Capital paid US$489 million to acquire 99 per cent of ECCA in March last year. The transaction costs included US$26.8 million paid to advisers and US$2.6 million paid to a private firm of Moulin chief executive Cary Ma Lit-kin (below), according to the liquidators' documents. 'This is an expensive transaction even by US standards,' Mr Sutton said. Moulin claimed $79 million of assets on its balance sheets on December 30, 2004, and $80 million on December 31, 2003, but these assets appear to be based on agreements with parties who denied entering such agreements, a writ filed with the High Court alleges. From 2003 to 2004, bank accounts were apparently manipulated to show significant cash reserves that did not exist, Mr Sutton said. Several days before the end of the year, funds would be deposited into bank accounts to give the appearance of cash reserves that would be withdrawn several days later in the New Year. 'Moulin, through borrowing money, inflated its cash assets while not disclosing short-term loans as liabilities in the balance sheet as of December 31, 2004, provided to us,' Mr Sutton said. He added that Moulin entered into highly questionable arrangements with 'friendly suppliers' worth 'many hundreds of millions'. Details of the questionable transactions and financial statements have been recorded in a US court document in a lawsuit by former Moulin executive Anthony DiChiara against Moulin, ECCA and the provisional liquidators. Mr DiChiara is claiming a 3 per cent share of ECCA plus damages but the liquidators are seeking to dismiss the lawsuit. After Hong Kong-listed Moulin acquired ECCA in March last year, its debt problems surfaced and the High Court placed the firm under provisional liquidation in June last year at the request of HSBC. It led more than 20 banks claiming more than $2 billion of debt. 'It must be disappointing to the creditors to find that behind what appeared to be a good company was a number of highly questionable transactions and a business which appeared much less than it's made out to be,' Mr Sutton said. Cary Ma and his father, Moulin chairman Ma Bo-kee, could not be reached for comment. The two were arrested in July last year with other Moulin executives on suspicion of fraud and released on bail.