Moulin auditor signed off on report despite doubts on loans

Ernst & Young signed off on the 2003 annual report of Moulin Global Eyecare Holdings despite having reservations over fake loans and allegedly bogus customers, the Court of First Instance heard yesterday.

Ernst & Young partner Andrew Wu was testifying at yesterday's hearing of the fraud trial related to the bankrupt Hong Kong-listed firm.

Both the prosecution and defence agree that HK$230 million of short-term loans advanced by Moulin were false. The loans were granted mainly to friends and acquaintances of Moulin's former founding chairman Ma Bo-kee. Moulin was liquidated in 2006. Ernst & Young was Moulin's auditor from 2002 until it resigned in December 2004.

Wu told the jury his biggest concern was HK$230 million in short-term loans, their recoverability and the insufficient supporting documents. In late April 2004, close to the time that Ernst & Young approved Moulin's 2003 annual report, Cary Ma Lit-kin, Moulin's former chief executive and Ma Bo-kee's son, told Wu that only HK$90 million of the original HK$230 million was outstanding and Wu was given a written guarantee of the remaining HK$90 million of loans by Ma Bo-kee.

The judge, Peter Line, asked Wu whether he had checked if Ma Bo-kee was good for the money. Wu replied there was no study by any credit-rating agency of the loans.

Wu said Moulin borrowed the money at 2 per cent interest from banks and lent it at 9 per cent. Justice Line said if Moulin lent at such a high interest rate of 9 per cent, it followed that the borrowers were less creditworthy. Wu replied he could not check their creditworthiness, but met some of them and obtained their Hong Kong identity card numbers.