A lost report caused China e-Wallet to misstate profit as a loss, landing it in SFC bad books
China e-Wallet Payment mistakenly reported a net loss for the first half of 2015, instead of HK$281.5 million (US$36 million) profit when a crucial document was lost in transit
The Hong Kong stock exchange listing committee censured Hong Kong-listed China e-Wallet Payment Group and its directors for incorrectly reporting the company’s results for the first six months of 2015.
On August 28, 2015, China e-Wallet Payment reported a net loss of HK$12 million (US$1.5 million) for the sixth months through June 2015. Then, on Monday 14 September 2015, the company issued a clarification which stated that its profit for the period was actually HK$281.5 million (US$36 million).
The error was because a report of China e-Wallet Payment’s investment in another Hong Kong company, umbrella maker China Jicheng Holdings, did not reach China e-Wallet Payment’s accounting committee, the filing said.
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According to the company’s website, China e-Wallet Payment, formerly known as RCG Holdings, is principally engaged in the provision of biometric and RFID products and solution services, but a certain proportion of the group’s assets are used for financial asset investments.
The investments were managed by Wang Zhongling, the company’s chief executive, who informed the board of the status of the investments every six months by post and in a follow up telephone call.
However, around May 2015, Wang fell ill. The Hong Kong stock exchange filing said he posted the information to the company’s accounting team in Malaysia, but did not follow up with a phone call to the company’s chief financial officer.
The posted information was lost in transit, and, as a result, the accounting committee assumed that there was no update on the investments for the first six months of 2015 and prepared the results accordingly.
However, in reality, in February 2015, Wang had bought shares worth HK$12.04 million in China Jicheng, The market value of these shares had soared to HK$364 million by June 2015, but before September 14, 2015, the day on which the clarification announcement was published, neither the accounting team, the company’s chief financial officer nor its board had any knowledge of the investment or of anything which would have revealed the error, the filing said.
The exchange’s listing committee found that the company’s shareholders and the investing public had been deprived of information which should have been accurate and complete for making informed investment decisions on the trading of China e-Wallet Payment’s securities between August 31 and September 14, 2015.
It concluded that there were material deficiencies in the company’s internal controls and censured China e-Wallet Payment, Wang, and three other senior directors of the company, and required them to attend 24 hours of training on exchange listing rule compliance and director’s duties.
Both China e-Wallet Payment and China Jicheng were included in the so called Enigma Network compiled by shareholder activist David Webb, which is made up of 50 Hong Kong companies with interlocking stakes in each others companies.
Other companies in the network, most notably, Convoy Group Holdings, have run into trouble in recent months.
However, the filing by the Hong Kong stock exchange’s listing committee only described the failure at China e-Wallet Payment as an error.
