Gome Denies Misleading Investors About Effects of Jailing of Founder Huang

Gome Electrical Appliances Holding Ltd., China’s second-biggest electronics retailer, disputed an assertion by David Webb, publisher of Webb-site.com, that it misled investors about the effect of its founder’s imprisonment.

Webb compared a company statement on Dec. 10, 2008, that “the business, operations and relationship with its suppliers has remained normal” after the criminal conviction of Huang Guangyu, with comments attributed to Gome Chairman Chen Xiao by researcher Fathom China Ltd.

“The impact was huge but we couldn’t turn to society and say that that was the impact,” Chen was quoted as saying in an interview transcript included in Fathom China’s report.

Gome, in a statement e-mailed by public relations agency Brunswick Group last night, said there was no contradiction among the public statements, and that the Dec. 10, 2008, filing was “correct” and “accurate.”

Webb called for an investigation by Hong Kong’s Securities and Futures Commission. Section 298 of the city’s Securities and Futures Ordinance makes it an offense to authorize the release of an untruthful statement. Webb referred to a video recording of comments made by Gome executives which he said contradicted the explanation offered.

Ernest Kong, the regulator’s spokesman, declined to comment in a phone interview today.

Gome dropped 4 percent to HK$2.92 in Hong Kong trading.

Credit Facilities

The company disclosed the crunch caused by the sudden withdrawal of credit facilities in 2008 in letters distributed in August 2010, and explained the matter in a presentation to investors that month, according to the e-mail. Public filings for 2008 and the first half of 2009 disclosed the decline in the amount of credit available, Gome said.

Chen in August said Huang had brought the retailer close to bankruptcy.

Webb cited a video prepared before a shareholders’ vote on control of the company in September in which Chen, President Wang Junzhou, Director of Finance Fang Wei and vice presidents Ma Guixian and Sun Yiding said that pressure from Huang’s conviction was immediate and affected relationships with suppliers, banks and employees.

“In what we believed to be a casual conversation with someone who was writing a report on the company and industry, we talked broadly and informally about a period two years ago,” Gome said in its e-mailed statement, after being asked to comment on the Fathom China report.

Managed Expectations

“It was more a matter of facing it ourselves, dealing with it and solving it, trying to shrink the impact,” Chen said, according to Fathom China’s transcript. “So at the time, we said there wasn’t a big impact. I think anybody in that situation would have said the same thing. If we’d said what was really happening, it would have resulted in a bigger panic.”

Gao Qun, Gome’s director of corporate development, said the company “managed market expectations to stabilize the operations of the company,” according to the transcript.

“When we said ‘minimal impact’ back in 2009, that’s a liquidity issue, and when we said there was an impact back in May [2010], this is more addressed to our shareholders,” Gao said, according to Fathom China.

Gome said on Nov. 10 that it agreed to appoint Zou Xiaochun, Huang’s corporate lawyer, and Huang Yanhong, Huang’s sister, to its board to end a dispute with the founder, who owns the company’s trademark and 400 Gome-branded stores privately. Huang is serving a 14-year sentence on conviction for bribery, insider trading and illegally buying foreign currency.

To contact the reporters on this story: Wendy Leung in Hong Kong at wleung12@bloomberg.net; Debra Mao in Hong Kong at dmao5@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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