KPMG Auditor Cleared of Taking Bribe for Work on Hontex’s Hong Kong IPO

A KPMG senior manager was cleared by a Hong Kong judge of accepting a HK$300,000 ($38,601) bribe for his work on the listing prospectus of Chinese fabric maker Hontex International Holdings Co.

The prosecution failed to prove beyond reasonable doubt that Leung Sze-chit, 33, intended to accept envelopes containing cash as a reward from Chan Chau-wan, a consultant hired by Hontex for its listing, in February 2010, District Court Judge Stephen Geiser said today.

KPMG resigned as Hontex’s audit firm in May amid an investigation by Hong Kong’s Securities and Futures Commission into alleged false statements made by the company in its listing prospectus. The regulator has obtained a court order freezing almost HK$1 billion in funds raised from the company’s 2009 IPO. Shares have been suspended from trading since March 2010.

Jonathan Li, spokesman for the regulator known as SFC, said today the commission is preparing to file additional court documents in an effort to restore the IPO funds to investors.

‘Rogues’

The government didn’t present evidence at trial about the specific activities the payments were intended to reward. Justice department lawyer Isaac Tam declined to say whether prosecutors will appeal the verdict.

Geiser said Chan, the Hontex listing consultant, is the “major villain” and cautioned KPMG to beware of “such rogues” who might damage their reputation. Chan didn’t testify at the trial.

KPMG China said in a statement that the firm “has cooperated fully with the authorities throughout their investigations.”

Leung declined to say what problems may have existed in the Hontex prospectus after today’s hearing. He testified on April 1 that Chan “never explained” why she wanted him to keep the illegal payments and that he didn’t report the incident because he “needed to find out what might’ve been missed in the Hontex project.”

The accountant’s lawyer Gary Plowman earlier argued that Leung sought direction from a superior about receiving the money and intended to return it to Chan.

The case is Hong Kong SAR v. Leung Sze Chit, DCCC615/2010 in the Hong Kong District Court.

To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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