It reads like a story from Sherlock Holmes or a locked room mystery. But the case of Mingyuan Medicare and the missing Rmb420 million (US$62.9 million) involves a boardroom coup, fake bank accounts, and a company that could well be brought low by circumstances beyond its control. It certainly leaves as many questions as it does answers.
The last clear and definitive news from Hong Kong-listed diagnostic company Mingyuan Medicare before the storm broke emerged towards the end of March last year when it announced that it expected to make a “small profit” for the year ending December 2014. The company appeared to be in a bullish mood as it finalised its annual results – what turned out to be a profit of HK$3.99 million (US$514,447) was a distinct change for the better after the HK$1.19 million loss in 2013 – and its stock price too was improving. It had gained 21% since the start of the year and was trading at HK$0.23.
But at the beginning of April, it was clear that there was a problem. The company failed to publish its annual results and the company’s stock was suspended.
Deloitte Touche Tohmatsu, Mingyuan Medicare’s then auditors, felt that a forensic investigation was needed to examine what was euphemistically called the “unresolved matter” before it could sign off on the accounts. What the accountancy firm meant is that it appeared that Rmb420 million had gone missing.
According to Yao Yuan and Wong Kwan Pui, better known as Kenny Poon, then chief executive office and chief financial officer of Mingyuan Medicare, the money was being held in the bank account of Shanghai Mingyuan Health Digit Biochips (SHMY), the company’s Chinese subsidiary. They even gave an account number –6228483070778826818 – which they said was with the Beijing branch of the Agricultural Bank of China (ABC).
When Deloitte accountants went to investigate the account on 22 April, they were told by a bank officer that the bank confirmation provided by the then management was “a scam”. It appears that the account does exist and does belong to the ABC, but it belongs to the bank’s Inner Mongolian branch.
Yao and Poon were confronted with Deloitte’s findings on 13 May but refused to appoint an independent forensic accountant to get to the bottom of the black hole. The accountancy firm followed up their request in early June, but this too was ignored.
By January this year, Deloitte had had enough and resigned.
After almost a full year of phoney war, there was a boardroom coup at the company’s annual general meeting on 20 May. A motion to remove the CEO was passed by 99.85% of the votes. Yao and Poon were replaced with Lam Ping Cheung and Hui Yip Wing. The company needs new brooms and both have been praised for their probity and openness. Lam is a renowned solicitor in Hong Kong and was the founder and partner of Messrs. Lam & Co. Another lawyer, Hui is an executive director at Joywood China Investment.
The management handover, however, was anything but smooth. The new CEO was forced to hire a locksmith to get into the company’s headquarters on Connaught Road in Central after it was discovered that an additional padlock had been placed in the chain on the handle of the main entrance door. And police were called after it was discovered that eight internal hard disk drives of the company’s computers had been removed from the Mingyuan Medicare offices, along with a router, a modem and the CCTV system.
It is a sign of how poisonous the atmosphere was that Poon and Angel Lam, his deputy and formerly in charge of accounting and banking at Mingyuan Medicare, refused to cooperate with the new management to the extent that another locksmith had to be engaged forcibly to open two safes in the company’s offices.
In early June, global risk consultancy Control Risks Pacific was appointed to investigate the missing money. It soon discovered that the ABC account in question did exist and contained Rmb3 trillion, though it belonged to an individual called Liu Jing. Although Kenny Poon was named by Liu as her translator in the documents, it is clear that the ABC account has nothing to do either with SHMY or indeed Mingyuan Medicare. And in its report to the Mingyuan Medicare board, Control Risk concluded that the ABC account and the Rmb420 million were not legitimate.
So where is the missing Rmb420 million? There is still no real answer, nor is there any real indication of the role of the former CFO.
Control Risks now believes that the sum was transferred from SHMY’s bank account to one held at the First Sino Bank in October 2014. Though so far neither the purpose of the transfer nor the individual who received it has been identified.
The investigation continues, but there is a broader issue here about corporate governance in Asia’s healthcare sector. The investor community could be forgiven for thinking that healthcare in China is not as clean as should be. Elsewhere HealthInvestor Asia is the only publication that has been reporting the detailed and recent charges of financial misconduct made against Hua Han Health Industry Holdings, also in Hong Kong. And both of these cases come while the Wei Zexi incident is still at the forefront of people’s minds. With the market reopening for IPOs after the summer lull, it would be disappointing if the Hong Kong listing plans of notable firms like Rici Healthcare and Zhongmei Healthcare – both mainland-based healthcare groups – were tainted by a few bad apples.