Bribery charge for executive at KPMG

Hong Kong’s anti-graft body on Thursday charged a KPMG executive with bribery in connection with a controversial initial public offering that is the subject of an investigation by the territory’s securities regulator.

The Independent Commission Against Corruption alleged that Leung Sze-chit, who it identified as a 32 year-old “senior manager”, offered a bribe to one of his colleagues.

“The charge alleged that . . . the defendant, together with another person, offered HK$100,000 (US$12,280) to his subordinate in relation to the global offering of Hontex International Holdings Company Limited,” the ICAC said in a statement.

Hontex, a Chinese fabric maker, raised HK$1bn in a December share sale.

KPMG has a strong track record in auditing and conducting due diligence on mainland companies preparing to list in Hong Kong. In a statement, KPMG said the alleged payment was discovered through its internal hotline.

“After investigation, the member of staff in question was suspended by KPMG and a report was then made . . . to the relevant authorities,” KPMG said, adding that it was co-operating fully with the authorities. “KPMG prohibits payments of any kind to its staff.”

Mr Leung, who was released on bail pending a court appearance on Friday, could not be reached for comment.

The arrest will increase scrutiny on the quality of Hong Kong IPOs, adding to concerns that not enough due diligence is being carried out prior to listings.

Last month, Hong Kong’s Securities and Futures Commission obtained an unprecedented court order freezing IPO funds belonging to Hontex. In a filing, the SFC said the IPO had violated its rules, citing sections of the Securities and Futures Ordinance on disclosure of false or misleading information inducing the sale of securities, using fraudulent devices and providing false documents.

The regulator ordered Hontex’s shares to be suspended on March 30, and successfully applied for an interim court injunction freezing HK$832m in the company’s bank accounts. On Thursday it secured court approval to freeze assets of up to HK$997.4m.

“The SFC alleges that Hontex’s financial position as outlined in its IPO prospectus has been materially overstated,” the regulator said. “If . . . successful in establishing its allegations, the SFC will seek orders to restore the funds raised in the IPO to those who subscribed for the shares.”

Hong Kong’s market regulator has burnished its reputation as a force to be reckoned with over the past year. The SFC successfully blocked a buy-out offer for Hong Kong’s largest telecommunications company in April 2009, and has secured a series of insider trading convictions.