One of the biggest frauds in history: Chinese real estate giant Evergrande embezzled $78 billion in earnings

The logo of Chinese real estate giant Evergrande, whose liquidation was ordered by the Hong Kong justice system in January. (EFE/EPA/Alex Plavevsky)

Chinese stock watchdog fines ailing real estate developer China Evergrande Group For 4.2 billion yuan ($581 million) for an alleged Falsifying his income of $78,000 million. This case may be one of the biggest financial fraud Of history.

In a statement sent to mainland Chinese stock exchanges late Monday, the company said its chairman, Hui’s vehicleI went Fined 47 million yuan ($6.5 million) And Banned for life from Chinese markets, Hui, also known as xu jiyinHe was arrested by authorities in September for alleged “illegal crimes”.

The notice cites the preliminary decision China Securities Regulatory Commission (CSRC)Who has recently appointed his new boss, wu qingAn industry veteran who is known for being tough on market misconduct.

Evergrande’s notification says so Regulators found it overstated its 2019 revenue by 214 billion yuan (about $30 billion)., or about half. In 2020, they are alleged to have reported revenues of around 80% or more than 350 billion yuan ($48.6 billion, total reaches more than 78 billion dollars Of false earnings.

CSRC also suspects that there are Problems with bonds issued by Evergrande.

HuiAs President, “wasDirect manager and, at the same time, actual controller of organization and orientation“, he indicated. “The means were particularly grave and the circumstances were particularly grave.”

The charges are the latest blow Huiwho was in his day Asia’s second richest man And oversaw a vast empire that spanned everything from real estate to electric vehicles. evergrand was One of China’s largest real estate developersWhich took massive loans to expand across the country with increasing home sales.

Hui was once Asia’s second-richest man and oversaw an expanding empire that included everything from real estate to electric vehicles (Reuters/Bobby Yip/File)

CSRC action may pave the way for this More serious allegations against Hui, who was arrested by police last year on “suspicion of illegal crimes.” No criminal charges have been made public against Hui and his whereabouts unknown, These are administrative restrictions.

Other former officersXia Haijun And Pan DarongFines and market restrictions were also imposed.

alleged fraud of Evergreen eclipses companies like Luckin Coffee, Considered the “Chinese Starbucks” and American enron and causes serious injury to the reputation of its former auditor, PricewaterhouseCoopers LLPand financial monitoring of the country, as he wrote bloomberg,

provides great fuel The concern is how widespread these accounting problems areJust as the new chairman of the China Securities Market Regulatory Commission tries to strengthen supervision.

“The alleged fraud is scandalous in its scale,” said to bloomberg Brock Silver, managing director of private equity firm Kaiyuan Capital. “As soon as Evergrande was ordered to be liquidated, Hui became an intended civil and criminal target.”

This also means fine Evergreenreal estate developer most debtors in the worldwith Liabilities of approximately 332,000 million of dollars, It will have even less money to pay its international creditorsEven if there is a Hong Kong court Ordered liquidation of the company in late January.

Evergrande recognized revenue from apartments, including apartments that had already been sold but not yet delivered, The developer had last year said it has shifted its focus from 2021 to accounting for revenues after the units are completed or owner-occupied.

View of an unfinished residential complex built by China’s Evergrande Group on the outskirts of Shijiazhuang. (Reuters/Tingshu Wang/File)

Was the auditor of Hengda in 2019 and 2020 PricewaterhouseCoopers Zhong Tian LLPa continental unit associated with a network of pwc, PwC resigned as Evergrande’s auditor in January 2023 due to audit disagreements.

PwC has also resigned as auditor of other Chinese developersSuch as Sanac China Holdings Limited and Shimao Group Holdings Limited. In Hong Kong, the city’s Financial Reporting Council said in 2022 that it was examining Evergrande’s financial statements for 2020 and expanding the investigation to an audit by PwC.

The regulatory move comes as China continues to struggle real estate recession Which has destroyed economic growth and household wealth, as housing sales and prices have fallen. index bloomberg Shares in the Chinese property developer fell 2.1% on Tuesday, taking losses this year to 19%.

Real estate sector contributed to China’s economic boom, because households purchased one of the few potentially profitable assets available for investment. But developers sank into debt as they transformed cities into forests of apartments and office towers, sending prices soaring. The total debt of companies, governments and households is more than 300% of the country’s annual economic outputAn unusually high figure for a middle-income country.

Evergreen One of dozens of Chinese companies that have collapsed since 2020 due to official pressure to curb excessive debt Communist Party Those in power consider it a threat to the economy.

Regulators are now struggling to reassure investors Following the decline in Chinese markets last year, the real estate market declined. Even after regulators announced a series of New policies to support marketsPledged to root out insider trading and other abuses, the index shanghai composite follow one 5.8% less than last year’s levelAnd this hang Seng is from hong kong fell 15.3%,

The consequences of the real estate crisis have also affected the banking sector In China’s shadow, institutions that provide financial services similar to banks but operate outside banking regulations.

(With information from AP and Bloomberg)

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