Gome founder jailed for 14 years

The conviction of Huang Guangyu raises suspicions about the deeds of China's elite business leaders and what it takes to climb the ladder in a highly regulated market.
Huang Guangyu at a press conference in Beijing in November 2008.
Huang Guangyu at a press conference in Beijing in November 2008.

Huang Guangyu's rags-to-riches story has inspired millions of Chinese who, in the new China, are striving to change their lives by getting rich as quickly as possible. But his conviction yesterday has raised suspicions about the deeds of China's elite business leaders and what it takes to climb the ladder in a highly regulated market.

Huang, the founder and former chairman of Hong Kong-listed Gome Electrical Appliances Holding, was sentenced to 14 years in prison for insider trading, bribery and illegal business dealings, a Beijing court ordered yesterday. It also ordered Huang to pay a fine of Rmb600 million ($88 million) and confiscated Rmb200 million worth of property, according to the official Xinhua News Agency.

The agency posted a brief story on its website without saying whether others who have been charged and tried in the case were also convicted. Others implicated in the case include some government officials and Huang's wife Du Juan.

Huang, who in Hong Kong is known as Wong Kwong Yu, was detained in November 2008 during a police investigation of stockmarket manipulation allegations. The investigation gradually grew wider and caught in its net a string of top business and government leaders, including the former mayor of Shenzhen, Xu Zongheng, and a former deputy minister of public security, who were both charged with bribery in connection with the case, Xinhua has reported.

Stories about Huang's background vary slightly, but he apparently showed his entrepreneur instincts at a young age. After dropping out of school in his teens, he began his commercial life with a roadside booth in Beijing where he sold cheap radios and electronic gadgets purchased from his hometown in Guangdong. Before long, the street stall attracted many customers and Huang set up a home appliances distribution firm. In 1987, he founded Gome.

Gome Group is now mainland China's largest electronics and home appliances chain with more than 1,200 stores in more than 200 cities, and Huang has become rich beyond the wildest dreams of most Chinese people. In 2008, when he was in his early 40s, Huang had a net worth of $6.3 billion and ranked first on Hurun's China Rich List for the third time.

However, in the same year, he attracted the attention of Chinese investigators and was brought back down to earth. He was arrested along with his wife in November 2008. Xu Zhongmin, the former chairman of a property company controlled by Huang, was also tried on related charges.

Huang stepped down as chairman of Gome in January 2009 but retained control of a 34% stake in the company. And his detention has so far not prevented him from trading his shares or exercising his voting rights in the company, since he could designate an agent to do so on his behalf.

Last July, Huang sold 235 million Gome shares at HK$1.70 each while in detention. A week later, he bought 816 million new shares at HK$0.67 each.

Hong Kong's Securities and Futures Commission is currently conducting an investigation into Huang's share trading activities, and last August alleged Huang organised a fraudulent share buyback scheme in 2008. Hong Kong's High Court ordered an interim injunction to freeze HK$1.66 billion of assets held by Huang. The injunction remains in force and the SFC's investigation is ongoing.

Meanwhile, Gome has been trying to separate itself from Huang and reiterated yesterday that his conviction will have a limited impact on the company's operations.

"The court's decision eliminated most of the uncertainties that have been surrounding Gome. Going forward, management will focus on Gome's business operation and development. The board remains committed to pursuing corporate governance best practice and enhancing transparency," the company said in a statement relayed by its PR firm.

Gome's share price increased by 0.87% to HK$2.31 yesterday and customers shrugged off the news. A Gome outlet in Shanghai's prime business area was packed with shoppers yesterday. "Of course, I will continue to buy stuff here, because it is cheaper," one shopper said.

¬ Haymarket Media Limited. All rights reserved.
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