In this side story to Part 3, we tell you about the convicted criminal who the SFC alleges was behind the IPO of GP Nanotechnology, which was one of the pre-IPO customers of B M Intelligence. We now publish the complaint filed by in 2002 which triggered the investigation, and ask whether the SFC's action to disqualify directors is sufficient, given the alleged false and misleading disclosures.

GP Nanowreck
23 June 2009

This is a side-piece to our story on B M Intelligence, now known as China Bio-Med Regeneration Technology (8158).

As we explain in our main story, China Bio-Med Regeneration Technology Ltd (CBRT, 8158, formerly known as "B M Intelligence International Ltd") was originally in the business of providing pre-IPO advice and structuring for companies applying for listing. One of these clients was GP Nanotechnology Group Ltd (GPN, 8152, delisted) which was listed on 17-Jul-01, the day before CBRT itself. quietly filed a complaint against GPN on 27-Oct-02 (which we are now publishing) and this eventually led to action by the Stock Exchange and the SFC. Our complaint focussed on the lack of explanation surrounding $19.3m of "short-term loans receivable" and "deposits made for acquisition of investments" of $14.0m in the 2001 annual report, which together amounted to 76% of the IPO proceeds. In response, "clarification announcements" were issued on 14-Jan-03 and 5-Mar-03. Five months later the stock was suspended, and delisted on 10-Jun-05.

The clarification announcements mentioned, amongst five suspect transactions, that on 2-Jul-01, just after listing, GPN had signed a "consultancy agreement" with Global Essence Holdings Ltd (Global Essence), to identify acquisition targets in the PRC. GPN had made advances of $9.43m to Global Essence from Mar-2001 to Dec-2001. Global Essence was 99.9999% owned by Richest Resources Ltd, of which 50% was jointly-owned by Mr Cheung Long Chung and Mr Cheung Kin Cho.

But that wasn't the whole story. The SFC has since obtained court orders against two of the GPN directors disqualifying them from future listed company directorships for gross incompetence. The statement of agreed facts in the case against Mr Ong Hong Hoon (Mr Ong) on 27-Nov-08 referred to the purported controlling shareholder at IPO, Ms Wong Yau Ming (Ms Wong), the ex-wife of Executive Director Kwong Chun Kau. It said:

"Although [Ms Wong] was, on the face of the matter, the ultimate controlling shareholder of the Company, in fact Cheung Long Chung ("Cheung") was at all material times the real, de facto, controller of the Company. Wong was represented throughout the listing process of the Company By Cheung acting as her "adviser"...

The executive directors of the all material times acted, in relation to the business affairs of the company, under or in accordance with the directions or instructions of Cheung, who was neither a director nor a shareholder of the Company.

Cheung has a criminal record in Hong Kong for offences of false accounting, for which he was sentenced to seven years imprisonment in May 1984. Cheung was also a bankrupt who was discharged from bankruptcy in 1999"

The false accounting conviction which the statement refers to was in relation to a licensed Deposit-Taking Company called Current Finance Ltd which was owned by Cheung and his wife, which was taking deposits and then lending the money to him and his related companies, in breach of the regulations which limit lending to directors and related companies of DTCs, using bogus loan agreements with stooges to cover it up. When the DTC collapsed in 1983, it owned $37m to depositors but had only $7.4m of assets. The details are in the judgment on his unsuccessful appeal against sentence in 1985.

The statement of agreed facts said that, according to a schedule provided by GPN, it had advanced a total of $6.41m to Global Essence by 11-Jul-01, before the IPO and before the "consultancy agreement" was signed. The statement also said that there was no evidence that Global Essence has ever produced to GPN any feasibility reports for acquisitions had been claimed in the announcements. Further, it was stated that minutes were produced of a board meeting on 31-Dec-01 to ratify various transactions, but the board meeting was not actually held.

There was a similar action against Mr Chow Chun Kwong (Mr Chow), the Finance Director of GPN, who resigned on 28-Feb-05. He was banned from serving as a director or manager of a listed company or its subsidiaries for 6 years from 20-Feb-09. Incidentally, he was also an INED of PME Group Ltd (0379) from 23-Sep-02 (before its IPO) until 28-May-03.

Both Mr Ong and Mr Chow have agreed as part of their settlement to give evidence consistent with the agreed facts in the SFC's applications to disqualify three other directors if needed. As far as we know, those cases have yet to be heard.

If and when the other directors are prosecuted, based on the statements of agreed facts so far, it appears to us that they should be facing charges of false and misleading disclosure in the prospectus and the clarification announcements (which carry criminal penalties), and not merely an action to temporarily prohibit them from being directors. Investors deserve better than that.

©, 2009

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