New Details Emerge On Chinese Pharma’s $4.3B Fraud

New details have surfaced about how a Chinese pharmaceutical conglomerate overstated its cash position by about $4.3 billion.

Bloomberg reported on Wednesday (May 29) that Kangmei Pharmaceutical, one of China’s largest public pharmaceutical firms, falsified documents and transaction records to overstate its cash holdings. Shares in the company fell 5 percent following the news, according to reports.

Kangmei has also reportedly admitted to “serious” inadequacies in internal controls and governance, reports said, citing a filing by the company.

The revelations surfaced after Kangmei and its accounting firm, GP Certified Public Accountants, fell under investigation by financial regulators in the country after an accounting error in which Kangmei misstated its 2017 cash position. One securities lawyer told Bloomberg that such an error was unprecedented in the country, and regulators said earlier this month that the error was likely the result of deliberate fabrications of financial transactions.

Kangmei first revealed to investors late last year that it was under investigation; since then, its share value has dropped by about 50 percent, making it one of the worst performers so far on the MSCI China Index, Bloomberg said.

Earlier this month, authorities suspended Kangmei trading after the company also revealed it has purchased $1.3 billion of its own stock. The China Securities Regulatory Commission (CSRC) has announced it has discovered evidence the company falsified financial documents between 2016 and 2018.

But Kangmei is not the only public conglomerate in China under scrutiny. Previous reports noted that Kangde Xin Composite Material Group has also revealed missing cash and a suspicious bank deposit, with auditors admitting last month they were unable to verify the transaction, and warned that the firm had missed interest payments on three of its bonds.

Tunghsu Optoelectronic Technology is another company that has raised concerns among investors over its borrowing practices.

“Part of the problem is that the cost of violating the law is too cheap here,” reflected Chanson & Co. Director Shen Meng in an earlier interview with The Wall Street Journal.