The former chairman of Guangdong Kelon Electrical Holdings Co Ltd Gu Chujun has been permanently banned from doing the securities business in China, Xinhua reported yesterday.

The ban came after Gu violated the country's securities law by inflating profits and embezzling capital while he was chairman of Kelon, once China's leading home-appliance manufacturer.

According to the ban revealed yesterday by China Securities Regulatory Commission, Gu will be denied senior management positions in any listed companies in China. In addition, he was fined 300,000 yuan (US$37,000), the report said.

The commission started investigating Kelon in May 2005 after a 60-million-yuan (US$7.5 million) deficit in the company's 2004 annual report aroused widespread suspicion. Gu and six other senior executives were arrested in September for misusing company funds and dressing up the accounts.

An investigation found that Guangdong-based Kelon overstated its profits by 387.2 million yuan (US$47 million) and revenues by 1.22 billion yuan (US$153 million) between 2002 and 2004.

During the same period, the Shenzhen- and Hong Kong-listed company failed to disclose several "material events," such as a change in accounting policies and connected transactions including joint investments and purchases of goods, according to the commission.

Earlier this month, Kelon said in a statement that the commission fined it 600,000 yuan (US$75,100) for these offences, while 12 former executives faced fines ranging from 50,000 yuan (US$6,300) to 200,000 yuan (US$25,000).

Many lawyers involved in the case said the punishment was not tough enough.
"The proper fine should be at least 1 million yuan (US$125,000)," Hu Fengbin, a lawyer with Beijing-based Zhong Gaosheng Law Firm, told China Daily.

However, the company may also face huge civil compensation as its investors filed a lawsuit against the firm on July 6.

Accounting firm Deloitte, Kelon's auditor for the 2002 to 2004 financial years, was listed as the second defendant in the suit as it failed to disclose the internal fraud.

The commission also put a permanent market access prohibition on Gu following the implementation of China's Provisions on Banning the Entry into the Securities Market last Monday.

The provisions stipulate that anyone who violates China's securities law or relevant regulations could face a temporary or permanent market access ban. Those being punished cannot take senior management positions in listed companies, or get involved in any securities business during the ban.

In addition, Gu might face criminal charges for "embezzling and misappropriating" huge amounts of Kelon's assets. The case has been handed to Foshan Procuratorate in Guangdong, but the decision to initiate a prosecution has not yet been made, according to local newspapers.

If found guilty, he might receive imprisonment ranging from three years to 10 years, according to China's Criminal Law.

Gu entered China's capital market in 2000. Before his arrest last year, he was in control of five listed-companies: Greencool Technology, Kelon, Hefei Meiling A-share, Xiangyang Automobile Bearing and Yangzhou Yaxing Motor Coach.

Editor: Yan