Huang Guangyu: Gome Founder's Fall from Grace

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Excerpts

By 2004, Gome had 437 stores in 132 cities across the country and revenues of RMB 24 billion. Its annual growth between 2003 and 2004 was at 12%. According to analysts, the secret of Gome's success was its geographical presence, and wide range of products. Supplier fees accounted for almost 33% of Gome's profit. Gome was listed on the Hong Kong Stock Exchange in 2004 through backdoor listing. After the listing, HK$ 1.19 billion was infused into Gome. In December 2004, by selling Gome stock, Guangyu raised HK$ 1.375 billion, which made him one of the richest persons in China...

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As Gome grew, founder Guangyu's wealth started to multiply. He was touted as the Sam Walton of China by the Chinese as well as the international press and was nicknamed the "price butcher" as his moves largely determined the government's policies on retailing in the country...

Guangyu caught the attention of Chinese authorities after the backdoor listing of Gome on the Hong Kong Stock Exchange. Guangyu was questioned several times by Chinese authorities with regard to his business practices. In 2006, an investigation was carried out about a loan through which Gome's investments were funded. Guangyu and his brother were questioned about receiving loans amounting to RMB 1.3 billion from Bank of China in the 1990s...

According to authorities, Guangyu was suspected of bribing senior officials to list Gome in Hong Kong, bribing during Gome's merger with Yongle, evading taxes by diverting assets to a company based overseas, money laundering pertaining to Shandong Jintai, share price manipulation - of Beijing Centergate and Sanlian, and transferring assets illegally...

Xiao, who replaced Guangyu as Chairman and President of Gome, said that the case would not have any bearing on the company. But Guangyu's arrest did have an adverse impact on Gome's fortunes. For the first three months of 2009, revenue was at RMB 9,801 million as against RMB 12,176 million during the first three months of 2008. During the same period, Net profit dropped to RMB 322 million from RMB 513 million...

Exhibit I: Gome's Listing on the Hong Kong Stock Exchange
Exhibit II: Gome Five-Year Financial Summary
Exhibit III: Gome - Three Year Stock Price Chart (2007 -2010)
Exhibit IV: Other Business Tycoons Jailed / Charged*