China's Youngest Tycoon Jailed for Life for Fraud
CHINA—According to the Southern Weekly report, the Suining Intermediate People's Court found Zhou Yiming guilty of accounting fraud on December 1st. Zhou was the main shareholder of Sichuan Mingxing Electric and Chairman of the Shenzhen Minglun Group Ltd. The court sentenced him to life in prison and confiscated his property.
Zhou Yiming established Minglun Group on December 31, 2002. In March of 2003, at the age of 29, he became the main shareholder when he purchased 28 percent of Sichuan Mingxing Electric stocks. Last year, the 31-year old Zhou, with estimated assets of 980 million yuan (approximately US$125 million), not only became the 207th richest person in China according to Forbes Magazine, but he was also the youngest on the list.
Mingxing Electric is the major supplier of water, electricity, and gas to 3.8 million residents in Suining City, Sichuan Province. In August of 2002, Zhou Yiming heard that Mingxing was selling a 28 percent stake in the State-owned company, worth 380 million yuan (approximately US$48.6 million). At that time, Mingxing had 100 million yuan (approximately US$12.8 million) in cash flow and no debts.
In order to acquire the 28 percent stake, Zhou Yiming began a series of false purchases and fake asset reports to establish Minglun Group. (1) He bought a company in Shenzhen with 100,000 yuan (approximately US$12,781), and repeatedly invested an 80 million yuan (approximately US$10.2 million) bank loan to increase the registered capital to 300 million yuan (approximately US$38.34 million) for the parent company and seven sub-companies; (2) He purchased false audit reports for 2001 and 2002 from a local firm to demonstrate net assets of 1.2 billion yuan (approximately US$153 million). In fact, in 2002, the fictitious Minglun Group had not even completed registration. Prior to acquiring Mingxing Electric, Minglun Group had a net debt of 70 million yuan (approximately US$8.94 million) in March of 2003.
Chinese law states that bank loans cannot be issued for purchasing listed companies. However, Zhou managed to raise the 380 million yuan (approximately US$48.6 million) for purchasing Mingxing Electric using loans from three banks. With the advice of a bank executive, Zhou avoided the regulation using a “bridge loan” obtained in the name of floating capital.
As the largest shareholder of Mingxing Electric, Zhou Yiming became the Chairman. Between June of 2003 and November of 2005, in the name of foreign investment, Mingxing Electric capital was transferred to Minglun Group and other private companies of Zhou Yiming's with the help of several Minglun Group executives. In industrial and commercial registrations, these companies showed no connection to Zhou. However, there were more than 10 private shell companies owned by Zhou. The investigation showed that Zhou and his accomplices had illegally siphoned off over 460 million yuan (approximately US$58.79 million) and more than 10.7 million US dollars from Mingxing Electric.
Zhou is the first executive of a listed company to be given a life sentence for accounting fraud.