Huang Guangyu, China’s richest man, and the chairman of household appliance giant Gome has been detained in connection with alleged stock manipulation of company owned by his brother, according to Chinese state media. Trading in Gome shares was suspended on Nov. 24. From BusinessWeek:
The alleged arrest of Huang does not come as a complete surprise. The fast and loose business methods by which several high-flying Chinese tycoons have amassed huge fortunes can run afoul of the law. Earlier this year, Shanghai’s most successful property developer, Zhou Zhengyi, received a 16-year sentence in connection with a scam in which social security funds were channeled illegally into a property development. The scandal also resulted in the sacking of Chen Liangyu, Shanghai’s Communist party secretary.
Huang’s travails also underscore the risks one takes when investing in private-sector Chinese companies listed overseas. Huang is Gome’s founder, and though he is not involved in day-to-day running of the company, any tarnish to his reputation is a huge liability to the company. “If the chairman has problems or is put in jail, it could affect suppliers’ confidence,” says Keith Li, an analyst at CIMB-GK in Hong Kong who covers Gome. “That could be disastrous for the company.”