Risk & Compliance

Hong Kong Firm Fined $3M for Accounting Fraud

The SEC says Agria Corp. hid from investors a $17.5 million loss from the sale of its primary operating entity in China.
Matthew HellerDecember 12, 2018

Hong Kong-based agribusiness firm Agria Corp. has agreed to pay $3 million to settle U.S. charges that it engaged in fraudulent accounting to conceal losses from the sale of its primary operating entity in China.

Agria sold Taiyuan Primalights III Modernized Agriculture Development Co. in July 2010 to Taiyuan’s president, Frank Xue, in exchange for his 11.5% interest in Agria and Taiyuan’s land use rights to 13,500 acres of undeveloped land in a remote area of China’s Shanxi Province.

According to the U.S. Securities and Exchange Commission, Agria overstated the value of the shares it received from Xue by $17 million and assigned a value of nearly $60 million to the “effectively worthless” land rights.

“The improper [stock] valuation enabled Agria to conceal a loss on the [Taiyaun] divestiture of approximately $17.5 million, instead of the loss it reported of only $0.2 million,” the SEC said in an administrative order.

Separately, the commission also fined Agria executive chairman Lai Guanglin $400,000 for engaging in manipulative trading to prevent the company’s American Depository Shares from being delisted by the New York Stock Exchange.

“Agria’s fraudulent accounting hid from investors the significant loss it sustained when it divested its principal operation in China,” Charles E. Cain, chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act unit, said in a news release.

The sale of Taiyuan was structured as a related-party exchange, with Agria booking a value of $1.88 per share for Xue’s stock. However, the SEC said, the stock effectively traded at $0.635 per share at the time, based on the market price of $1.27 per ADS.

The SEC also said Agria committed fraud by failing to perform an impairment analysis of the value of the Shanxi land, which Taiyuan used for sheep-breeding, until early 2013. As a result of the analysis, it wrote off the full $57.3 million carrying value of the land rights.

“Agria was not engaged in [sheep-breeding] and was otherwise unable to use the lands for any revenue generating purpose from the time of divestiture,” the SEC noted.