China appliance chain Gome sues jailed founder to seek compensation for breach of duties

China appliance chain Gome sues jailed founder

HONG KONG — China’s biggest appliance retailer is suing its founder and former chairman for damages after he was jailed for economic crimes and maneuvers from prison to exert control over the company.

Gome Electrical Appliances Holdings Ltd. started legal proceedings on Thursday against Huang Guangyu in the High Court of Hong Kong, the company said in a statement to the Hong Kong Stock Exchange.

Huang, also known as Wong Kwong Yu, built Gome into China’s biggest appliance retailer and was estimated in 2008 to be worth $6.3 billion. In May, he was sentenced by a Beijing court to 14 years in prison for insider trading, bribery and other crimes.

“The arrest and later conviction of Mr. Wong for various economic crimes caused a great deal of uncertainty for the company,” the statement said. Gome continues to be affected, particularly in its ability to raise fresh capital, it said, without specifying the amount of damages being sought.

The claim for damages centers on a buyback by Gome of its own shares that Huang allegedly planned and breach of trust. The Hong Kong’s Securities and Futures Commission is investigating whether Huang diverted money from a Gome share buyback between January and February 2008 to repay a personal loan. Regulators say that caused Gome and its shareholders to lose 1.6 billion Hong Kong dollars ($207 million).

Huang’s wife, Du Juan, is under investigation and Hong Kong has frozen their assets there.

There were new signs that Huang could be trying to retain influence over the board of Gome despite being removed as chairman and put in prison.

Gome said it received a letter from Shinning Crown Holdings Inc., a company owned by Huang and a substantial shareholder of the company, calling for the removal of chairman Chen Xiao and Sun Yi Ding from the post of executive director. It proposed the nomination of two other individuals as executive directors, the statement said.

Gome said its board is “strongly opposed to the removal” of Chen and Sun, which it called “completely unmerited and potentially again seriously disruptive to the stability and ongoing development of the company’s business.”

“I’m surprised that the conflict has escalated to this stage,” said Julie Ke, an analyst for Guotai Junan Securities (Hong Kong) Ltd., who covers Gome. “But there is still a lot of uncertainty over whether Huang will succeed in removing Chen and the new management team.”

Huang was detained by Chinese authorities in November 2008 and resigned as Gome’s chairman the following year. He was charged with paying 4.6 million yuan ($675,000) in bribes to five officials and insider trading of Gome shares worth 1.4 billion yuan ($204 million), Chinese state media said. Earlier reports said he was accused of paying bribes to win regulatory approval for Gome’s stock market listing in Hong Kong.

Accusations of bribery, tax evasion and the collusion of corrupt officials in financial abuses are common in China. Successful businesspeople often are linked to Communist Party figures and prosecutions can be prompted by political struggles, though it is unclear what triggered Huang’s case.

Huang, born in poverty, started out as a teenage clothing trader and his success story seemed emblematic of China’s three-decade-old economic boom.

Associated Press researcher Bonnie Cao contributed to this report from Beijing.