Blog

E&Y Probe

Police widen Ernst & Young forgery probe
Staff quizzed in wake of Akai case
Naomi Rovnick, Barclay Crawford and Clifford Lo
Oct 10, 2009

Police have widened their investigation into alleged forgery of legal evidence at the local practice of accounting firm Ernst & Young.

After the arrest last week of an Ernst & Young Hong Kong partner, police are now interviewing other staff at the firm, which was accused in a civil case last month of falsifying and doctoring evidence to shield itself from a negligence claim brought by the liquidator of failed electronics conglomerate Akai Holdings.

A police spokeswoman confirmed the investigation was continuing but said no further arrests had been made.

Akai went bankrupt in 2000 owing creditors more than US$1.1 billion. On September 23, Ernst & Young paid hundreds of millions of US dollars to settle the audit negligence case. The firm’s defence collapsed when the liquidator, Borrelli Walsh, told the court Ernst & Young staff had tampered with and fabricated audit files relating to Akai after the company failed, and the firm relied on the suspect files in its legal evidence.

Ernst & Young admitted in a statement on the day of the settlement that some documents were “altered”.

On September 29, officers from the Commercial Crime Bureau raided Ernst & Young’s local offices and also seized documents from Borrelli Walsh and the liquidator’s solicitors, Lovells. Edmund Dang, an Ernst & Young partner who had worked on Akai’s audits, was arrested at his home and then released on bail without being charged. The liquidator alleged in the High Court trial that Dang’s handwriting was on many of the questionable documents.

People familiar with the case confirmed the police probe had widened beyond Dang, who was a mid-ranking manager at Ernst & Young when Akai collapsed, to examine whether he had potentially acted on the instructions of others.

A senior police officer said this was routine in commercial crime investigations. He added officers would question everyone who might be connected to a case before deciding whether to make prosecutions.

Borrelli Walsh had sued Ernst & Young Hong Kong for around US$1 billion. The liquidator claimed the accounting firm turned a blind eye when, between 1997 and 1999, Akai founder James Ting looted US$800 million from the company and covered his tracks with false bank accounts and fabricated investments. Ting was imprisoned in 2005 but released a year later on appeal following errors in the prosecution’s case.

The civil trial opened on September 16 with explosive claims from Borrelli Walsh about the suspect evidence. On the first morning of the hearing, the liquidator’s barrister, Leslie Kosmin QC, handed the judge, Mr Justice William Stone, a thin green file containing a lengthy description by Lovells of more than 80 doctored papers.

Kosmin summarised that some of Ernst & Young’s Akai files from 1994 to 1998 were “written in variety of hands and a variety of colours of pencil”. He added some papers appeared to have been taken out of files, annotated, then put back in.

He also said some papers were back-annotated, in Dang’s handwriting, to direct anyone reviewing the Akai audit files to papers that Borrelli Walsh’s forensic examiners said were fabricated “sometime after” January 2000. Akai made a US$1.72 billion loss for the year to January 2000 and was wound up seven months later.

Kosmin also claimed it was doubtful that Dang acted alone, because Dang did not start work on Ernst & Young’s Akai team until December 1997, while the suspect papers dated back to 1994. Ernst & Young Hong Kong suspended Dang on the day it settled the Akai case.

In a statement yesterday, Ernst & Young said: “As we have stated previously, it is our intention to engage with and support further investigations into the Akai matter.”

What’s the guarantee?

I recently received a question from one of my readers which, in effect, asked the following:

“Your posts are interesting and to some degree, I agree with them. However, with no evidence and examples provided, they remain theories to me. What guarantees do I have following your advice?”

I hate to disappoint you but there are no guarantees. As university students you would know the results of any research you conduct will only give you a probability (high or low) and a correlation between the factors involved.

The suggestions that I have given are based on my own experiences and those of others which are well documented in one way or other. So, I can say that they worked well for me.  Whether they work for you or not, I really can’t say since one man’s meat is another’s poison.

This reminded me of my son when he was a baby. As he grew, I would encourage him daily to try new things – flip, sit, crawl, stand, walk, run, jump and also to talk, shout, sing, whisper. I wonder how it’ll be if he had asked, “What guarantees do I have listening to you and following your suggestions?” and not try anything until he knows for sure it’ll work.

I’m glad what he did was to try things one step at a time, get the feedback from the trying, adjust his next move, and from there do better and better each day. As he grows older, he is now able to ask for advice and suggestions on what he should do. Even though he doesn’t ask for proof, he himself is living proof.

The only things we can be sure of in life are death and taxes. The others are up to you.