Chinese Tutoring Mogul Loses $1.8 Billion After Revealing Fraud
Chinese Tutoring Mogul Loses $1.8 Billion After Revealing Fraud
(Bloomberg) --
Chinese companies listed in the U.S. are paying a steep price for questionable accounting. For the head of TAL Education Group, the bill came to $1.8 billion.
That’s how much Chairman Zhang Bangxin saw disappear from his fortune when TAL shares plunged 18% in extended trading on Tuesday after disclosing an employee had wrongly inflated sales. The Beijing-based company said the wrongdoing affected its “Light Class” business that generates as much as 4% of revenue and the worker is now in police custody.
TAL, which provides tutoring services for kindergarten to year 12 students, is the second U.S.-listed Chinese company in a week to reveal suspect activity. Luckin Coffee Inc. has plunged 83% since exposing fraudulent sales on April 2. The fallout is bringing renewed market concerns about mainland corporate governance that could drag down stocks and threatens to bring a halt to the country’s overseas initial public offerings.
Zhang’s net worth is now $8.1 billion, a $500 million drop from the beginning of this year, according to the Bloomberg Billionaires Index.
TAL said the employee wrongdoing was discovered during routine auditing and involved a conspiracy with vendors to forge contracts and other documents. The company didn’t disclosed further detail on the value of the affected sales or how long it had taken place.
The company didn’t respond to calls and email to its Beijing office on Wednesday morning.
Luckin, which held its U.S. IPO less than a year ago, had become the biggest competitor to Starbucks Corp. in China after rapid expansion fueled by venture capital money. The company said Chief Operating Officer Jian Liu and employees reporting to him fabricated about 2.2 billion yuan ($310 million) of transactions.
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