China Medical Technologies, Inc. (CMED) was a

Cayman Islands The Cayman Islands () is a self-governing British Overseas Territory—the largest by population in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the ...

corporation based in

China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...

, currently in liquidation following

fraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compen ...

allegations. It purported to develop, manufacture, and market advanced

in vitro ''In vitro'' (meaning in glass, or ''in the glass'') studies are performed with microorganisms, cells, or biological molecules outside their normal biological context. Colloquially called " test-tube experiments", these studies in biology a ...

diagnostic ("IVD") products using enhanced

chemiluminescence Chemiluminescence (also chemoluminescence) is the emission of light (luminescence) as the result of a chemical reaction. There may also be limited emission of heat. Given reactants A and B, with an excited intermediate ◊, : + -> lozenge - ...

("ECLIA") technology, fluorescent in-situ hybridization ("FISH") technology, and surface plasmon resonance (“SPR”) technology to detect and monitor various diseases and disorders.''In the Matter of China Medical Technologies, Inc.''
Order, 11 October 2012, SEC.gov. CMED ceased operating in early 2012, leaving investors unpaid on $426 million worth of bond debt as a result of a suspected

by CMED's former Chairman & CEO. The company is in default due to failure to pay interest to its bondholders. CMED filed for bankruptcy in 2012, and its liquidator is probing an alleged $355 million insider fraud, and alleges that "CMED's creditors and equity holders may have been the victims of a massive multi-year fraud." In February 2012, the company's shares in the United States moved from the

NASDAQ The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...

to the pink sheets. In March 2012, the CMED American depositary shares (ADSs) were delisted from NASDAQ, and in June 2012 the CMED ordinary shares were deregistered. Since July 2012, pursuant to an Order by the Grand Court of the Cayman Islands, CMED has been under the control of Joint Official Liquidators. In August 2012, the company filed for bankruptcy under the U.S. Bankruptcy Code. In November 2012, the US

Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

revoked the registration of the CMED registered securities. In 2009, an anonymous letter alleging possible illegal and fraudulent activities by management since 2007 was sent to

KPMG KPMG International Limited (or simply KPMG) is a multinational professional services network, and one of the Big Four accounting organizations. Headquartered in Amstelveen, Netherlands, although incorporated in London, England, KPMG is a net ...

Hong Kong, then CMED's

auditor An auditor is a person or a firm appointed by a company to execute an audit.Practical Auditing, Kul Narsingh Shrestha, 2012, Nabin Prakashan, Nepal To act as an auditor, a person should be certified by the regulatory authority of accounting and a ...

. The CMED

Audit Committee An audit committee is a committee of an organisation's board of directors which is responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results both internal and external. In a U ...

retained law firm Paul Weiss Rifkind Wharton & Garrison, which in 2009 investigated the allegations and advised the committee as to any appropriate further measures. In September 2015, U.S. District Judge

Ronnie Abrams Ronnie Abrams (born June 3, 1968 in New York City, New York) is a United States district judge of the United States District Court for the Southern District of New York. Early life and education Abrams is one of two children born to Efrat Abram ...

of the US District Court for the Southern District of New York held that Paul Weiss-despite its refusal-must give CMED's liquidator, who was scrutinizing the alleged $355 million fraud, otherwise- privileged information concerning Paul Weiss's internal investigation. In January 2012, a

class action A class action, also known as a class-action lawsuit, class suit, or representative action, is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member or members of that group. The class actio ...

fraud lawsuit was filed by CMED investors against CMED and its CEO and CFO in the US District Court for the Southern District of New York. In July 2012, original purchasers of the CMED bonds sued the CEO in a civil case in California, alleging he stripped assets from CMED. In November 2012, the liquidator filed a complaint with the

Hong Kong Police Force The Hong Kong Police Force (HKPF) is the primary law enforcement, investigative agency, and largest disciplined service under the Security Bureau of Hong Kong. The Royal Hong Kong Police Force (RHKPF) reverted to its former name after the t ...

and the US

Federal Bureau of Investigation The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice ...

(FBI), alleging that $400 million that CMED raised in stock and bond sales has gone missing, and that the CEO's wife had gambled substantial sums at the

Wynn Wynn or wyn (; also spelled wen, ƿynn, and ƿen) is a letter of the Old English alphabet, where it is used to represent the sound . History The letter "W" While the earliest Old English texts represent this phoneme with the digraph , ...

and Bellagio casinos in

Las Vegas Las Vegas (; Spanish for "The Meadows"), often known simply as Vegas, is the 25th-most populous city in the United States, the most populous city in the state of Nevada, and the county seat of Clark County. The city anchors the Las Veg ...

, Nevada. In March 2017, the U.S. Department of Justice in Brooklyn, New York, criminally indicted CMED's founder and CEO, as well as CMED's former Chief Financial Officer, charging them with

securities fraud Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in lo ...

and

wire fraud Mail fraud and wire fraud are terms used in the United States to describe the use of a physical or electronic mail system to defraud another, and are federal crimes there. Jurisdiction is claimed by the federal government if the illegal activity ...

conspiracy for stealing more than $400 million from investors as part of a seven-year scheme. In November 2017, several partners of

, CMED's auditor from 2003 to 2008, faced contempt proceedings in

Hong Kong High Court The High Court of the Hong Kong Special Administrative Region is a part of the legal system of Hong Kong. It consists of the Court of Appeal and the Court of First Instance; it deals with criminal and civil cases which have risen beyond the ...

with regard to KPMG's refusal honor a February 2016 court order to produce Chinese working papers to the liquidators.

Business

The company is a

corporation, incorporated in 2004,China Medical Technologies, Inc. 20-F; Annual and transition report of foreign private issuer pursuant to Sections 13 or 15(d), filed on 18 July 2011 based in China that purported to develop, manufacture and market advanced

diagnostic ("IVD") products using enhanced

("ECLIA") technology, fluorescent in-situ hybridization ("FISH") technology, and surface plasmon resonance (“SPR”) technology to detect and monitor various diseases and disorders. The ECLIA business purported to consist of ECLIA analyzer and reagent kits, as an IVD system based on ECLIA technology. The reagent kits were purported to detect various thyroid disorders, diabetes, hepatitis, Down syndrome, liver fibrosis, disorders related to reproduction and growth, and various types of tumors. The FISH business, which purported to consist of FISH imaging analyzer and FISH probes, purported to be a molecular diagnostic system based on FISH technology. FISH probes were purported to be molecular diagnostic reagents used with FISH imaging analyzer for the prenatal and postnatal diagnosis of various genetic diseases, and for the early detection and prognosis of various cancers. The SPR business, which purported to consist of SPR system and HPV-DNA chips, purported to be a molecular diagnostic system based on SPR technology. The HPV-DNA chips purported to be label-free DNA chips for the diagnosis of HPV infection and genotyping of HPV.

Securities

In August 2005, CMED registered its ordinary shares pursuant to the US

Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities ( stocks, bonds, and debentures) in the United States of America. A land ...

and registered an

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investme ...

American Depositary Share An American depositary receipt (ADR, and sometimes spelled ''depository'') is a negotiable security that represents securities of a foreign company and allows that company's shares to trade in the U.S. financial markets. Shares of many non-U.S ...

s (“ADSs”), which were quoted on the

National Market. CMED raised $677 million through bond issuances and the 2005 initial public offering.Scuria, Andrew (20 February 2015)
"Ch. 15 Liquidator Renews Push For Paul Weiss Docs,"
Law360. In 2006, after

Nasdaq Stock Market The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...

LLC became a registered national securities exchange, the ordinary shares became registered pursuant to the Exchange Act, and the ADSs became listed on the Nasdaq Global Select Market (“Nasdaq”).

Credit Suisse Credit Suisse Group AG is a global investment bank and financial services firm founded and based in Switzerland. Headquartered in Zürich, it maintains offices in all major financial centers around the world and is one of the nine global " ...

and

Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...

underwrote a CMED share offering in 2008, and Credit Suisse handled a CMED $150 million debt offering that year. CMED raised $677 million in stock and bond sales between August 2005 and December 2010.Rovnick, Naomi (3 December 2012)
"Around $400 million is allegedly missing from a Chinese company, and some of it may be in Vegas,
''Quartz''. On 14 March 2012, Nasdaq filed a form pursuant to which the China Medical ADSs were delisted effective 26 March 2012, and the ordinary shares were deregistered effective 12 June 2012. On 9 November 2012, the US

revoked the registration of the company's registered securities. China Medical Technologies ADSs are currently quoted on OTC Link (formerly the " pink sheets”) operated by

OTC Markets Group OTC Markets Group (previously known as Pink Sheets) is an American financial market providing price and liquidity information for almost 10,000 over-the-counter (OTC) securities. The group has its headquarters in New York City. OTC-traded se ...

Inc., and quote under the

ticker symbol A ticker symbol or stock symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. In short, ticker symbols are arrangements of symbols or characters (generally Latin letters ...

“CMEDY.”

Bankruptcy

Since 27 July 2012, pursuant to an Order by the Grand Court of the Cayman Islands, CMED has been under the control of Joint Official Liquidators. The CMED liquidators are Cayman-Islands-based Krys & Associates, and Hong Kong's Borrelli Walsh. The liquidators allege that "CMED's creditors and equity holders may have been the victims of a massive multi-year fraud" involving "fraudulent transfers" of assets, and that much of CMED's money was missing.Dolmetsch, Chris (20 March 2017)
"China Medical Technologies Executives Charged in U.S. Fraud Case,"
Bloomberg.''In Re: China Medical Technologies, Inc.''
Opinion and Order (S.D.N.Y. 2015). On 31 August 2012, the company filed in New York City for foreign firm bankruptcy protection under Chapter 15 of the U.S. Bankruptcy Code. CMED listed $500 million in assets and debt. A petition to wind up CMED was also filed in Hong Kong in 2012.Miller, Matthew (20 December 2017)
"Exclusive: KPMG partners face court contempt over China audit,"
Reuters.

Alleged fraud; Litigation

In 2009, three years prior to CMED's filing for bankruptcy, an anonymous letter alleging possible illegal and fraudulent activities by management since 2007 was sent to

Hong Kong, then CMED's

.''In Re China Medical Technologies, Inc.''
522 B.R. 28 (2014), Leagle.com In response, at KPMG's request, in 2009 the CMED

retained law firm Paul Weiss Rifkind Wharton & Garrison to investigate the allegations and advise the committee as to any appropriate further measures. Paul Weiss as part of its investigation conducted on-site visits and interviews in China and collected documents from employees and servers of CMED. CMED announced the substantial completion of the independent internal investigation on 30 July 2009. In early 2012, CMED ceased operating and left investors unpaid on $426 million worth of bond debt, as a result of a suspected

by CMED's former Chairman & CEO. In January 2012, a

fraud lawsuit was filed by CMED investors against CMED and its CEO and CFO in the US District Court in the Southern District of New York. In July 2012, original purchasers of the CMED bonds sued the CEO in a civil case in California, alleging he stripped assets from CMED. Post-bankruptcy filing, CMED's liquidator found itself probing an alleged $355 million insider fraud. In November 2012, the liquidator filed a complaint to the

and the US

(FBI) alleging that $400 million that CMED raised in stock and bond sales had gone missing, and that the CEO's wife had gambled substantial sums at the

and Bellagio casinos in

, Nevada. Two of CMED's creditors said the CEO's wife gambled $62 million in

slot machine A slot machine (American English), fruit machine (British English) or poker machine (Australian English and New Zealand English) is a gambling machine that creates a game of chance for its customers. Slot machines are also known pejoratively a ...

s at the Bellagio casino in Las Vegas between 2008 and 2012.Rovnick, Naomi (18 March 2013)
"How a Chinese Company Laundered Millions Using Las Vegas Slot Machines; Huge amounts of cash from a Nasdaq-listed Chinese medical equipment company ended up where it shouldn't have,"
''The Atlantic''. Creditors' law firm

Stroock & Stroock & Lavan Stroock & Stroock & Lavan LLP (known as Stroock) is an American law firm based in New York City, with offices also in Los Angeles, Miami, and Washington, DC. Stroock provides transactional and litigation guidance to multinational corporation ...

said the wife's tax returns for 2009-11 showed $17 million of "gambling winnings" as income, along with matching "gambling losses", as to which the lawyers said: "This huge 'gambling' cash flow is inconsistent with he wifes banking records and gives rise to a strong suspicion that hemay have engaged in

money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...

and

tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the tax ...

." Subsequently, the liquidators increased their estimate of missing cash to $670 million. Paul Weiss refused to give CMED's liquidator documents relating to its investigation as to which Paul Weiss claimed privilege. In September 2015, US District Judge

of the US District Court for the Southern District of New York held that Paul Weiss must give CMED's liquidator, Kenneth Krys, who was scrutinizing the alleged $355 million CMED fraud, otherwise-privileged information concerning Paul Weiss's internal investigation.Coe, Abra (1 October 2015)
">"Paul Weiss Must Pony Up Privileged Docs On Defunct Med Co.,"
Law360. Judge Abrams held that while audit committees play a critical role in monitoring corporate management and a corporation's auditor pre-bankruptcy, the justifications for protecting attorney-client communications “dissipate in bankruptcy.” In March 2017, the U.S. Department of Justice in Brooklyn, New York, criminally indicted CMED founder and CEO Xiaodong Wu, as well as former Chief Financial Officer Tak Yung Samson Tsang, charging them with

and

conspiracy for stealing more than $400 million from investors as part of a seven-year scheme. They were alleged to have lied about how they would spend the proceeds of note offerings from January 2005 to November 2012, saying they would be used for general corporate purposes, to buy businesses and technologies and to repurchase outstanding notes, while in fact the two men diverted more than $400 million to entities they controlled. Wu and Tsang also allegedly halted public disclosures of material events affecting CMED's securities and stopped making interest payments. The note offerings allegedly were based on intellectual property that was over two decades old, off-patent, and had little value. FBI Assistant Director-in-Charge William Sweeney said “Wu and Tsang led their victims down a narrow path of deceit. They betrayed the trust of those who took them at their word, stole their money, and made off with more than $400 million.” The case was assigned to US District Judge Kiyo A. Matsumoto of the US District Court for the Eastern District of New York. In November 2017, 91 partners of the auditor

faced contempt proceedings in

, as CMED liquidators took action against KPMG with regard to its refusal honor a February 2016 court order to produce Chinese working papers, correspondence, and records to the liquidators.Costello, Eugene (20 December 2017)
"KPMG partners facing Hong Kong contempt proceedings,"
''International Investment''."Contempt hit looms for KPMG,"
''The Standard'', 21 December 2017. The liquidators are asking that 91 defendants be held in

contempt of court Contempt of court, often referred to simply as "contempt", is the crime of being disobedient to or disrespectful toward a court of law and its officers in the form of behavior that opposes or defies the authority, justice, and dignity of the cour ...

, which could result in criminal penalties, or weekly fines. KPMG had issued written audit reports for CMED from 2003 to 2008, and was replaced by

PwC PricewaterhouseCoopers is an international professional services brand of firms, operating as partnerships under the PwC brand. It is the second-largest professional services network in the world and is considered one of the Big Four accounti ...

Zhong Tian in August 2009. “Perhaps locking up 91 KPMG partners over Christmas may spur the firms to find a solution to this problem”, said Professor Paul Gillis of

Peking University Peking University (PKU; ) is a public research university in Beijing, China. The university is funded by the Ministry of Education. Peking University was established as the Imperial University of Peking in 1898 when it received its royal charte ...

’s

Guanghua School of Management The Guanghua School of Management () is the business school of Peking University in Beijing, China. The school offers undergraduate, master's, and doctoral programs, with a total enrollment of more than 3,000 students. In addition to full-time aca ...

References

External links

China Medical Technologies
{{Health care companies of China Companies of the Cayman Islands Offshore companies of the Cayman Islands Science and technology in the People's Republic of China Multinational companies headquartered in China Medical technology companies of China Companies based in Beijing Defunct manufacturing companies of the United States Defunct manufacturing companies of China Chinese brands Companies formerly listed on the Nasdaq 2005 initial public offerings Chinese companies established in 2004 Health care companies established in 2004 Manufacturing companies established in 2004 2004 establishments in the Cayman Islands Companies that have filed for bankruptcy in the People's Republic of China Corporate scandals Mail and wire fraud Finance fraud Fraud in China Class action lawsuits Legal professional privilege