Wu Weidong, the former chief executive of the bankrupt
supermarket chain PriceSmart China, was sentenced to life in prison
yesterday for contract fraud and withdrawal of capital
contributions.
During the first verdict passed down yesterday by Beijing No 1
Intermediate People's Court, seven other high-ranking managers from
the corporation were also sentenced, ranging from 29 months to 16
years in prison.
The case was held up after an initial hearing last October, with
judges pouring over the complex evidence.
Launched in 1997, PriceSmart China grew to a 41-store chain by
2004. But the brisk expansion left the corporation with heavy
debts.
To meet increasing financial demands, senior managers illegally
diverted 105 million yuan (US$13 million) of registered capital
from five stores including PriceSmart's Xinjiang and Harbin
branches between 2002 and 2004, according to the court.
They also faked contracts to defraud 16.35 million yuan (US$2.1
million) from a Beijing bank.
Debates have been intense during the initial trial with lawyers
of some defendants claiming their clients were simply following
owner Liu Wuyi's orders.
Liu, the founder of PriceSmart China, fled China in March 2005
following PriceSmart's collapse, and is still at large.
A Beijing native, Liu obtained authorization from US PriceSmart
to set up the brand in China in 1997. But the Chinese chain was not
foreign-funded. The US conglomerate did not provide any investment
or operational guidance and only received authorization fees from
the Chinese company.
According to sources with the corporation, Liu used the US
firm's authorization to enjoy the preferential policies offered to
overseas retailers.
PriceSmart's fast growth was based on unsound fundraising
including bank loans and debts to suppliers, which damaged the
corporation's cash flow, leading to its eventual collapse in
2004.
Wu, one of the defendants and successor to Liu as chief
executive, revealed in court that the company at one point had a
debt of 2 billion yuan (US$250 million), despite its entire fixed
assets totaling only 600 million yuan (US$75 million).
(China Daily March 21, 2007)