May 18 (Bloomberg) -- Huang Guangyu, the founder of Gome Electrical Appliances Holdings Ltd., was sentenced to 14 years in prison for graft, completing the downfall of a school dropout who rose to become China's richest man.
Huang, 41, was found guilty of bribery and insider trading by the Beijing No. 2 Intermediate People's Court, Zhao Guohua and Liu Donggen, lawyers for Huang's co-accused business partner Xu Zhongmin, said in phone interviews today. Huang was also fined 600 million yuan ($88 million), the lawyers said.
The former Gome chairman, who topped the Hurun Report's China Rich List in 2008 with an estimated net worth of $6.3 billion, stood trial for 12 hours in a one-day hearing last month. According to the Hurun Report, 19 of 1,330 executives on its rich list in the past decade are in jail or awaiting sentencing on bribery charges.
The billionaire had resigned in January last year as director of Gome, which he had built into China's biggest electronics retailer by stores, after being detained by police for "economic crimes" in 2008. He remains Gome's biggest shareholder with a 34 percent stake, according to data compiled by Bloomberg.
"The verdict is not much of a surprise but it does remove an overhang on the company's stock in that there's a conclusion to Huang's legal tangles," Ashley Cheung, an analyst at BOCI Research Ltd. in Hong Kong, said in a phone interview today.
Share Performance
Gome fell 0.9 percent to HK$2.27 at the midday trading break in Hong Kong. The stock has fallen 19.5 percent this year compared with a 9.5 percent decline for the benchmark Hang Seng Index.
Gome's mainland China subsidiary, Gome Appliances Co., was also indicted for corporate bribery. The company intends to fight the charges, it said in a March 1 exchange filing.
Xu was sentenced to three years in prison and subject to 100 million yuan of fine, the lawyers said.
Siobhan Xiaohui Zheng of Brunswick Group, hired by Gome to handle public relations, said the company is preparing a response and couldn't immediately comment on Huang's sentencing.
Gome paid down debt after securing $431 million of financing last year. Investor Bain Capital LLC bought 1.59 billion yuan of convertible bonds in June 2009 as Gome raised money from both debt and equity, selling HK$1.66 billion ($213 million) in shares.
Bain's investment allowed the private-equity firm to nominate three officials on Gome's board. Zhu Jia, Ian Andrew Reynolds and Wang Li Hong were named non-executive directors in August, but lost their seats after a May 11 annual general meeting where two shareholders, affiliated with each other, voted their 31.6 percent stake against them.
Gome reappointed the three Bain officials to its board immediately after the meeting to avert a penalty payment of 2.4 billion yuan, the retail chain said May 12. Bain also plans to convert debt it holds into stock before the next annual meeting, gaining it as much as 10.8 percent of the company.
To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net Wing-Gar Cheng in Hong Kong at wgcheng@bloomberg.net
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