ChinaCast Announces Updates to its Internal Investigation
BEIJING, July 30, 2012 /PRNewswire-Asia-FirstCall/ -- ChinaCast Education ("ChinaCast" or the "Company", OTC: CAST), a post-secondary education services provider in China, today provided an update on its internal investigation and asset recovery efforts.
- CAST has filed litigation in Wuhan against eleven individuals who the Company believes have been involved in improper attempts to illegally transfer ChinaCast's equity ownership in Wuhan Jiyang Education Investment Co., Ltd ("Jiyang"), the holding company for Hubei Industrial University Business College ("HIUBC"). The illegal transfer of Jiyang was initially transferred through the hands of prior employees, Mr. Jiang Xiangyuan ("Mr. Jiang"), former President-China, and Mr. Shi Shicheng ("Mr. Shi"), a former Vice President of the Company. The Company believes the transfer attempt of Jiyang was illegal on multiple fronts including self-dealing and a lack of consideration paid.
- CAST has been informed that Mr. Shi was detained, for a period by the Chongqing police in mid-June for the misappropriation of funds with regard to CAST's Chongqing school, FTBC. Separately, CAST has obtained bank statements which indicate that there may have been a series of unauthorized cash transfers from the Company to Mr. Shi's son. The Company continues to work with law enforcement officers related to these unauthorized transfers.
- CAST has also been granted an injunction in Hong Kong that restricts Ron Chan and his accomplices from removing assets from Hong Kong, up to a value of US$125 million. This injunction will remain in effect until at least November 27, 2012, when a hearing is scheduled. In response to this injunction, certain members of prior management recently filed affidavits with the court listing assets held by them in Hong Kong. The affidavits have disclosed cash balances, shares, real estate and motor vehicles totaling approximately US$6 million.
- The Company believes, however, that the value of the assets held by prior management in Hong Kong is significantly higher than the value reflected in the affidavits. For example, the Company recently learned that the affidavit filed by one of the accomplices revealed that he had "sold" his two properties valued by HSBC at HK$20 million to his wife for HK$1. The Company will vigorously contest any and all transfers of assets in Hong Kong by Ron Chan and his accomplices.
- A Shanghai-based forensic accounting firm was recently retained to audit the historical bank statements of the Company's two Shanghai wholly owned foreign entities ("WOFEs"). The initial review of these statements covering the months of June 2011 to April 2012 and other evidence has revealed frequent (almost daily), readily identifiable and significant inflows and outflows of cash unrelated to the Company's normal operations. While it is too early to conclude the exact nature, many of these inflows and outflows appear to be connected to friends, family and related companies to Ron Chan, Mr. Jiang and other unrelated parties. The Company has shared this information with various law enforcement and regulatory agencies.
- The Company's board has passed a resolution to immediately cancel a total of 4.6 million shares of stock issued to Ron Chan and his accomplices. Additionally, the Company's board also authorized restricted stock grants for up to 4.1 million shares to its directors, officers and select employees subject to clawback provisions tied to target dates for the successful return of the Company's schools and restoring certain levels of cash balances.
- In a Form 8-K filed today with the Securities and Exchange Commission, CAST also announced that it is reviewing, among other things, its historical bank balances, certain unauthorized pledges of its time deposits to secure borrowings by unidentified parties and a claim stemming from an unauthorized loan.
Derek Feng, CAST's current CEO, comments "We are pleased that our disciplined and persistent efforts to combat the wrongdoing and unauthorized actions of Ron Chan, Mr. Jiang and his accomplices are gaining traction. In addition, we have been in dialogue with the universities affiliated with CAST's three private colleges in Wuhan, Chongqing and Guilin and it is clear that they do not wish to be associated with potential criminals like Ron Chan, Mr. Jiang, Mr. Shi or their accomplices. It is extremely fortunate that the management of the three private colleges has maintained the stability of the colleges. Based on preliminary indications total student enrollment in our schools for the upcoming September 2012 term is up compared to the September 2011 term."
Derek Feng continues, "The new management team, loyal employees, devoted board directors, and long term investors are determined to succeed in restoring CAST. We are laser focused on our core mission – speedy recovery of cash and restoration of ownership interest in our private colleges. I strongly urge Ron Chan and his accomplices to come forward to return the Company's assets and to help accelerate the core mission. We are determined to pursue those responsible to the fullest extent possible."
Safe Harbor Statement
This press release may contain statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements express the Company's current expectations or forecasts of possible future results or events, including projections of future performance, statements of management's plans and objectives, future contracts, and forecasts of trends and other matters. These projections, expectations and trends are dependent on certain risks and uncertainties including, among others, the risk factors described in the Company's periodic reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date of this filing, and the Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as "anticipate," "estimate," "expect," "believe," "will likely result," "outlook," "project" and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.
SOURCE ChinaCast Education Corporation