By “all kinds of screwed up” we mean “screwed 17 ways to Sunday”. After firing Deloitte last week, two top DY executives (CEO Christopher Holbert and CFO William Suh) have bailed, DYP shares are in the tank (down 47% as of publication) and, oh, they’re going to need to find a new audit committee chairman as their last one, James Zhang, ran for the hills.
Before running, however, he sent this really nice note explaining his motivations:
To: The Board of Duo Yuan Printing(DY).
6th Sept, 2010.
Dear Mr. Chairman and the follow directors of the Board:
Subject: My resignation as Company Audit Committee (AC) Chairman and Independent Director with immediate effect.
It has been almost one year since DY listed in the NYSE. I have to say that working closely with the Chairman, CEO and CFO of the company has been a great pleasure for me.
From Roughly one month ago, I got the phone call from Frank Li, the Audit Partner of Deloitte (DT) to express concerns to the Audit Committee over several financial irregularities and management control weakness. After hearing the full story, I immediately called an AC meeting and upon receiving unanimous approval from the AC as a well as support from the Chairman, the AC immediately engaged Latham Watkins, the US Law Firm, to handle the independent investigation not only to report back to the AC, but also as a part of the audit process requested by DT to give an opinion to the 2010 DY company financials. As our Chairman put it in the board Meeting just now that maybe due to the cross culture differences between US style work and maybe because of the second tier management don’t fully understand the US listing requirements, the investigation has not progressed in the last month. This delay could potentially render the company not filing its annual financial statements on time to the SEC.
In the past week, the Management has suggested to change the auditors of the company from DT to Frazer Frost (FF) who was the company prior auditors. This proposal has just been resolved in the full board meeting and Full AC meeting with voting taking place of 4 against 3 in favor and 2 against 1 in favor.
As the AC chairman and independent Director of the company, I respect the company democratic decision process as stipulated by the company Memorandum and Articles of Association. However, as a qualified UK Chartered Accountant and a trained Professional, I have brought to the attention of the board the following potential risks related to the change of auditors. These risks can be summarized as follows:
1. FF has not yet signed engagement letter with the company which is a risk to the company.
2. Change of auditors during the investigation process could potentially lead to further investigation from the SEC.
3. To change from a Big4 audit firm to a non-Big4 could have very negative impact in the investment community in terms of corporate governance thus lead to potential share price drop and subsequent US class law suit.
4. Even the Company US counsel has indicated in the meeting against change of auditors at this particular time frame.
Keep it classy, JZ, and good luck wherever you end up after this disaster of a company.
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