Vibrant's Chinese coal buy was falsifying accounts from the day it was acquired

Blackgold International Holdings, a Chinese coal miner acquired by Singapore-listed Vibrant Group in July 2017, appears to have falsified accounts and grossly inflated sales from the day it was acquired — and possibly earlier, while still listed on the Australian Securities Exchange — according to a January 2019 special audit report by EY Advisory.

The 35-page report, covering 1 July 2017 to 30 April 2018, found management set up more than one set of accounting books for certain subsidiaries, falsified accounts and bank records, and tried to conceal the irregularities by destroying physical and electronic records. Under questioning, management cut recognised sales from 2.08 billion yuan to 29.12 million yuan — 'fictitious sales' — and conceded the remainder might be overstated by 20.74 million yuan, since Blackgold Shipping staff said freight services had never been provided.

Roughly 638.74 million yuan of receivables were deemed irrecoverable or doubtful; non-current assets were revised down by 187.36 million yuan, and assets inside the coal mine wells were untagged and could not be verified because auditors were not allowed into the mines. Related parties of the CEO transacted with company bank accounts. Former CEO Peng Yuguo and former Heijin general manager Ou Jun resigned in August 2018 and declined to cooperate.

KPMG had first discovered irregularities in receipts and sales invoices. Vibrant wrote off its Blackgold investment and receivables in restated financials for the period ended 31 October 2017, told shareholders the unit's financial information was 'incomplete, not accurate and unreliable', and stopped consolidating the unit, with further legal review required on possible listing-rule breaches.

The fraud predated and outlasted the acquisition, so Vibrant bought a fiction and reported it as fact to the market.

Physical verification was impossible by design: untagged assets inside coal wells auditors could not enter.

Executives central to the suspect period resigned and refused to cooperate with the audit.

An acquisition can import a fraud: auditors could not enter the coal mines to verify the assets, and the true state of the purchase surfaced only when the books cracked open.

Vibrant restated, wrote off, and deconsolidated Blackgold; the Business Times noted further legal review was required to determine breaches of Singapore listing rules. No recoveries were reported.