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UPDATE 2-GOME ex-chairman in share buyback fraud-SFC
* Huang Guangyu, wife Du Juan involved-SFC
* Proceeds used to pay off personal loan-SFC
* GOME shares retreat up to 9 percent after court order
* Investors lock in hefty gains following 155 percent run-up
(Recasts with new SFC statement)
By Donny Kwok and Fion Li
HONG KONG, Aug 7 (Reuters) - Hong Kong's securities watchdog said on Friday a court order to freeze $214 million assets of GOME Electrical Appliances' (0493.HK) ex-chairman was related to what it called a fraudulent buyback scheme.
The Securities and Futures Commission (SFC) said that in January and February 2008, Huang Guangyu and his wife, Du Juan, are alleged to have organised a repurchase by the electronics retailer of shares held by Huang.
Huang used the proceeds to repay a HK$2.4 billion personal loan to a financial institution, the SFC statement said.
"This transaction was a fraud or deception in a transaction involving securities and caused a loss of about HK$1.6 billion to GOME and its shareholders," the SFC said.
Huang is currently being investigated for alleged economic crimes, according to media reports. He and his wife were suspended from their executive duties at GOME last year.
Shares of GOME fell as much as 9 percent on Friday before closing down 7.8 percent at HK$2.37 as investors locked in hefty gains after Thursday's Hong Kong court order to freeze the assets of Huang and Du.
"The amount of assets frozen is the largest that the SFC has ever applied to the court to freeze," the SFC said.
The court order is intended to preserve the assets in the event that they are needed to satisfy any court compensation orders, according to the SFC.
The stock, which was suspended for seven months before trading resumed in late June, has surged about 155 percent in the last seven weeks after Bain Capital agreed to underwrite an open offer for up to a quarter of GOME's shares, easing investor concerns over the retailer's stretched balance sheet. [ID:nHKG70961]
Huang has been actively trading GOME stock. In July, he sold 235 million shares at HK$1.704 each and used the proceeds to buy back 816.32 million shares at HK$0.672 each in an open offer. The transaction boosted his stake in GOME to 34 percent from 33.7. [ID:nHKG255713]
The GOME case comes as China's authorities continue their efforts to battle corruption and market manipulation. For a factbox, please click [IDn:PEK162937]
China's recent history is marked by successful entrepreneurs who later ran foul of the law and were accused of "economic crimes".
In some cases, such as that of toll-road magnate Zhang Rongkun, whose downfall also took down Shanghai's Communist Party secretary Chen Liangyu, the company has disintegrated along with the founder.
In others, the company has survived, as was the case with Chinese retailer Wumart 8277.HKse founder Zhang Wenzhong was jailed. (US$1=HK$7.75) (Reporting by Donny Kwok and Fion Li; additional reporting by Ben Blanchard and Parvathy Ullatil; editing by David Cowell)
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