HONG KONG Jan 28 The former chairman of a
Chinese mining equipment firm bought by Caterpillar Inc
said on Monday he was dismayed by allegations of accounting
misconduct at a subsidiary that prompted the U.S. firm to take a
$580 million writedown.
Emory Williams Jr said Caterpillar had conducted extensive
due diligence before its takeover of Hong Kong-listed ERA Mining
Machinery Ltd last June, adding that he was seeking further
details from the company, the world's largest maker of tractors
"We were shocked and dismayed to learn, from press reports,
about the very significant goodwill impairment that Caterpillar
is taking in relation to the acquisition of ERA's subsidiary
Siwei," Emory Williams Jr said in a statement.
Caterpillar said on Jan. 18 that it would write off most of
the $654 million it paid for ERA after uncovering "deliberate,
multi-year, coordinated accounting misconduct" at its subsidiary
"We cooperated very closely with the Caterpillar team during
their extensive due diligence," Williams said, adding that he
and John Lee -- the English name used by fellow ERA director Li
Rubo -- had taken the company's fiduciary and reporting
responsibilities very seriously prior to its acquisition.
No-one from Caterpillar was immediately available for
Williams is a Beijing-based U.S. businessman. He is a former
chairman of the American Chamber of Commerce in China and the
son of a former Sears Bank and Trust Co. chairman and chief
Li is a graduate of the South Dakota School of Mines and a
former Chinese government official.
Announcing the writedown, Caterpillar said an internal
investigation had uncovered improper accounting of inventories,
revenue recognition and cost allocation at Siwei, designed to
overstate the profitability of the business in the years before
it bought it.
Williams said the former ERA directors had contacted
Caterpillar senior management last week to ask for further
"To date we have received no response and are now taking
advice on how best to respond to the situation in a manner which
is constructive for all parties involved," he said.
"We are absolutely committed to providing a comprehensive
response to any information Caterpillar shares with us."
Caterpillar is due to report earnings in the United States
later on Monday.
Caterpillar said it found discrepancies in November between
the inventory on the books of Siwei, which makes hydraulic
supports for coal mines, and its actual physical inventory,
triggering the internal probe.
The company blamed "several senior managers" whose
misconduct it said began some years before it acquired Siwei.
Caterpillar did not identify the senior managers.
It said it believed its due diligence process was "rigorous
Citigroup Inc and law firm Freshfields Bruckhaus Deringer
LLP served as financial and legal advisers to Caterpillar on the
transaction. Blackstone and DLA Piper acted as ERA's financial
and legal advisers.
A source directly involved with the Caterpillar deal
previously told Reuters that RSM Nelson Wheeler was ERA's
auditor, while Deloitte and Ernst & Young acted on Caterpillar's