* Palaschuk says no longer Renren director, audit
* Palaschuk is CFO of Longtop Financial
* Citron Research recently issued report on Longtop
* Renren plans to raise about $690 mln in Tuesday IPO
(Adds Renren declining to comment)
By Clare Baldwin
NEW YORK, May 2 The head of the audit committee
at Renren Inc has resigned to protect the Chinese social
networking company from any possible fallout from accusations of
accounting fraud at another company where he is an executive.
Derek Palaschuk, chief financial officer of China-based
Longtop Financial Technologies Limited , told Reuters in
an interview on Monday that he formally resigned from Renren's
board of directors over the weekend.
Palaschuk was an independent director for Renren,
responsible for chairing its audit committee.
Renren is due to hold an IPO on Tuesday that is expected to
raise about $690 million at the mid-point of the price range.
The shares of Longtop fell as much as 34 percent last week
after an April 26 report about Longtop by Citron Research, which
researches stocks and sometimes takes positions in them.
Longtop's stock opened at $25.47 on April 26, the day Citron
published its report. It fell as low as $16.71 on April 27. The
stock closed on Monday at $22.40.
In the report, Citron raised questions about what it called
Longtop's "unconventional staffing model", gifts of stock made
by Longtop's founder and chairman Hiu Kung Ka to employees and
friends, and accused Longtop of having "supersized margins".
Longtop provides software and services to financial
institutions in China.
In a conference call with analysts on April 28, Longtop
defended itself against the claims, and the shares have
subsequently regained much of their value.
"We want to emphasize that we will not have to restate our
financial results," Palaschuk said on the conference call.
"Citron's accusations of fraudulent practices and
over-reporting revenues are false and have absolutely no basis,"
Palaschuk said on the conference call.
Palaschuk said that late last week Renren's Chief Executive
Joseph Chen e-mailed him, saying he wanted to speak with him
urgently, and that he replied by e-mail that he was resigning
from Renren's board and the audit committee.
Palaschuk said he had written in the e-mail: "I am deeply
sorry for the attention this situation has caused you. I
obviously had no idea it was coming. Even though all of the
allegations are without substance it is definitely better for
(Renren) that I resign from the board with immediate effect so
that there is no unwarranted attention brought to Renren or
yourselves. Citron warned of additional reports so this could
continue for a long time."
Palaschuk said that he and Chen spoke after the e-mail
exchange and that he formally resigned over the weekend. On
Monday, he was not listed in Renren's revised IPO filing with
the U.S. Securities and Exchange Committee.
Before becoming Longtop's CFO, Palaschuk served as chief
financial officer of China-based eLong Inc , chief
financial officer of Sohu.com Inc , and as an audit
manager with PricewaterhouseCoopers in Hong Kong and Beijing.
In the revised filing, David Chao is listed as Renren's
audit committee chair. Chao is a co-founder and general partner
of venture capital firm DCM, which has invested in Renren.
Renren declined to comment, citing a SEC quiet period.
Citron said on its website that its principals typically
hold positions in the stocks covered in its reports. It does not
say when it initiates or covers its positions.
RENREN IPO LOOMS
Last week, Renren raised the expected price range of its IPO
by 30 percent. Demand for the stock is expected to be robust as
the company taps investor interest in China and social
Renren also revised last week the number of monthly unique
log-in users it said it had in December 2010. The revision
lowered its first quarter growth rate to 19 percent from 29
Bankers have brushed off concerns about the data and
statistics provided by China's technology sector, arguing that
the rapid pace of Internet expansion is more important than
Renren has raised other issues in regulatory filings with
the SEC. It has said that while it has not conducted a
comprehensive review, it has found a "material weakness" and a
"significant deficiency" in its internal financial controls.
Renren said the material weakness related to insufficient
accounting staff with knowledge of U.S. generally accepted
accounting principles. It said the significant deficiency was
the company not having a formal policy for investing surplus
cash and managing its treasury functions.
Analysts have said that such issues are not unusual for
Chinese IPO companies.
(Reporting by Clare Baldwin, additional reporting by Alina
Selyukh; Editing by Lincoln Feast)