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By: Forbes Real Time
January 21, 2013 at 00:02 AM EST
Alleged Fraud At Caterpillar's Chinese Acquisition Puts Spotlight On U.S. Principals
Investors in Caterpillar got a nasty surprise last Friday when the company revealed that it had uncovered massive fraud at a Chinese mining equipment firm that it bought last year. Caterpillar said it would write down $580 million in the fourth quarter of 2012, wiping out around half of its expected income. Its new Chinese subsidiary allegedly overstated its profit for years by claiming non-existent sales on inventory that couldn't be traced. This is an embarrassing setback for Caterpillar, which has expanded aggressively in China and competes with domestic heavy-machinery manufacturers like Zoomlion and Sany. In a statement, Caterpillar said it had found "deliberate, multi-year, coordinated accounting misconduct" at Zhengzhou Siwei Mechanical and Electrical Engineering ('Siwei'), the firm that it bought last year for $653 million. It said senior management at Siwei had been fired and replaced with a new team that was under direct control of Caterpillar's China division. "The actions carried out by these individuals are offensive and completely unacceptable. This conduct does not represent, in any way, shape or form, the way Caterpillar does business," Chairman and CEO Doug Oberhelman said in the statement.
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