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TSE limits PQI's trading amid fraud allegations

Taiwan Stock Exchange Corp will restrict trading in shares of Power Quotient International Co (勁永國際) to cash transactions only starting today, amid allegations the company inflated revenue figures for last year.

Established in 1997, Power Quotient manufactures and markets computer memory modules, flash memory storage devices and peripherals.

Its brand-name memory cards and modules currently rank No. 4 in the market.

Subsidiaries

After a review of Power Quotient's financial records, the stock exchange suspects the company boosted its sales figures by engaging in so-called "related-party transactions" -- transactions conducted among Power Quotient and its subsidiaries or companies it controls -- worth NT$2.5 billion, or 15 percent of Power Quotient's revenue last year. These transactions were allegedly used to boost revenues.

Power Quotient Chairman Jance Lu (呂美月) and Vice President Kuo Ching-hwei (郭清輝) on Wednesday denied any intentional manipulation of numbers, but did admit to making certain errors on the financial statements.

At a briefing with reporters, the officials said the company had neglected to specify that several downstream companies named in the transactions are owned or controlled by Lu herself, Lu's relatives and former Power Quotient employees.

"But the amount of related-party transactions only reached NT$1 billion, or 5.8 percent of the company's revenue last year," Kuo said.

Companies affiliated with Power Quotient include Carton Electronic Ltd, Cyber Center Development Ltd and seven other companies, according to the stock exchange.

But in a statement the company posted on the exchange's Web site yesterday, Kuo denied that these companies are Power Quotient's affiliates, saying Power Quotient had sold about NT$1.97 billion of goods to the firms.

As Power Quotient failed to clarify some of the exchange's questions, the regulator decided to limit trading in the company's shares to cash transactions only, until the company hands in a revised financial report.

This means that shares of Power Quotient are reclassified as "full-delivery stock," and investors are not allowed to trade these shares on margin, or borrowed funds.

Barred from travel

Prosecutors are investigating the allegations, while Lu and some other people related to the case are prohibited from leaving the country.

The company's share price has been clobbered in the wake of the incident, but Kuo said its financial situation is still stable, with NT$1 billion in cash on hand.

Additionally, Power Quotient's upstream suppliers, including Powerchip Semiconductor Corp (力晶半導體) and Samsung Electronics Co of South Korea, have continued to do business with the company in the wake of the allegations, he added.

Shares of Power Quotient fell by the 7 percent limit at the market's open yesterday and never recovered, dropping NT$1.65 to close at NT$22.10.

The company posted revenue of NT$1.362 billion last month, up 87.72 percent from the same period last year.
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