Fraud Raid on Ernst & Young in Hong Kong

Police raided the Hong Kong offices of accounting and auditing giant Ernst & Young as part of a fraud investigation linked to the city's biggest corporate collapse, the company said Wednesday.

New York-based Ernst & Young, one of the Big Four global auditors, said in a statement it had lent police "every assistance" when they visited its offices Tuesday.

The police search came after Ernst & Young was accused in court earlier this month of falsifying documents to shield itself from a negligence claim brought by the liquidators of electronics company Akai Holdings.

The lawsuit ended last week with an out-of-court settlement in which Ernst & Young paid "an undisclosed amount" to the liquidators, Borrelli Walsh. Akai was liquidated in August 2000 and left creditors with debts of more than $1 billion.

Ernst & Young said an internal investigation had found certain documents produced for the audits of Akai in 1998 and 1999 "could no longer be relied on due to action of the audit manager," who is now one of its partners.

Ernst & Young did not identify the partner but said he has been suspended from his duties.

Police spokeswoman Candice Siu would only confirm the Commercial Crime Bureau had searched the offices of an accounting firm Tuesday and taken away some documents in connection with a "suspected forgery" case. She did not identify the firm.

Siu said a 41-year-old man surnamed Dang was also arrested. Hong Kong newspaper South China Morning Post identified the man as Edmund Dang, one of Ernst & Young's partners in Hong Kong.