According to news reported in China, a former manager of network service provider ChinaCache International Holdings (NMS:CCIH) told a reporter of 21st Century Business Herald that, based on emails and recorded minutes of internal meetings, CCIH didn’t execute the agreed terms of a government contract where CCIH was supposed to invest 63.1 million RMB alongside the government’s granted 21 million RMB.

This morning we were first to break this story, disseminating it first to our Premium members as part of our service that identifies news released in China, but has yet to be disseminated and/or digested by U.S. markets.

While the stock was briefly down on the news, it has since rebounded with the rest of the market and is trading near the day’s highs.

Internal emails and recordings from July 2015 indicate [paraphrased from Chinese article] that executives of ChinaCache discussed ways to try to indicate to the government that they had fulfilled their obligations when they had not, such as restructuring the related IT system, adjusting purchase invoices and bank flow information related to the contract, and persuading the auditor involved.

ChinaCache Denies Illegal Practices

In a reply to the reporter regarding this issue, CCIH stated [paraphrased] that, as a public company in the U.S., it would never go to illegal lengths to make sure the project passed required examinations.

According to information provided by ChinaCache, this project passed examination on December 17, 2015. Currently, the company is performing a re-evaluation of the project using another new group of experts from the government. This former manager says that he/she has reported to the government regulators regarding this potential government subsidy defrauding, but the reporter stated that, based on the information the reporter currently has, there is no evidence to show the re-evaluation of the project is due to this reporting.

In addition, on July 1, 2016, the company announced that Ms. Jing An resigned as CFO, and Mr. Naijiang Zhou, the company’s senior vice president of corporate strategy and investment, assumes the role of interim CFO.

Disclosure:  No Position in CCIH at time of this post