ABB Hit by Fraud in South Korea -- WSJ
February 23 2017 - 3:03AM
Dow Jones News
By John Letzing and Brian Blackstone
ZURICH -- ABB Ltd. said it would likely book a $100 million
charge related to a "sophisticated criminal scheme" it said was
orchestrated by the treasurer of its South Korea unit, who has gone
missing.
The Swiss engineering company said it suspects that the
treasurer forged documents and colluded with third parties to steal
from the company, before disappearing Feb. 7. The resulting,
estimated pretax charge will affect its previously reported,
unaudited 2016 results, the company said Wednesday. An ABB
spokesman said the company uncovered the theft Feb. 9.
In a complaint filed with South Korean law-enforcement
authorities, ABB alleged that the treasurer stole 35.7 billion won
($31.2 million) by sending money to his personal bank accounts in a
series of transactions, according to an official at Cheonan Seobuk
police station in South Korea.
The treasurer has been identified as Oh Myung-se, the person
said. Mr. Oh couldn't be reached to comment.
ABB said it is working with Interpol and local authorities,
which are both probing the matter. As a result of the
investigations, the company said it is pushing back publication of
its annual report from its scheduled release on Thursday to March
16 at the latest.
The difference between the sum identified as stolen and the $100
million charge is the result of investigative findings, a person
familiar with the matter said.
ABB shares closed 0.5% lower at 23.03 Swiss francs on Wednesday
in Zurich.
The disclosure marks a setback for ABB, whose shares had risen
more than 7% so far this year, and adds to the pressure on Chief
Executive Ulrich Spiesshofer as he tries to fend off Swedish
activist shareholder Cevian Capital AB. ABB in recent weeks
announced a string of large orders in its power-grid unit,
including a $640 million project to deliver an
electricity-transmission link in India, but Cevian has been urging
ABB to sell the unit.
In a separate announcement Wednesday that came at the same time
as the disclosure of the South Korea theft, ABB said it has
nominated Cevian Capital Managing Director Lars Förberg as a new
board member. Cevian Capital owns a stake of about 6% in ABB,
according to FactSet data.
Asked whether the huge theft, which raises questions about ABB's
internal controls, might strengthen Cevian Capital's hand in its
dealings with the company, an ABB spokesman said: "This is a very
sophisticated criminal scheme that could hit any company," and ABB
has "a zero-tolerance approach" to illegal behavior.
A spokesman for Cevian Capital declined to comment.
In a letter to employees, Mr. Spiesshofer said that beyond the
financial impact of the theft, "even more damaging could be the
effect this crime will have on the reputation of our ABB."
Based on the large sums involved and the sophistication of the
scheme, it is "almost certain" the vanished employee wasn't working
alone, Mr. Spiesshofer said in the letter.
"In all likelihood third parties inside or outside our company
were involved," the CEO said. "In our subsidiary in South Korea,
our value of integrity was not being lived by everyone nor was our
'Don't look the other way' approach."
Separately, ABB this month said it had unearthed alleged
improper payments following an internal investigation into its past
dealings with oil-services provider Unaoil Group. U.K. authorities
have launched an investigation, which ABB is cooperating with.
In a research note, analysts at Morgan Stanley said they didn't
expect the theft reported Wednesday to have much effect on ABB's
2017 earnings.
"The headlines are clearly not appealing, and there may be some
legitimate investor questions about oversight," the analysts
wrote.
The company said the situation was limited to South Korea, where
it employs 900 workers.
--In-Soo Nam in Seoul contributed to this article.
Write to John Letzing at john.letzing@wsj.com and Brian
Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
February 23, 2017 02:48 ET (07:48 GMT)
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