Chinese online sports lottery service provider 500.com has confirmed the resignation of its auditor Friedman LLP. It will be replaced by MaloneBailey LLP which will conduct an audit of its consolidated financial statements and the effectiveness of its internal controls over financial reporting for the fiscal year ended December 31, 2019.
A re-audit of the company’s consolidated financial statements and effectiveness of its internal control over financial reporting for each of the fiscal years ended December 31, 2017 and 2018 will also be undertaken.
In a statement from 500.com, the firm said: “Friedman elected to resign as the auditors of the company because of the disagreement with the management of the company on the effectiveness of the company’s internal control over financial reporting in light of certain alleged unlawful payments by three former consultants while they were engaged by the company in connection with the potential development of an integrated casino resort project in Japan.
“The company is not involved in any legal proceeding in Japan but has treated the allegations seriously. As announced by the company in its December 31, 2019 and January 16, 2020 press releases furnished to the SEC on Form 6-K, the Special Investigation Committee (SIC) of the Company’s Board of Directors engaged King & Wood Mallesons to investigate the money transfers and the related conduct of the Company’s Japanese consultants.”
According to 500.com KWM has completed a substantial portion of its investigation, and presented a preliminary review to the SIC. It said: “To date, the SIC, after considering KWM’s findings, did not identify any violation of the US Foreign Corrupt Practices Act of 1977 by the company in connection with the payments or the company’s prior activities in Japan, which view has been shared with Friedman.”
The SIC is also in the process of reviewing the company’s compliance policies, procedures and internal controls based on the recommendations from KWM, and has updated and will continue to enhance its policies, procedures and internal controls as appropriate.
It added: “Regardless, Friedman determined that the payments may have reflected material weakness in relation to internal controls of the company. Friedman further advised us on September 23, 2020 that because some of the payments had occurred in 2017 and 2018, the allegedly unlawful purpose of which was not known to Friedman at the date of the audit reports relating to the company’s consolidated financial statements for the years ended December 31, 2017 and 2018.
“Accordingly, the integrated audit reports issued by Friedman on the company’s consolidated financial statements for fiscal years ended December 31, 2017 and 2018 should no longer be relied upon.”
