HONG KONG -- The Hong Kong government will investigate the publisher of the now defunct Apple Daily for fraud, in the latest setback for the company after being forced to shut down the pro-democracy local newspaper last month.
The territory's financial secretary Paul Chan Mo-po told a hastily called new conference on Wednesday evening he had appointed a special inspector to investigate Hong Kong-listed Next Digital. Apple Daily published its final issue on June 24, after its assets were frozen by the government.
The appointment continues a serious of government actions targeting Next Digital since Beijing imposed a national security law on Hong Kong in June 2020.
This investigative tool, which the finance secretary has legal authority to use, has not been brought out since 1999, when local investment company Peregrine Investment Holdings collapsed owing to the Asian Financial Crisis.
Chan said he had discovered "issues that show the senior management engaged in unlawful and fraudulent activities."
He added that the company's officers allegedly "breached their fiduciary duties" in running the listed company, and its corporate governance "has seriously fall short of that expected for a listed company" in his view.
The allegations raised by Chan center around Next Digital's finances leading up to the shutdown of Apple Daily and its disclosures as a listed company.
"Hong Kong attaches paramount importance to upholding the integrity and reputation of the corporate sector," Chan said. In the news conference, he stressed the "public interest" a few times as grounds for pursuing the case.
The financial secretary named Clement Chan Kam-wing, managing director of assurance at BDO, a Hong Kong arm of Belgium-based global accounting firm, as the investigator. Clement Chan has worked in various government posts, including his current position as a non-executive director at the Securities and Future Commission (SFC).
The SFC said in a statement Wednesday night it will "coordinate closely with the inspector" and "continue to carry out its own enquires."
Next Digital has come under repeated government pressure for over a year. Jimmy Lai, the company's founder and a prominent pro-democracy activist, was arrested on various charges after June 2020. He is now serving a total sentence of 20 months for participating in multiple unauthorized assemblies, all of them before the new law was imposed.
He has been separately charged with allegedly breaching the national security law itself, which carries a maximum penalty of life in prison.
Lai is the controlling shareholder of Next Digital, owning over 70% of its outstanding shares. His shares and bank accounts have been frozen under an order made in mid-May by then security secretary John Lee Ka-chiu. Lee was later promoted to chief secretary, the number two post in Hong Kong government and the highest-ever post granted to an ex-police officer, the day after Apple Daily published its final issue.
Lai appealed to a court this month to regain his voting rights for Next Digital. The hearing has been set for mid-September.
A number of other senior Next Digital executives have also been arrested. Last Thursday, four former executives and editors were arrested under the national security law on allegations of colluding with foreign countries. All four -- executive editor-in-chief Lam Man-chung, associate publisher Chan Pui-man, and editorial writers Fung Wai-kong and Yeung Ching-kee -- were denied bail the following day.
At this point, seven former Apple Daily staff members, including former CEO Cheung Kim-hung and editor-in-chief Ryan Law, are in custody on charges under the national security law.
Many of those arrested have subsequently resigned from Next Digital's board. According to the latest disclosure made last Thursday, the company now has only four directors, all of them non-executive board members.
Following the shutdown of Apple Daily, Next Digital's landlord Hong Kong Science and Technology Parks has threatened to seek to remove the company from its offices. The government-run corporation alleges the publisher has violated the lease conditions. Next Digital said it is now seeking legal advice on how to deal with the matter.
For Next Digital, the only major business remaining is its online version of Taiwan Apple Daily. This operation is now under negotiation to dispose after receiving a non-legally binding purchase proposal from an independent third party.
Trading in Next Digital shares has been suspended since June 17, when the police raided its headquarters and the news room for the second time.