China Solar Says Three Directors Detained in Fraud Probe

China Solar Energy Holdings Ltd., the solar panel maker that’s lost 93 percent of its market value since 2007, said its chairman and two directors have been detained by Chinese authorities on allegations of fraud.

Chairman Yeung Ngo, Yang Yuchun and non-executive director Hao Guojun were arrested and have been held since Aug. 26, China Solar Energy said in a statement to the Hong Kong stock exchange on Oct. 18, citing its legal advisers. The company has been unable to contact them since August and is assessing the impact of the investigation on its financial performance, it said.

The disappearance of China Solar Energy’s directors and the fraud probe underscore investor concern that the business environment on the mainland is opaque and prone to corruption. Transparency International last week ranked Chinese firms lowest in a survey of public reporting practices in emerging markets, while short-sellers have targeted companies including Prince Frog International Holdings Ltd. (1259) and China Minzhong Food Corp.

“This is just another case of poor governance quality that is characteristic of this market,” David Webb, a former exchange director who founded local governance watchdog Webb-site.com, said by telephone. “Why has it taken nearly two months for the company to figure out they couldn’t contact two of their directors and their chairman?”

China Solar Energy fell 11 percent to HK$0.18 on Aug. 16 before it asked for trading in the shares to be halted pending the release of an announcement about recent movement in the price. The company is valued at HK$277 million ($36 million), down from HK$3.7 billion at its 2007 peak. The shares will remain suspended, the company said in the Oct. 18 statement.