Caterpillar gets duped in China deal

Well, this is embarrassing.

Caterpillar, based in Peoria, Ill., disclosed on Jan. 18 that it had uncovered “deliberate accounting misconduct” at Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., a maker of roof-support equipment for underground coal mines that it had acquired last June. Siwei is a subsidiary of ERA Mining Machinery, a Hong Kong-listed firm controlled by a shell company whose principals are two American entrepreneurs in China. Caterpillar paid about $700 million for ERA but said earlier this month it was writing down the value of that company by $580 million. “It’s disappointing,” Oberhelman said. “But how we respond defines us.”

Of course this stuff doesn’t only happen in China. Fraud occurs everywhere. But you would think that a company like Caterpillar would be a little more careful here.

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