500.com auditors quit, citing ‘material weakness’ in company’s internal controls

Struggling Chinese gambling operator 500.com has appointed new financial auditors after its existing auditor resigned over the company’s links to a Japanese casino bribery scandal.

On Monday, the Shenzhen-based, Nasdaq-listed 500.com reported that its auditor Friedman LLP had resigned last week. Friedman pulled the eject lever after disagreeing with 500.com management on “the effectiveness of the Company’s internal control over financial reporting in light of certain alleged unlawful payments.”

Said payments were made by ‘consultants’ engaged by 500.com to promote the company’s pursuit of a Japanese casino project. The payments caused a major political scandal in Japan that led to the arrest of Japanese lawmaker Tsukasa Akimoto last Christmas and the subsequent resignations of 500.com’s chairman and CEO.

In January, 500.com established a Special Investigation Committee (SIC), which reportedly has yet to identify any violation of the US Foreign Corrupt Practices Act (FCPA). Regardless, Friedman said the suspect payments “may have reflected material weakness” in 500.com’s internal controls and thus the auditor can no longer stand by the reports it prepared for 500.com’s financial statements for 2017 and 2018.