(Yicai Global) April 13 -- Ernst & Young and China Resources Land have denied that senior managers at the Chinese arm of the global accounting firm illegally purchased at least 10 houses from the Chinese property developer at a low price.

The accusation is false, the pair said in separate statements. EY, which is China Resources Land’s independent auditor, announced on its official WeChat account that it had taken legal action in relation to the anonymous accusatory letter circulating online, including filing a lawsuit. China Resources Land noted that it would pursue legal action against the person who wrote the letter.

The letter claimed that with the help of China Resources Land’s local management team, most members of EY China’s leadership team, including the boss of the independent auditor who is responsible for the builder’s auditing work, illegally bought more than 10 houses in a project of China Resources Land in Haikou, Hainan province at the end of 2019 for much less than the cost of existing homes in the surrounding area to make money through speculation.

During property bubbles, China’s local governments usually set a price limit on new housing projects to prevent local property prices from skyrocketing. They also place many restrictions on who qualifies to buy the properties, the most important of which is that the buyer should be a local resident and must be a first-time buyer.

Haikou’s government set a price ceiling of CNY17,300 (USD2,512) per square meter on properties in the project developed by China Resources Land, but the average price of similar pre-owned apartments around it was about CNY35,000 per sqm, the letter noted, adding that without the help of insiders at Chinese Resources Land, EY China staff would not have been able to buy properties in Haikou.

Most members of EY China’s leadership team who bought homes did not qualify to buy property in Haikou. Most are not registered as permanent residents in the city and have not lived in the city for a meaningful period of time after completing the purchase, the letter said.

The whistleblower also claimed that although they reported the incident to EY as early as 2021, and the auditor actually started an internal investigation then, so far nothing has happened.

EY has been the auditor of China Resources Land since March 2018, but the developer said at the end of last month that it will change to KPMG, another of the ‘Big Four’ accounting giants, after concluding this year’s shareholders’ meeting, in line with the central government’s regulations on the length of service provided by an accounting firm as an auditor.

Editor: Tang Shihua, Futura Costaglione