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FUQI International Announces Status Of Audit

Stocks in this article: FUQI

SHENZHEN, China, March 28, 2011 /PRNewswire-Asia/ -- FUQI International, Inc. (Nasdaq: FUQI) today announces that it has received a letter from its independent registered public accounting firm, Marcum LLP ("Marcum") pursuant to Section 10A(b)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding  an internal investigation conducted at the request of the Company's Audit Committee relating to certain cash transfer transactions involving the Company. The completion of the audit of the Company's 2009 financial statement has been delayed due to the internal investigation into the cash transfer transactions.

Background of the Cash Transfer Transactions

In connection with the preparation of the Company's restated 2009 quarterly financial statements and the financial statements for the year ended December 31, 2009, the Company's outside auditor, Marcum, discovered certain transactions involving short-term cash transfers from the Company's bank accounts to the bank accounts of three other companies in China.  The transfers were made at the request of the Company's primary lender and banking services provider (the "Bank") and were authorized by Yu Kwai Chong, the Company's founder, Chief Executive Officer, and Chairman of the Board ("Mr. Chong"), and approved by its Deputy Finance Director and Cashier.  

Based on the preliminary findings of the Audit Committee investigation, as described below, the cash transfer transactions commenced in September 2009 and ended in November 2010.  Based on review of bank statements obtained from the Company, all of the outgoing cash transfers made by the Company were repaid in full by the recipient companies on a short-term basis, with no loss resulting from the transfers.   No outgoing cash transfer was outstanding as of any month-end date, except in two instances, and no amount was outstanding as of any quarter-end date.  The transfers were made from non-interest bearing accounts and did not earn any interest.  For the year ended December 31, 2009 and 2010, the aggregate amount of the cash transfers totaled approximately $86.3 million and $47.5 million, respectively, and the highest amount outstanding on any given date was equal to approximately $24.1 million and $8.5 million, respectively.

The cash transfers were made by the Company pursuant to an oral agreement with the Bank. Mr. Chong advised the Company that he agreed to a request from a Bank representative to conduct the transfers for the purpose of strengthening the Company's relationship with the Bank.  The bank accounts that received the cash transfers were designated by the Bank.  The three companies associated with those accounts are registered legal entities in China, but the Company has not been able to confirm the accuracy of their business addresses nor determine the extent and nature of their business operations, if any.  The Company has not conducted any commercial business with those entities aside from the short-term cash transfer transactions.  Based on the preliminary findings of the Audit Committee investigation, no evidence was obtained to indicate that the companies were a related party to the Company, the Bank representative, Mr. Chong, or any of the Company's other officers or directors.

The internal investigation is ongoing and the preliminary findings described above are subject to the final results and conclusions of the investigation, which may differ from the preliminary findings.

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