In Depth: Behind HNA's Fall, a Web of Nepotism Spreading from New York to Hainan

www.caixinglobal.com
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Brothers of now-arrested Chairman Chen Feng and late co-founder Wang Jian wove a web of businesses that conducted secret dealings with bankrupt conglomerate
More than seven months after Chinese conglomerate HNA Group Co. entered a government-led bankruptcy restructuring, the company's chairman and its CEO have been detained by police on suspicion of criminal misconduct, casting more clouds over one of China's most complicated bankruptcy cases.

The detentions add a new twist to the rise and fall of HNA, a conglomerate started as a regional airline and later expanded globally through a highly leveraged buying spree of stakes ranging from the Hilton hotel chain to Deutsche Bank. The company entered bankruptcy proceedings earlier this year.

Details of the alleged crimes committed by the two executives were not disclosed by the police, but Caixin's year-long investigation, including a review of the company's filings and previous interviews with multiple former and current executives, found that HNA Chairman Chen Feng, now deceased co-founder Wang Jian and multiple senior executives owned companies controlled or invested in by family members that conducted business with HNA. These businesses, many registered in New York as well as Hainan, where the company headquarter was located, obtained funds and contracts from HNA ranging from aviation materials to real estate development, advertising and insurance. Some of those relatives even became frequent guests in New York's philanthropy circle and leaders of Chinese businesses associations in the U.S.

None of the related-party transactions, some of which were related to the conglomerate's overseas acquisitions, were fully disclosed in HNA's regulatory filings.

Chen's and Wang's brothers were both involved in aviation material businesses that have supply contracts with HNA. HNA might have paid 30% to 50% more than competitors for aviation materials and 10% more for aircraft, a former HNA executive said.

"The more expensive, the more commission they could get," the former executive said. "This is impossible at state-owned enterprises. Isn't this embezzlement?"

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