A local man accused of signing fake contracts to bilk a company he set up out of 4.97 million yuan (US$598,795) pleaded ignorance of corporate law when his trial opened at the Huangpu District People's Court yesterday.
Shen Chengzhi invested 6.5 million yuan in a limited company he set up with several partners in order to do business with companies in Saudi Arabia, the court heard.
The company is now faced with bankruptcy, prosecutors said.
"Such an accusation is seldom seen in local courts," said one court official, who asked not to be named.
The company was set up in September 2002 with a total investment of 18 million yuan.
Shen was eager to be involved in the company, but he didn't have enough money to invest, prosecutors allege.
Desperate not to miss out, he borrowed 5 million yuan from two local companies and promised to return the money in one month.
After the company was up and running, Shen allegedly began signing fake contracts with his sister and a friend in order to siphon off funds to repay his debt.
He got the money but the company never received the goods it though it was buying when the contracts were signed.
"I was not very clear about the Corporation Law and didn't know such action violated the law," Shen told the court yesterday.
"I thought I should get some back from the company since I had already spent so much money to set up this business."
China's Corporation Law clearly states, however, that shareholders can't withdraw their investment after a company is funded. They can only sell their shares to others, court officials said yesterday.