By Julie Zhu, Keith Zhai and Kane Wu
HONG KONG/SINGAPORE (Reuters) - Chinese e-commerce firm Pinduoduo Inc has referred a case of suspected bribery of one of its staff by a manager at digital advertising firm Cue Holdings to the Shanghai police, according to two people with direct knowledge of the matter.
Pinduoduo suspects a Cue sales manager bribed a Pinduoduo manager to win work related to an advertising budget of close to 4 billion yuan ($565 million) last year, one of the sources said. The bribe totalled over 2 million yuan ($282,346.30), the source said.
Senior executives for KKR, which controls 66.7% of Cue, are aware of the issue and are making their own inquiries, according to an email exchange reviewed by Reuters and the same source.
The two managers - Pan Kai from Cue and Chen Ruikan from Pinduoduo - have both been arrested on suspicion of commercial bribery, the two sources said. The sources declined to be identified as they are not authorised to speak to the media.
Before news of the arrest, Cue said in an email: "There is indeed a case under investigation about a Pinduoduo staff member involved in taking bribes, which also involves an ex-employee of Cue Holdings who has left the company."
It said it did not condone any violations of compliance requirements and didn't immediately respond to a request for further comment on Wednesday.
Shanghai prosecutors could not be reached for comment outside of normal business hours and the Shanghai police did not respond to a faxed request for comment.
Pan and Chen could not be reached for comment.
A spokeswoman for Pinduoduo declined to comment on the case or the arrest while an investigation is underway.
"We have stringent anti-corruption and whistleblower measures in place, and work proactively with the authorities to report any suspected corruption cases," she said, adding the company had reported 18 corruption-related cases to authorities this year.
KKR said it was aware of the allegations but that it was not appropriate to comment further given the authorities' investigation.
"KKR is committed to a strong compliance culture within our portfolio companies and takes these allegations very seriously,” the firm said.
INTERNAL BUSINESS REVIEW
Cue last year appointed Morgan Stanley and Credit Suisse to lead work on a New York initial public offering expected later this year, of between $300 million and $400 million, Reuters has previously reported.
Credit Suisse and Morgan Stanley declined to comment.
Pinduoduo referred the matter to the Shanghai police in December after an internal business review, the two people said. Cue and Pinduoduo are based in Shanghai.
Emails seen by Reuters and sent anonymously in early April to KKR executives including Ming Lu, head of Asia-Pacific, and regional compliance head Kapil Kirpalani, outlined the claims of wrongdoing.
In a reply on April 4, also reviewed by Reuters, Kirpalani acknowledged receipt of the email and said that the allegations were "taken very seriously by KKR." He asked for the continued assistance of the anonymous writer to comprehensively investigate the matters.
Lu and Kirpalani declined to comment via a KKR spokeswoman.
KKR formed Cue in early 2018 from four separate firms, with the aim of building a one-stop digital marketing company in China. The private equity firm has three representatives on Cue's five-member board.($1=7.08 yuan)
(Reporting by Julie Zhu and Kane Wu in Hong Kong and Keith Zhai in Singapore; Editing by Jennifer Hughes and Neil Fullick)