Lottery buyers are slavering after the grand prize, a Red Flag-brand car and 398,000 yuan. "Show your love and try your luck" was the slogan first raised at the early stage of the lottery's development. However, with the tendentious promotion of the lottery sellers, people have focused only on the massive bonus, while ignoring that the lottery is for the benefit of the public. [Photo/CFP]

A lottery firm that bills itself a State-owned company is reportedly run by one of its own senior executives, according to Economic Information daily.

The newspaper said He Wen allegedly transferred billions of yuan related to lottery purchases to his personal control.

China Lottery Online Co LTD (CLO), founded in July 2002, is listed as an internal organ of the social welfare lottery issuance center under the Ministry of Civil Affairs, according to the official website of the center.

The "Lottery Online" accounts for more than 10 percent of the total sales revenue of the social welfare lottery industry in China.

Complicated arrangements

The social welfare lottery issuance center under the Ministry of Civil Affairs reportedly holds the controlling stakes of CLO at 40 percent, while the other two private companies take the remaining 33 percent and 27 percent respectively. The chairman and two members of the five-member board are also appointed by the center.

But an investigation by Economic Information showed that He Wen, the general manager of CLO, and his wife, actually own 60 percent of its stakes by holding almost all the shares the two private companies own via complicated shareholding arrangements.

This means that He Wen also controls more than half of the seats of the board since three members are from the two private companies.

The report cited an anonymous CLO employee as saying that as the exclusive operator, the company annually draws 5 percent (6 percent in the first three years) from the annual sales revenue of "Lottery Online" and had earned about 4 billion yuan ($644.8 million) in revenue through the years till the end of 2014. Thus the value of He's stakes at CLO exceeds 2 billion yuan.

'Shell company'

In June 2005, CLO purchased lottery-selling-terminals for "Lottery Online" from Dongguan Tianyi Electronics Co., LTD (DTE), a sole supplier who took the order without bidding, which is in violation of the regulation.

According to the contract between CLO and DTE, DTE draws 2 percent (1.7 percent since 2012) from the annual sales revenue of "Lottery Online" as payment for terminals. The social welfare lottery issuance center was ignorant of the sole supply arrangements when the contract was awarded, the report cited an insider as saying.

In this way, more than 1 billion yuan was transferred to DTE, said the insider.