Caterpillar Inc. (Cat) has revealed “deliberate multi-year, coordinated accounting misconduct” at a subsidiary of a Chinese company it acquired last year, forcing a $580 million write off while eliminating over half its anticipated Q4 2012 earnings. The news prompted an immediate 1.5% share decrease for Cat. Company officials said the graft was discovered through an inventory audit at the business unit.

Cat bought ERA Mining Machinery Ltd. and its subsidiary Siwei—China’s fourth-largest hydraulic roof support equipment manufacturer—for $700 million in June. ERA had been publicly traded in Hong Kong, while doing business via Siwei.

Based in Zhengzhou with 4,000 employees and 23 facilities across the mainland, Siewei produces supports to prevent rocks from falling into a coal mine working areas, and competes head-to-head with market leader Zhengzhou Coal Mining Machinery.

The Siwei deal represented part of Caterpillar’s greater China ambitions. To this end, it added Jon Huntsman, the former U.S. ambassador to China and one-time Republican presidential candidate, to its board of directors last year.

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