IPO Fraud: Green Giant Officially Receives Punishment

Recently, green giant ecological environment Co., Ltd. (hereinafter referred to as "Jiangxi green giant") has been officially issued an administrative punishment decision by the CSRC due to the illegal behaviors of forging bank receipts, tampering with bank statements and other information disclosure.

Jiangxi securities regulatory bureau pointed out that there were false records in the prospectus (declaration draft) of Jiangxi huliang's IPO, including concealing related party transactions and increasing profits, and ordered Jiangxi huliang and its then chairman Zhou Jun, vice chairman Huang Liejian, Board Secretary Xu Tao, financial center director Cao Jun and shareholder Chen Bin to make corrections Warning and penalty.

Since June 2019, China Securities Regulatory Commission (CSRC) has launched a series of on-site inspections on IPO companies. During the inspection process, it was found that Jiangxi huliang, an enterprise to be listed on the small and medium-sized board of Shenzhen Stock Exchange, had relatively serious problems. On April 29, 2020, it launched a case investigation, and at the same time, it was given regulatory measures not to accept stock issuance applications within 36 months.

With the issuance of the administrative punishment decision, the case of Jiangxi green giant's IPO fraud has temporarily come to an end. However, in the view of industry insiders, the relevant intermediary agencies involved in the IPO may also face regulatory accountability.

"The punishment of the CSRC for the enterprises that have problems in the on-site inspection is different from that after listing. For the established de facto financial fraud, it will be punished according to the provisions of the new securities law. According to the severity of the fraud (magnitude, scale) The nature and severity of financial fraud are very important, which will affect the scope of punishment and the size of responsibility. "Dong Dengxin, director of the Institute of financial securities of Wuhan University of science and technology, pointed out in an interview.

Jiangxi Hulk punished

According to public information, Jiangxi Hulk was founded in April 2005, and its registered place is located in Ji'an City, Jiangxi Province.

The company is an ecological environment construction engineering service provider, mainly engaged in ecological restoration and landscape engineering design, construction, maintenance and garden seedlings production and sales business.

It first submitted the prospectus on June 12, 2019, aiming to land on the small and medium-sized board of Shenzhen Stock Exchange. However, in the subsequent on-site inspection, the IPO path of Jiangxi Hulu suddenly stopped due to financial fraud.

According to the information disclosed by China Securities Regulatory Commission, Jiangxi green giant not only forges and falsifies bank statements, but also conceals related party transactions, which has a bad impact on the market.

According to the data, in 2016, Jiangxi huliang had a capital exchange of RMB 26.0537 million with a company named Jiangxi Linke borneol Technology Co., Ltd. (hereinafter referred to as Linke borneol), accounting for 8.54% of the current net assets disclosed by the company. At that time, Jiangxi huliang was the chairman of the board and the controlling shareholder of Zhou Jun, and was also the legal representative of Jiangxi Linke borneol The largest shareholder.

Therefore, the transaction was judged as a related party transaction by the CSRC. However, Jiangxi lvgiant not only did not disclose it in the prospectus, but also concealed the capital exchange with Linke borneol by forging the electronic receipt of online banking, modifying the name of the counterparties, and tampering with the bank flow.

In addition, Jiangxi huliang also inflated its profits by increasing its operating income by means of inter period adjustment items and by increasing the collection of accounts receivable items.

In 2016, Jiangxi huliang falsely increased the business income of 2016 by 765900 yuan, accounting for 0.15% of the current operating income disclosed by the company, by recognizing the completed projects in previous years as the current project income; In 2018, Hulk recognized the completed projects in previous years as the current project income, and recognized the uncompleted projects as the current project income in advance, and falsely increased the operating income of 2018 by 58.0572 million yuan, accounting for 5.10% of the current operating income disclosed by the company.

In the same period, from 2016 to 2018, Jiangxi huliang falsely increased the collection of accounts receivable projects, reduced the current provision for bad debts, and thus increased profits by falsifying the electronic receipts of online banking and tampering with bank statements.

Among them, in 2016, the false increase accounts receivable project received 11.6192 million yuan, and the false increased profit was 581000 yuan, accounting for 1.05% of the total profit disclosed by the company; In 2017, the false increase of accounts receivable project received 14.6936 million yuan, and the false increase profit was 1.4547 million yuan, accounting for 1.21% of the total profits of the current period disclosed by the company; In 2018, the recovery of accounts receivable with false increase was 39.5612 million yuan, and the false increase profit was 6.3341 million yuan, accounting for 3.72% of the total profits of the current period disclosed by the company.

In the view of the CSRC, the above-mentioned behaviors of Jiangxi green giant violate the provisions of Article 63 of the securities law of 2005, and constitute the behavior of "the issuer, the listed company or other information disclosure obligors fail to disclose information in accordance with the provisions, or the disclosed information has false records, misleading statements or major omissions" as mentioned in the first paragraph of Article 193 of the securities law of 2005.

Hulk IPO has been suspended

It is worth mentioning that, before the issuance of the notice of administrative penalty, the CSRC has taken the regulatory measure of not accepting the IPO application of Jiangxi Hulu within three years. According to the insiders, this punishment may cause a "fatal blow" to the development of Jiangxi Hulu.

"Three years is the most critical three years for the IPO planning enterprises. Generally speaking, the enterprises will choose the best state and time point for IPO. After this blow, after three years, the day lily will be cold. Therefore, this is a fatal blow to the IPO planning enterprises, which is also the illegal cost they need to bear, and it also rings the alarm for all enterprises planning to IPO "Said Dong Dengxin.

In addition, many enterprises are also expected to IPO by many investment institutions in the process of introducing financing. If the enterprises can not complete the listing within a certain period of time, it is also difficult to obtain the attention of investors in the primary market, resulting in financing difficulties, and even worse, they may face prosecution from existing investors.

According to the prospectus submitted by Jiangxi huliang in June 2019, as of the end of December 2018, there were 10 shareholders in total, including one institutional shareholder, private equity institutional investor Pingxiang Yingsheng, which held 4.65% of the shares of Jiangxi huliang.

In May 2016, when Jiangxi huliang introduced Pingxiang Yingsheng as an investor, its senior management team signed an agreement with Pingxiang Yingsheng, Fei Hongxing and Hu Shiqiong, including special terms such as equity repurchase. However, the agreement was terminated in May 2019.

According to the data of qixinbao, the private equity firm was renamed as "management partner (limited partnership) of Shanghai cunchao enterprise", but it did not withdraw from the list of shareholders of Jiangxi Hulu.

All sorts of signs show that it is not easy for Jiangxi huliang to make a comeback in IPO three years later.

"There are no legal obstacles. But in fact, all intermediaries will avoid this company. Unless the company really turns around and its performance is very good," Wang Jiyue, a former senior sponsor representative of a securities firm, pointed out to the 21st century economic reporter.

Intermediaries are blaming escape

With Jiangxi huliang and a number of senior executives and shareholders being punished, the impact of the IPO fraud event may further spread. Many market participants are speculating that a number of intermediaries of Jiangxi Hulu may be affected.

"Generally, in the process of the CSRC's investigation into a company's case, it will simultaneously look at the responsibilities of the intermediary agencies," Wang Jiyue pointed out.

According to the public information, Jiangxi green giant's sponsor is Wanlian securities, and the audit institution is Tianjian accounting firm. Among them, Wanlian securities is rushing to IPO on the main board of Shanghai stock market.

"If (securities companies) are investigated, they will be affected; however, sometimes, individuals, such as insurance agents, or issuing regulatory letters to securities companies, will be punished. If they do not rise to the level of filing and investigation, the impact will be relatively small. Once they are filed for investigation, the nature will be different, and the market influence will be much greater." A representative of a medium-sized securities firm in South China said in an interview.

What is worth mentioning is that Wanlian securities had a "criminal record" involved in the case. Zhangjiagang Zhongxun post and Telecommunications Technology Co., Ltd. (hereinafter referred to as Zhongxun post and Telecommunications), which was previously supervised by Wanlian securities, caused a stir due to its involvement in the forgery of audit reports.

On June 30, 2017, Zhongxun post and Telecommunications said in the 2016 annual report that "Beijing YONGTUO Certified Public Accountants (special general partnership) has issued a standard unqualified audit report to the company". However, the actual situation is that Beijing YONGTUO certified public accountants did not undertake the annual report audit business of Zhongxun post and telecommunications, nor issued the Beijing YONGTUO Shenhui Zi [2017] No. 305196 audit report. The audit report previously disclosed by Zhongxun post and telecommunications was forged by the company itself.

Wanlian securities, as the trustee, the sponsor of securities and other roles, was taken by Jiangsu securities regulatory bureau to issue a warning letter of administrative supervision measures.

According to the warning letter from Jiangsu securities regulatory bureau, Wanlian securities has the obligation to review the information disclosure documents in advance. Wanlian securities has not been diligent and conscientious in the process of annual report information disclosure audit, and there are obvious omissions. For the annual audit report, only the accountant seals but not the accountant's signature, and the attached copy of the annual audit accounting firm's business license has the traces of multiple seals and multiple copies, etc., it has not maintained due prudence and failed to discover the fraud of the annual audit report in time. Therefore, a regulatory warning letter will be issued.

However, the IPO project of Jiangxi green giant is stepping on thunder again, which may cast a shadow on the normal business operation and IPO listing future of Wanlian securities.

"What the sponsor undertakes is the joint and several guarantee liability, which needs to strictly control the quality of corporate credit and be diligent and responsible. Therefore, the sponsor of Hulk's false information needs to bear the responsibility, including fine and suspension of professional qualification for a period of time. This will affect other IPO businesses undertaken by Wanlian securities." Pan Helin, executive director of the Digital Economy Research Institute of Central South University of Finance and law, pointed out in an interview.

It is worth mentioning that, according to the statistics of 21st century economic report, as of September 9, there was no project of Wanlian securities in the enterprises with A-share IPO in normal queue. However, there are 131 IPO projects that have been pre disclosed by Tianjian accounting firm, including 67, 24, 26 and 14 on the gem, sci tech innovation board, Shenzhen stock market and Shanghai stock market respectively.

If Tianjian accounting firm is put on file for investigation, the process of several IPO projects it participates in may be affected. However, there are still some uncertainties about whether and when the intermediary will be filed for investigation.

"Punishment is not based on whether to file a case or not. If there is no sufficient evidence for filing a case, it can also be given administrative punishment or even transferred to justice. I understand that the nature of filing an investigation is particularly significant, and the collection and collation of evidence is relatively complex, or the cooperation of the parties is not enough, and strong intervention is needed. If the parties actively cooperate, the investigation procedure may not be initiated." Wang Jiyue said.