Jiuding Wu Gang was investigated by the CSRC, what was involved?

Wu Gang, chairman of Jiuding Group, was recently investigated by the CSRC for suspected violations of relevant laws and regulations of the fund. This is not the first time that Jiuding has had compliance problems in recent times, and Jiuding is also facing the challenge of declining private equity investment and public fund losses

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Text | "Finance" reporter Liu Zonggen

Edit | Lu Ling

On September 29, Jiuding Group issued an announcement on the receipt of a notice from Chairman Wu Gang of the China Securities Regulatory Commission to file a case, which showed that Wu Gang's related behavior was suspected of violating the relevant laws and regulations of the fund, and on July 23, the CSRC decided to file a case against him.

Wu Gang is currently the chairman of Jiuding Group, a company listed on the New Third Board, and a director of Jiuding Investment, a company listed on the Shanghai Stock Exchange. On September 30, Jiuding Investment also issued an announcement on the receipt by the company's directors of the notice of filing a case from the China Securities Regulatory Commission.

Jiuding Group has 5 actual controllers, namely Wu Gang, Huang Xiaojie, Wu Qiang, Cai Lei and Qin Zhengyu. Wu Gang served in the Securities regulatory commission. "Caijing" reporter learned that Wu Gang was born in 1977 and graduated from Southwestern University of Finance and Economics. He once served as the project manager of the investment banking department of Minfa Securities, the deputy director and director of the CSRC, and the assistant to the president of Guangxi Beibu Gulf International Port Group.

In addition, Wu Gang and Wu Qiang are brothers. The latter also graduated from Southwestern University of Finance and Economics, and served as deputy general manager of the capital market department of Hongyuan Securities, vice president of the investment banking department of Anxin Securities, and assistant general manager of the investment banking department of Guosen Securities.

A person close to Jiuding Investment told Caijing that "(Wu Gang) is working normally", and as for what kind of business Wu Gang is in charge of and why he was filed, he said that "jiutai fund related matters have nothing to do with jiuding investment".

Jiuding Investment said in the announcement that the matters involved in the filing of the case were an investigation of Wu Gang personally, did not involve the company's private equity investment management business, and had no significant impact on the company's daily operations.

The "Finance" reporter learned that this is not the first time that Jiuding has had compliance problems in recent times. On September 27, Jiuding Group issued an announcement on the company and related responsible persons receiving the disciplinary decision of the national SME share transfer system, and Jiuding Group, five actual controllers including Wu Gang, and Gu Zhipeng, who was the secretary of the board of directors at the time, were all disciplined.

Jiuding Group's business involves Jiuding Investment, Jiutai Fund and Kyushu Securities. Jiutai Fund was established in July 2014, with a registered address in Beijing and a registered capital of 300 million yuan. Kunwu Jiuding Investment Management Co., Ltd., Tongchuang Jiuding Investment Management Group Co., Ltd., Lhasa Kunwu Jiuding Industrial Investment Management Co., Ltd. and Kyushu Securities Co., Ltd. accounted for 26%, 25%, 25% and 24% of the registered capital respectively.

Trading securities using someone else's account

According to the decision, on June 22, 2014 and July 8, 2014, the board of directors and the general meeting of shareholders of Jiuding Group deliberated and passed the proposal related to the issuance of shares, proposing to issue a total of 574 million shares to 15 issuers at a price of 3.92 yuan per share, raising 2.25 billion yuan, with a total of 173 shareholders after the issuance, not more than 200 people, exempted from the approval of the CSRC. The new shares were listed and publicly transferred on 11 August 2014.

Before the above-mentioned board of directors and shareholders' meeting of Jiuding Group, Jiuding Holdings signed a share transfer agreement with 161 units and individuals, stipulating that Jiuding Holdings would transfer the targeted issuance of shares of Jiuding Group to the above 161 units and individuals at the price and number of shares agreed in the share transfer agreement. On June 20, 2014, Jiuding Holdings arranged for Qian Mourong and five others to subscribe to the directional issuance of shares of Jiuding Group, and on the same day, five people issued a power of attorney to Wu Gang, entrusting their securities accounts and the directional issuance of shares to be subscribed separately to Wu Gang for management. Between August 12, 2014 and April 16, 2015, Wu Gang and others instructed relevant personnel to specifically operate five securities accounts including Qian Mourong and transfer part of the subscribed directed issuance stock agreement to 161 units and individuals. Excluding the transactions of other investors in the secondary market during the same period, after the completion of the above transactions, the total number of shareholders of Jiuding Group is 335, more than 200.

The National Share Transfer System believes that in the process of the directional issuance, Jiuding Group deliberately concealed the number of shareholders who actually subscribed to the directional issuance of shares at present, and made false records in the information disclosure documents such as the stock issuance plan, which violated Article 20 of the Measures for the Supervision and Administration of Unlisted Public Companies, Articles 1.4 and 1.5 of the Business Rules of the National Small and Medium-sized Enterprise Share Transfer System (Trial), and Article 3 of the Detailed Rules for the Issuance of Shares of the National Small and Medium-sized Enterprise Share Transfer System (Trial). The provisions of Article 4 of the Rules for the Directional Issuance of Shares of the National Small and Medium-sized Enterprise Share Transfer System constitute an information disclosure violation.

The national stock transfer system decided to give Jiuding Group a disciplinary punishment that was publicly condemned and recorded in the integrity file of the securities and futures market; the disciplinary punishment of public reprimand given to Chairman Wu Gang should be recorded in the integrity file of the securities and futures market; the disciplinary punishment given to director and general manager Huang Xiaojie, director and deputy general manager Qin Zhengyu, director and deputy general manager Cai Lei, director and deputy general manager Wu Qiang, and gu Zhipeng, then secretary of the board of directors, were recorded in the securities and futures market integrity file.

In addition, Jiuding Group was administratively punished by the CSRC at the beginning of this year for using other people's accounts to engage in securities transactions. On January 29, Jiuding Group issued an announcement on the receipt of the administrative penalty decision of the China Securities Regulatory Commission by the controlling shareholder and the relevant responsible person, and the CSRC decided to order Tongchuang Jiuding Investment Holdings Co., Ltd. to make corrections, confiscate 501 million yuan of illegal gains and impose a fine of 100 million yuan; give Wu Gang a warning and impose a fine of 100,000 yuan.

The "Finance" reporter learned that the CSRC's administrative punishment decision disclosed more details related to Qian Mourong and 5 other people. Jiuding Holdings uses 5 securities accounts including Qian Mourong to engage in securities trading. On June 24 and August 8, 2014, Jiuding Holdings, the controlling shareholder of Jiuding Group, publicly disclosed the share issuance plan of Beijing Tongchuang Jiuding Investment Management Co., Ltd. and the report on the directional issuance of shares of Beijing Tongchuang Jiuding Investment Management Co., Ltd. through the National Stock Transfer Company. The above two information disclosure documents record that five natural persons, Qian Mourong, Wang Mouping, Zhang Mou, Yi Mou and Feng Mou, subscribed for 413 million shares of jiuding group's directional issuance of shares. The above shares were publicly transferred on August 11, 2014 in the National Stock Transfer Company.

On June 20, 2014, Jiuding Holdings signed a loan agreement with Qian Mourong and five others, stipulating that Qian Mourong and five others would borrow 390 million yuan, 375 million yuan, 325 million yuan, 223 million yuan and 305 million yuan from Jiuding Holdings respectively, and the purpose of the loan was to subscribe for the directional issuance of shares by Jiuding Group. The loan agreement also stipulates that during the existence of creditor's rights and debts, Jiuding Holdings has the right to require Qian Mourong and 5 other people to transfer the jiuding group's subscribed shares to Jiuding Holdings or a third party designated by Jiuding Holdings according to the issue price, and the proceeds are used to pay off the loan in advance, and Jiuding Holdings is exempt from the corresponding borrowing interest.

On the same day, Qian Mourong and five other people issued a power of attorney to Wu Gang, then executive director of Jiuding Holdings, entrusting Wu Gang with his securities account and the second directional issuance of shares of Jiuding Group that he intended to subscribe for separately, and Wu Gang was entrusted to log in to the securities account of the entrusting party and carry out buying, selling operations and capital transfer operations according to the instructions of the trustee. From July 10 to 14, 2014, Jiuding Holdings transferred the above funds to the bank accounts of Qian Mourong and five other people. No earlier than July 6, 2014, Jiuding Holdings used five securities accounts, including Qian Mourong, Wang Mouping, Zhang Mou, Yi Mou and Feng Mou, to subscribe for 413 million shares of Jiuding Group's directional issuance of shares. From August 12, 2014 to April 16, 2015, Wu Gang instructed relevant personnel to specifically operate five securities accounts such as Qian Mourong to sell 375 million shares of Jiuding Group through the National Stock Transfer Company, deducting transaction taxes and returning them to Jiuding Holdings as a loan settlement, and the actual profit was 68.37 million yuan.

The secretary of the board of directors resigned

On September 2, Jiuding Investment issued an announcement on abnormal fluctuations in stock trading, and the deviation of the daily closing price increase of Jiuding Investment stock trading on August 30, August 31 and September 1, 2021 exceeded 20% in three consecutive trading days, which is an abnormal fluctuation in the stock trading price according to the relevant provisions of the trading rules of the Shanghai Stock Exchange.

In the last two days of August, two senior managers of Jiuding Group resigned one after another. On August 30, Jiuding Group issued a resignation announcement for senior management, and the board of directors received the resignation report submitted by Wang Liang, deputy general manager and secretary of the board of directors, on August 30, 2021, and the resignation took effect from August 31, 2021. The above-mentioned resigned persons held 283,600 shares of the company's shares, accounting for 0.002% of the company's share capital. After resigning, he will no longer hold other positions in the company.

At the same time, the Board of Directors received the resignation report submitted by Deputy General Manager Wu Qiang on August 30, 2021, and the resignation took effect from August 31, 2021. The above-mentioned resignations hold 197 million shares of the company's shares, accounting for 1.31% of the company's share capital. He continued to serve as a director after his resignation.

In this regard, Jiuding Group said that Wang Liang and Wu Qiang resigned due to job changes, and Wu Qiang still served as a director of the company after his resignation.

Zhao Gen, the current deputy general manager and financial director, took over the position of secretary of the board of directors. Zhao Gen taught at the Business School of Sichuan Normal University. He has successively served as the deputy director of the credit approval department, the director of the regional approval department and the assistant general manager of the credit approval department of Chengdu Rural Commercial Bank. From July 2015 to March 2018, he served as the assistant to the general manager of Kyushu Securities Co., Ltd., assisting in the company's fixed income business and branches.

In addition, Yi Lingjie, secretary of the board of directors of Jiuding Investment, was recently punished by the Jiangxi Securities Regulatory Bureau for violating the letter. On September 25, Jiuding Investment issued an announcement on the receipt by the company and the secretary of the board of directors of the company of the decision on administrative supervision measures from the Jiangxi Regulatory Bureau of the China Securities Regulatory Commission. After investigation, Jiuding Investment had the following violations, and in December 2020, Jiuding Investment applied to the court to provide a guarantee for its subsidiary Kunwu Jiuding Investment Management Co., Ltd., with 31 properties in Block B, Zijincheng, No. 112 Dongjiayao Road, Donghu District, Nanchang City, Jiangxi Province, to replace kunwu Jiuding's frozen bank basic account funds of 42.4 million yuan. As of December 31, 2020, the carrying amount of the above-mentioned assets used to provide security was $33.5031 million, representing 1.28% of the Company's audited net assets at the end of the previous year.

For the above guarantee matters, Jiuding Investment shall be deliberated by the board of directors and promptly perform the information disclosure obligation of the interim announcement. However, the guarantee was not considered by the Board of Directors and was not disclosed in a timely manner, and was only disclosed in the 2020 Annual Report on April 15, 2021. The above conduct violates Article 30 of the Measures for the Administration of Information Disclosure of Listed Companies and Article 1 of the Notice on Regulating the External Guarantee Behavior of Listed Companies. Yi Lingjie, the secretary of the board of directors of the company, as the specific person in charge of the company's information disclosure affairs, did not exercise due diligence and was mainly responsible for the company's violations.

In accordance with the provisions of Articles 58 and 59 of the Measures for the Administration of Information Disclosure of Listed Companies, the Jiangxi Securities Regulatory Bureau decided to take administrative supervision measures against Jiuding Investment and Yi Lingjie by issuing warning letters and recording them in the csrcovery integrity file.

According to the 2020 annual report of Jiuding Investment, You Ziyu, a former employee of Kunwu Jiuding, applied to the court for property preservation due to a labor dispute with Kunwu Jiuding and Kunwu Jiuding Shenzhen Branch, and on February 14, 2019, the basic account of Kunwu Jiuding Bank was frozen for 42.4 million yuan. At the end of December 2020, the Company applied to the Chaoyang District People's Court of Beijing Municipality to voluntarily provide guarantees for Kunwu Jiuding with 31 sets of real estate in Block B, Zijincheng, No. 112 Dongjiayao Road, Donghu District, Nanchang City, Jiangxi Province, and replaced the frozen funds of kunwu Jiuding Bank for 42.4 million yuan. The 31 sets of real estate in Block B are accounted for in the inventory account of the company's financial statements, and as of December 31, 2020, the carrying amount of this part of the assets was 33.5031 million yuan and the appraised value was 50.2981 million yuan.

Private equity challenges

According to the 2020 annual report of Jiuding Group, there are three forms of income from the private equity investment management business of Jiuding Group, namely fund management fee income, project management remuneration income and investment consultant fee income. The income from the fund management fee is the management fee collected in accordance with the proportion agreed in the partnership agreement to the subscribed shares of the fund or the investment amount actually completed by the fund, and the proportion of the management fee is generally 2% to 3%; the project management remuneration income is the performance remuneration obtained from the investment income of the fund in accordance with the proportion agreed in the partnership agreement, which is generally 20%; the investment consultant fee income is the consultant fee collected in accordance with the relevant agreement after the successful profit of recommending investment projects to other investment institutions.

Among them, for a fund that agrees to collect management fees based on the actual investment amount of the fund, when the limited partner pays the first capital contribution and the fund begins to invest abroad, the manager recognizes the management fee income according to the fee base and the proportion of fees agreed in the agreement. Such charges are usually divided into two situations, one is to agree to be charged according to 3% of the amount invested by the fund in one lump sum, then the company recognizes the management fee income when the fund is actually invested; the other is to agree to collect 2% of the actual investment amount of the fund every year, then the company recognizes the management fee income according to the cumulative investment amount of the fund multiplied by 2% every year, and if the fund operates for less than 365 days in the first year, the management fee income that should be recognized in the current year is calculated according to the actual number of days of operation of the fund.

"Caijing" reporter learned that Jiuding Group's private equity investment is not optimistic. In terms of newly established funds, the 2021 semi-annual report of Jiuding Group shows that there were no new funds established during the reporting period and no new structured funds during the reporting period. The top five funds with the largest contribution to current income are Suzhou Jinying Jiuding Venture Capital Center (limited partnership), Suzhou Yinyan Jiuding Investment Center (limited partnership), Suzhou Taize Jiuding Venture Capital Center (limited partnership), Chengdu Yinke Jiuding Investment Center (limited partnership) and Suzhou Hongtai Jiuding Venture Capital Center (limited partnership).

In addition, Kunwu Jiuding and its subsidiaries in the management fund have set up VAM or repurchase clauses for most of the invested enterprises, and have agreed on relevant matters, if the invested enterprises do not meet the agreed requirements, the managed fund will have the right to enforce the relevant VAM clauses and repurchase clauses.

According to the 2020 annual report of Jiuding Investment, in 2020, Jiuding Investment achieved a net profit attributable to shareholders of listed companies of 87 million yuan, a year-on-year decrease of 89%. Among them, the private equity investment management business achieved a net profit of 147 million yuan, a year-on-year decrease of 37%, and the real estate business achieved a net profit of -60 million yuan, a year-on-year decrease of 111%. In addition, in 2020, the new paid-up scale of private equity funds managed by Jiuding Investment was only 260 million yuan, and the new investment scale was only 320 million yuan.

In April this year, Jiuding Group issued an announcement of equity pledge, and the company's shareholder Tongchuang Jiuding Investment Holdings Co., Ltd. pledged 4.725 billion shares, accounting for 31.50% of the company's total share capital. All of the pledged shares are shares with unlimited sale conditions. The pledge period is from April 14, 2021 to the end of the equity pledge period. The pledged shares are used by the company to provide pledge guarantees for financing applications from Zheshang Bank, and the pledgee is The Beijing Branch of Zheshang Bank Co., Ltd.

In this regard, Jiuding Group said that the shares involved are shares controlled by the actual controller, including the pledged shares, and if all the pledged shares are exercised, it may lead to a change in the company's controlling shareholder or actual controller.

In November 2019, Jiuding Group issued an announcement on the completion of the sale of 100% of the equity of Fortis Insurance, saying that the respective internal approval procedures of the two parties to the transaction and the approvals of the relevant regulatory authorities involved have been completed. On November 1, 2019, the parties to the transaction completed the delivery of all the equity in accordance with the relevant provisions of the transaction agreement, and the company has received the full price in accordance with the transaction agreement.

Previously, Jiuding Group issued an announcement in December 2018 regarding the sale of the equity of Fortis Insurance Co., Ltd., and the counterparty was Expert Star Limited. Earning Star Limited is an indirect wholly owned company of NWS Group Limited, incorporated in Hong Kong, whose main business is investment holding. NWS is a company listed on the Main Board of the Hong Kong Stock Exchange with its controlling shareholders being New World Development Limited, a company listed on the Main Board of the Hong Kong Stock Exchange with controlling shareholders being Chow Tai Fook Enterprises Limited (Hong Kong); the ultimate beneficiaries of Chow Tai Fook Enterprises Limited (Holdings) Limited and Cheng Yu Tung Family (Holdings II) are Cheng Yu Tung Family (Holdings II) Limited。

On the other hand, public funds have lost money year after year. In May 2020, Jiuding Investment issued an announcement on the receipt of a regulatory inquiry letter from the Shanghai Stock Exchange on the information disclosure of Kunwu Jiuding Investment Holding Co., Ltd. in its 2019 annual report, which shows that from 2017 to 2019, Jiutai Fund, an important associate of the company, achieved a net profit of 1.0864 million yuan, -45.1613 million yuan and -17.8822 million yuan, which is in a state of continuous micro-loss. In 2019, the company and related parties invested an additional 100 million yuan in Jiutai Fund in the form of the same proportion of capital increase, and the company currently holds 26% of the shares.

The SSE requires Jiuding Investment to disclose the reasons for the continuous losses of Jiutai Fund in recent years and whether the operating conditions are stable; the reasons why the company continues to invest additionally in the event of losses of Jiutai Fund, whether the shareholders of related parties have completed the paid-in capital contribution; and whether the provision for impairment of long-term equity investment is sufficient and prudent.