A number of securities companies such as China Securities Construction Investment received fines for their investment banking business, and the director of the Founder Securities Research Institute was warned

(Image source: Visual China)

The Blue Whale financial reporter paid attention to the fact that in the first week of the year of 2024, the Shenzhen Stock Exchange and the local securities regulatory bureau issued a total of 8 "fines" to securities firms or related practitioners, of which 6 were concentrated in the investment banking and insurance agency business, involving 4 securities firms, including China Securities (601066.SH), Haitong Securities (600837.SH), Minsheng Securities, and China Merchants Securities (600999.SH), and the IPO projects handled by them have been "terminated". However, securities firms and insurance agents were still fined for violations such as prudence in performance forecasting, due diligence on major events, standardization of internal control, and changes to the prospectus.

The other two fines were directed at Founder Securities (601901. SH), involving issues such as leaking the content of research reports in advance and recommending shares in violation of regulations, Liu Zhangming, director of the Founder Securities Research Institute, who had repeatedly aroused public opinion, was also issued a warning letter.

Investment bank insurance agency business is the "hardest hit area" for punishment

In the first week of this year, a total of 8 fines were issued, of which 6 were directed to the IPO projects of 4 securities companies and investment banks including China Securities Securities, and the violations involved the prudence of performance forecasting, due diligence on major matters, internal control norms, and changes to the prospectus. The reporter noted that the IPO projects involved in the fine have been "terminated".

Specifically, the IPO project of World Agricultural Machinery sponsored by Haitong Securities was terminated in October 2023 during the registration process. The Shenzhen Stock Exchange pointed out that Haitong Securities and the responsible persons Chen Cheng and Jing Yang had committed four violations in the process of acting as the sponsor representatives of the project: first, they failed to continuously perform their due diligence duties on the freezing of the shares held by the actual controller and report to the firm in a timely manner, second, they failed to fully verify the accuracy of the disclosure of related parties' capital loans, third, they failed to pay sufficient attention to the issuer's imperfect accounting foundation and irregular internal control, and fourth, they changed the prospectus without consent. In this regard, the Shenzhen Stock Exchange gave more severe criticism to the two project sponsor representatives.

The IPO projects of China Merchants Securities and Minsheng Securities were terminated in March and July last year respectively. Both insurance agents were supervised and took self-regulatory measures in the form of written warnings. According to the information of the Shenzhen Stock Exchange, in the process of sponsoring the IPO project of V-SOL Technology by China Merchants Securities and the IPO project of Huazhirong sponsored by Minsheng Securities, there were problems such as insufficient implementation of the verification procedures for the issuer's overseas sales business, insufficient verification of the basis for determining the shareholding ratio of the issuer's shareholders, and insufficient verification procedures for the implementation of the capital contribution of the issuer's shareholders.

In addition, Minsheng Securities Insurance Agency also has problems such as insufficient verification of the issuer's signing of VAM agreements, insufficient attention to the accuracy of the disclosure of the issuer's employees and the number of labor dispatch personnel, and the legal compliance of the use of labor dispatch personnel.

Guosen Securities and its insurance agents Zhou Meng and Yang Tao were taken written warnings by Shenzhen Exchange for violations, and the IPO project of Yin Yi Biotechnology managed by them was withdrawn in March 2023. The Shenzhen Stock Exchange pointed out that Guosen Securities and its insurance agent did not pay sufficient attention to and urge the issuer to rectify the lack of internal control over standardized promotion expenses, including the fact that some promoters were actually controlled by the issuer, and the corresponding service outcome documents of some promotion fees were not standardized or a large number of backfills. At the same time, the investment bank and the insurance agency did not verify the matters related to the issuer's distribution income in place.

China Securities Construction Investment and its insurance agent were warned in writing by the Shenzhen Stock Exchange that the IPO project sponsored by it "passed" in November 2022, but the performance forecast was far from the actual situation, and the 2022 performance after the audit was disclosed the following year was far from the previous forecast, and the project was terminated in December 2023.

The Shenzhen Stock Exchange pointed out that China Securities Construction Investment and Baodai failed to pay sufficient attention to the market situation of the issuer and the situation of comparable companies in the same industry, failed to fully verify the issuer's sales to end customers, and failed to prudently express professional opinions on the performance forecast and urge the issuer to improve the quality of information disclosure.

Liu Zhangming, director of the Founder Securities Research Institute, recommended stocks to customers in violation of regulations

At the beginning of this year, Founder Securities' research business was supervised to "catch the typical", and the reason for the penalty involved the leakage of the content of the research report in advance, etc., and Liu Zhangming, director of the company's research institute, was issued a warning letter for recommending shares to customers in violation of regulations.

On January 5, the Hunan Securities Regulatory Bureau issued the "Decision on Ordering Corrective Measures for Founder Securities", which took regulatory measures to order the company to make corrections due to a number of problems in the process of publishing securities research reports. Liu Zhangming, director of the Founder Securities Research Institute, was issued a warning letter because he had leadership responsibilities and personally recommended shares to customers in violation of regulations.

The Hunan Securities Regulatory Bureau pointed out that in the process of publishing securities research reports, there were three problems in the process of Founder Securities: first, there were leaks of the content and views of securities research reports before the release of securities research reports; second, individual securities analysts illegally recommended stocks to customers; third, individual employees publicly released research opinions without review without obtaining securities analyst qualifications, causing adverse effects. As the administrative person in charge of the company's securities research report business department, Liu Zhangming has leadership responsibility for the above situation.

According to public information, Liu Zhangming took up the post of director of Founder Securities Research Institute on May 8, 2023 601162, and has been in office for less than a year. SH) deputy director, chief analyst of the trading company industry, he is known as the "first brother of consumption" in the industry. He has more than 10 years of experience in the industry, and has worked as an analyst in Shenwan Research Institute and SDIC Securities (formerly Essence Securities) Research Institute, and has won many New Fortune awards.

Previously, Liu Zhangming had aroused public opinion many times, and even caused market controversy because of his "wolf-like" remarks. In 2023, a screenshot of Founder Securities' internal chat records will circulate in the industry. Among them, Liu Zhangming made a number of remarks, such as: "The cruelty of the market is far beyond your imagination, we provide a market-oriented platform, for individuals, it will inevitably be cruel", "Sellers, every month, the pressure doubles" and so on, causing heated discussions in the market.

In fact, the research business of securities companies has always been a key area of focus of supervision, and a number of securities companies received fines for illegal disclosure of research reports last year. For example, Zheshang Securities received warning letters due to inadequate internal control management over securities analysts' customer services and public statements, inadequate quality control and compliance review of research reports, imprudent preparation of individual research reports, and failure to ensure the compliance of information sources.

Guotai Junan Securities received a warning letter due to imperfect regulations on the quality control and compliance review of the securities research report business, failure to establish an effective market impact assessment mechanism for securities research reports, and failure to prudently assess the possible impact of sensitive information related to a securities research report on the market. Huang Yanming, director of Guotai Junan Securities Research Institute, and Qin Han, an analyst, were also issued warning letters.

In May 2023, the "Notice on the "Double Random" On-site Inspection of the Issuance of Securities Research Report Business" delivered by the regulator to all securities companies pointed out that there are still three typical problems in the research and reporting business of securities firms: first, the internal control system of some companies has not been updated and adjusted in a timely manner in accordance with the requirements of laws and regulations, second, the implementation of the internal control system of some companies is not effective enough, and third, the prudentness of the production of specific research reports is insufficient, and individual employees privately publish securities analysis opinions.

In view of the relevant problems and regulatory requirements, securities firms should strengthen the management of information sources and traces of research reports, strengthen the internal control of the whole process of research report production, review and release, standardize the control of public statements and customer service activities, strengthen public opinion risk management, and improve personnel performance appraisal and internal accountability system.