Beijing Zuojiang Technology Co., Ltd. (hereinafter referred to as "*ST Zuojiang"), once known as the "most expensive ST stock", was suspected of major financial fraud.
On the evening of January 30, the official website of the China Securities Regulatory Commission issued a document stating that after preliminary investigation, the financial information disclosed by *ST Zuojiang in 2023 was seriously untrue and suspected of major financial fraud. The case is currently under investigation, and the China Securities Regulatory Commission has made it clear that it will ascertain the facts of the violation as soon as possible and deal with it seriously in accordance with the law.
So, how does the China Securities Regulatory Commission (CSRC) take a stance on those who make up the market for fraud, and how should investors beware of "problem stocks"?
It was once called the "most expensive ST stock"
It is understood that the company was founded in August 2007, headquartered in Beijing Zhongguancun Cuihu Science and Technology Park Cloud Center, subsidiaries are located in Chengdu High-tech West District, is a collection of information security product design, development, production, service in one of the high-tech innovation enterprises. In October 2019, the company was listed on the Growth Enterprise Market (GEM).
*ST Zuojiang, known as the "most expensive ST stock" by the outside world, has risen rapidly since May 2022, from 37.9 yuan to the highest intraday price of 149.98 yuan on December 8 of that year, with a cumulative maximum increase (295.73%) of nearly three times in seven months. Since then, there has been a pullback, and the stock price has risen again since February 2023, hitting a maximum of 299.8 yuan on July 14 of the same year, refreshing the all-time high, and the cumulative maximum increase in the stock price (207.49%) in less than half a year has more than doubled.
Due to the negative audited net profit of the company in 2022 (whichever is lower before and after deducting non-recurring gains and losses) and the operating income is less than 100 million yuan, on May 4, 2023, the company was implemented a "delisting risk warning", and the stock abbreviation was changed from "Zuojiang Technology" to "*ST Zuojiang". Prior to this, *ST Zuojiang has issued several reminder announcements that may be subject to delisting risk warnings since January 2023.
However, the company's share price rose instead of falling, and went all the way up, reaching a maximum of 299.8 yuan / share, becoming the "most expensive ST stock" in history. *ST Zuojiang's stock price has skyrocketed, which is closely related to a chip it has developed called "DPU". In the chip industry, DPU is considered to be the new "third main chip", and the main DPU manufacturer is an international giant represented by NVIDIA. Since 2021, Zuojiang Technology has continuously disclosed the research and development of "programmable network data processing chips". Zuojiang Technology cut into DPU chips, which provided a huge imagination for the stock price.
Although the stock price has soared, its operating income has not been ideal. *According to the third quarter report of 2023 disclosed by ST Zuojiang, the company achieved operating income of 33.7221 million yuan in the first three quarters of 2023 and a loss of -97.3273 million yuan. It is difficult to achieve a turnaround or revenue of more than 100 million yuan in the fourth quarter of 2023. In addition, the company's 2022 annual financial report was issued with a qualified audit report, and if a non-standard audit report is issued in 2023, the company's shares will face the fate of terminating the listing.
In fact, after the disclosure of the 2023 annual report, it was subject to a delisting risk alert from May 4, 2023 and became *ST Zuojiang because it violated the provisions of paragraphs 1 and 3 of Article 10.3.1 of the Rules Governing the Listing of Stocks on the Growth Enterprise Market of the Shenzhen Stock Exchange (2023 Revision). Although the stock price continued to rise bullishly and broke the record for the highest price of ST shares, the market has never stopped questioning it. Finally on November 24, 2023, the China Securities Regulatory Commission opened an investigation against *ST Zuojiang. In the following two months, the stock price collapsed by more than 90%, becoming the bearest stock in A-shares.
Despite the crisis of the company's fundamentals and the risk of delisting is almost a foregone conclusion, some speculative funds still choose to ignore the risks. From January 15 to 23, 2024, in just 7 trading days, *ST Zuojiang's share price reached a 20% daily limit in 5 days, with a maximum increase of 157.38% in the range.
However, the abnormal performance of the stock price has accelerated the pace of regulatory rectification. On the evening of January 23, *ST Zuojiang was suspended for verification due to stock price changes, and trading has been suspended for a week so far.
China Securities Regulatory Commission: Let the counterfeiters pay a heavy price
The construction of an investor-oriented capital market and the concept of investor-oriented have become a hot topic in recent capital market supervision.
The 2024 system work conference of the China Securities Regulatory Commission proposed to further implement the comprehensive punishment and prevention system for anti-counterfeiting and anti-counterfeiting in the capital market, increase the investigation and handling of cases such as fraudulent issuance, financial fraud, market manipulation, insider trading, etc., improve the efficiency of case investigation and handling, and further strengthen the three-dimensional accountability of administrative and civil crimes for those who are bad in nature and cause serious harm, so that violators will pay a heavy price.
Wang Jianjun, vice chairman of the China Securities Regulatory Commission, recently said that it is necessary to implement the requirements of "long teeth and thorns" and angular angles in financial supervision, speed up the improvement of a stricter capital market supervision and law enforcement system, and enhance the penetration of supervision; in particular, further improve the system and mechanism of preventing and cracking down on counterfeiting in the capital market, and maintain a high-pressure situation of "zero tolerance"; resolutely crack down on illegal acts that seriously harm the interests of investors, such as fraudulent issuance, so that they will "go bankrupt and sit in prison"; and the intermediary institutions involved in counterfeiting will be held accountable as a whole, so that they will "dare not do it again." This series of statements means that the regulator has a sharp sword out of the sheath for financial fraud, and it is also the fundamental reason for the continuous decline in the stock prices of listed companies that have recently exploded in performance forecasts.
The China Securities Regulatory Commission said that it will always take the protection of the legitimate rights and interests of investors, especially small and medium-sized investors, as the starting point and end point of all work. Financial fraud by listed companies seriously misleads small and medium-sized investors in their trading decisions, and must be severely cracked down. The China Securities Regulatory Commission will strictly and quickly investigate and deal with all kinds of counterfeiting, and strengthen the three-dimensional accountability of administrative, civil and criminal cases. Strictly implement the delisting system, so that those who make counterfeits "should retreat as much as possible", and let those who make counterfeits and disrupt the market pay a heavy price.
Experts warn against "problem stocks"
Financial data show that in the first three quarters of 2023, only a revenue of 33.7221 million yuan and a net profit of -97.3273 million yuan were achieved. Can such a performance really support the soaring stock price? Is there really so many "fools" in the market who are willing to pay for such a company with the risk of delisting?
Commentator Du Yu said that obviously, there are likely to be some unknown "mysteries" behind this, whether there will be a suspicion of raising the stock price to flee, and those investors who blindly follow the trend and chase the rise are likely to become "cutting leeks" in the quilt. In this context, the regulatory authorities are particularly important. The China Securities Regulatory Commission said that it will continue to protect the legitimate rights and interests of investors, especially small and medium-sized investors, strictly and quickly investigate and deal with all kinds of counterfeit behaviors, and resolutely prevent "one retreat".
*ST Zuojiang's financial fraud case will undoubtedly become a classic case for the regulatory authorities to strengthen the delisting reform and crack down on financial fraud. *ST Zuojiang's financial fraud case has brought us a lot of inspiration. On the one hand, it reminds us to remain rational and not blindly chase the rise, and on the other hand, it also reminds us to pay attention to the delisting reform, adhere to honest management, and jointly create a healthy, orderly and sunny capital market.
Li Weixia, an economist at Fuding Asset Management, said that investors should keep up with high-prosperity industries and stay away from problem stocks with delisting risks. With the unprecedented tightening of supervision, the number of "problem stocks" delisted this year may increase significantly compared with last year, and they are queuing up. Therefore, investors should pay attention to the power of value investing and consciously stay away from problem stocks that face the risk of delisting at any time.
Xu Feng, a lawyer at Shanghai Jiucheng Law Firm, said that after the case was filed in 2023, the China Securities Regulatory Commission (CSRC) quickly reported the progress of the phased investigation in early 2024, releasing a strong signal that all kinds of counterfeiting behaviors should be investigated and dealt with strictly and quickly, and that those who commit fraud "should retreat as much as possible", vividly interpreting the investor-oriented concept and helping to restore investor confidence.